<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CORTECH, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 8731 84-0894091
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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CORTECH, INC.
6850 N. BROADWAY, SUITE G
DENVER, COLORADO 80221
TELEPHONE: (303) 650-1200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
KENNETH R. LYNN
CHIEF EXECUTIVE OFFICER
CORTECH, INC.
6850 N. BROADWAY, SUITE G
DENVER, CO 80221
TELEPHONE: (303) 650-1200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
ALAN C. MENDELSON, ESQ. DAVID R. SNYDER, ESQ.
CARRIE L. SCHIFF, ESQ. T. MICHAEL HIRD, ESQ.
LISA S. DUMAW, ESQ. HAMILTON SOUTHWORTH III, ESQ.
COOLEY GODWARD LLP PILLSBURY MADISON & SUTRO LLP
2595 CANYON BOULEVARD, SUITE 250 101 W. BROADWAY, SUITE 1800
BOULDER, CO 80302 SAN DIEGO, CA 92101
(303) 546-4000 (619) 234-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable following the effectiveness of this Registration
Statement and the effective time of the proposed merger (the "Merger") of
Cortech Merger Sub, Inc. with and into BioStar, Inc. ("BioStar"), as described
in the Agreement and Plan of Merger and Reorganization, dated as of December 22,
1997, attached as Appendix A to the Joint Proxy Statement/Prospectus forming a
part of this Registration Statement (the "Reorganization Agreement").
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(a) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
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TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(2)
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Common Stock par value $0.002 per
share(3)............................... 28,500,000 N/A $1,734 $100.00
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(1) This Registration Statement relates to the maximum number of securities of
the Registrant that may be issued in the proposed Merger. This number
includes shares of the Registrant's Common Stock which may be issued upon
conversion of shares of BioStar capital stock which may be issued after the
effective date of this registration statement and prior to the consummation
of the Merger pursuant to outstanding BioStar options and warrants. With
respect to such options, promptly upon the effectiveness of the Merger the
Registrant intends either to incorporate such options into existing plans
for which registration statements on Form S-8 have been filed, to file
amendments to such registration statements to incorporate such options or to
file new registration statements on Form S-8 with respect to such options.
(2) There is no established trading market for the shares of BioStar common
stock and preferred stock which are to be converted into shares of Common
Stock of the Registrant pursuant to the Merger described herein. In
accordance with Rule 457(f)(2) under the Securities Act of 1933, as amended,
given that BioStar has an accumulated capital deficit, the proposed maximum
aggregate offering price has been calculated on the basis of one-third of
the aggregate par value of the BioStar shares. One-third of such aggregate
par value was $1,734 on February 13, 1997, the most recent practicable date
for determination.
(3) This Registration Statement also relates to the rights to purchase Series A
Junior Participating Preferred Stock associated with the Common Stock of the
Registrant. Until the occurrence of certain prescribed events, such rights
are not exercisable, are evidenced by the certificate for the Registrant's
Common Stock and will be transferred along with and only with the
Registrant's Common Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
CORTECH, INC.
6850 N. BROADWAY, SUITE G
DENVER, COLORADO 80221
Dear Stockholder:
Cortech, Inc., a Delaware corporation ("Cortech"), and BioStar, Inc., a
Delaware corporation ("BioStar"), have entered into an Agreement and Plan of
Merger and Reorganization (the "Reorganization Agreement") providing for the
merger of a wholly owned subsidiary of Cortech with and into BioStar (the
"Merger") and the issuance of shares of Cortech Common Stock to the BioStar
stockholders. As a result of the Merger, BioStar would become a wholly owned
subsidiary of Cortech.
A special meeting of the stockholders of Cortech will be held at
, Denver, Colorado on [ ,] 1998 at 9:00 a.m., local time
(including any adjournments or postponements thereof, the "Cortech Special
Meeting"). At the Cortech Special Meeting, you will be asked to consider and
vote upon a proposal to adopt and approve the Reorganization Agreement and the
transactions contemplated thereby (including the Merger and the related issuance
of Cortech Common Stock to the BioStar stockholders) (the "Merger Proposal"). As
a result of the Merger, each outstanding share of BioStar common stock and
preferred stock would be converted into the right to receive shares of Cortech
Common Stock and all outstanding options and warrants to acquire BioStar common
stock or preferred stock would become options and warrants to acquire Cortech
Common Stock. The number of shares of Cortech Common Stock to be issued in the
Merger in exchange for the outstanding shares of BioStar common stock and
preferred stock and in respect of outstanding options and warrants for BioStar
capital stock would not exceed 28,500,000 shares (without giving effect to the
reverse stock split described below) in the aggregate. The Merger and the
Reorganization Agreement are described more fully in the accompanying Joint
Proxy Statement/Prospectus.
The Bylaws of Cortech and the rules of the Nasdaq National Market require
that the Merger Proposal be approved by a majority of the shares of Cortech
Common Stock having voting power present in person or by proxy at the Cortech
Special Meeting. Consummation of the Merger is conditioned upon, among other
things, the receipt of such stockholder approval. After careful consideration,
the Board of Directors of Cortech (the "Cortech Board") has unanimously approved
the Reorganization Agreement and the Merger and has concluded they are fair to,
and in the best interests of, Cortech and its stockholders. The Cortech Board
unanimously recommends that you vote in favor of the Merger Proposal.
At the Cortech Special Meeting, you will also be asked to consider and vote
upon a proposal to approve and adopt an amendment (the "Certificate of
Amendment") to Cortech's Certificate of Incorporation effecting a one-for[ ]
reverse stock split and changing the name of Cortech to "BioStar Holdings, Inc."
(the "Cortech Certificate Proposal"). The Cortech Certificate Proposal, which is
contingent upon the effectiveness of the Merger, requires the affirmative vote
of the holders of a majority of the outstanding shares of Cortech Common Stock.
Approval of the Cortech Certificate Proposal, however, is not a condition to the
consummation of the Merger. The Cortech Board has unanimously approved the
Certificate of Amendment and has unanimously recommended that you vote in favor
of the Cortech Certificate Proposal.
In the materials accompanying this letter you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
proposals to be voted upon at the Cortech Special Meeting and a proxy card. The
Joint Proxy Statement/Prospectus more fully describes the Merger Proposal, the
Cortech Certificate Proposal and the actions contemplated thereby.
All stockholders are cordially invited to attend the Cortech Special
Meeting in person. If you attend the Cortech Special Meeting, you may vote in
person if you wish even though you have previously returned your completed
proxy. WHETHER OR NOT YOU PLAN TO ATTEND THE CORTECH SPECIAL MEETING, IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED, REGARDLESS OF HOW MANY
SHARES YOU HOLD. APPROVAL OF THE CORTECH CERTIFICATE PROPOSAL REQUIRES THE
AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF
CORTECH COMMON STOCK. THEREFORE, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR
PROXY IN THE ENCLOSED ENVELOPE.
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On behalf of the Cortech Board, I thank you for your support and ask you to
vote in favor of the Merger Proposal and the Cortech Certificate Proposal.
Sincerely,
Kenneth R. Lynn
Chairman of the Board
YOUR VOTE IS IMPORTANT -- PLEASE RETURN YOUR PROXY PROMPTLY
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CORTECH, INC.
6850 N. BROADWAY, SUITE G
DENVER, COLORADO 80221
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ ,] 1998
---------------------
TO THE STOCKHOLDERS OF CORTECH, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Cortech,
Inc., a Delaware corporation ("Cortech"), will be held on [ ,] 1998 at
[9:00] a.m. local time at , Denver, Colorado (including any
adjournments or postponements thereof, the "Cortech Special Meeting") to
consider and vote upon the following proposals:
1. To adopt and approve the Agreement and Plan of Merger and
Reorganization (the "Reorganization Agreement"), dated as of December 22,
1997, among Cortech, BioStar, Inc., a Delaware corporation ("BioStar"), and
Cortech Merger Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of Cortech ("Merger Sub"), and the transactions contemplated
thereby (including the merger of Merger Sub with and into BioStar (the
"Merger") and the related issuance of Cortech Common Stock to the BioStar
stockholders). Pursuant to the Merger, BioStar would become a wholly owned
subsidiary of Cortech and the stockholders of BioStar would receive shares
of Cortech Common Stock in exchange for their BioStar stock. A copy of the
Reorganization Agreement is attached as Appendix A to the Joint Proxy
Statement/Prospectus accompanying this Notice.
2. To adopt and approve an amendment to the Certificate of
Incorporation of Cortech (the "Cortech Certificate of Amendment") which
provides for (i) a change in the corporate name of Cortech to "BioStar
Holdings, Inc." and (ii) a one-for-[ ] reverse split of outstanding
shares of Cortech Common Stock. The Cortech Certificate of Amendment will
be implemented only if the Merger is approved; however, approval of the
Cortech Certificate of Amendment is not a condition to the closing of the
Merger.
3. To transact such other business as may properly come before the
Cortech Special Meeting.
The proposed Merger, the Reorganization Agreement, the Cortech Certificate
of Amendment and other related matters are more fully described in the attached
Joint Proxy Statement/Prospectus.
Stockholders of record at the close of business on [ ], 1998 are
entitled to notice of, and to vote at, the Cortech Special Meeting.
Commencing ten days prior to [ ], 1998, a list of stockholders
entitled to vote at the Cortech Special Meeting shall be open to examination by
any Cortech stockholder for any purpose germane to the Cortech Special Meeting
at Cortech's offices at 6850 N. Broadway, Suite G, Denver, Colorado 80221.
All stockholders are cordially invited to attend the Cortech Special
Meeting in person. Whether or not you expect to attend, WE URGE YOU TO SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Cortech Board of
Directors
Diarmuid Boran
Secretary
Denver, Colorado
, 1998
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BIOSTAR, INC.
6655 LOOKOUT ROAD
BOULDER, COLORADO 80301
Dear Stockholder:
BioStar, Inc., a Delaware corporation ("BioStar"), and Cortech, Inc., a
Delaware corporation ("Cortech"), have entered into an Agreement and Plan of
Merger and Reorganization (the "Reorganization Agreement") providing for the
merger of a wholly owned subsidiary of Cortech with and into BioStar (the
"Merger") and the issuance of shares of Cortech Common Stock to the BioStar
stockholders. Subject to the approval of a charter amendment by Cortech's
stockholders, after the Merger Cortech would change its name "BioStar Holdings,
Inc." As a result of the Merger, BioStar would become a wholly owned subsidiary
of Cortech. Pursuant to the Reorganization Agreement, a special meeting of the
stockholders of BioStar (the "BioStar Special Meeting") will be held
at on [ ], 1998 at 9:00 a.m., local time.
At the BioStar Special Meeting you will be asked to consider and vote upon
a proposal to adopt and approve the Reorganization Agreement and the Merger (the
"Merger Proposal"). As a result of the Merger, each outstanding share of common
stock and preferred stock of BioStar would be converted into the right to
receive shares of common stock of Cortech and all outstanding options and
warrants to acquire BioStar common stock or preferred stock would become options
and warrants to acquire Cortech Common Stock. The number of shares of Cortech
Common Stock to be issued in the Merger in exchange for the outstanding shares
of BioStar common stock and preferred stock and in respect of outstanding
options and warrants for BioStar capital stock would not exceed 28,500,000
shares (prior to the effect of a one-for-[--] reverse stock split which is being
proposed for approval at a meeting of Cortech's stockholders). The Merger is
described more fully in the accompanying Joint Proxy Statement/Prospectus.
After careful consideration, the Board of Directors of BioStar (the
"BioStar Board") has unanimously approved the Reorganization Agreement and the
Merger, and has concluded they are fair to, and in the best interests of,
BioStar and its stockholders. The BioStar Board unanimously recommends a vote in
favor of the adoption and approval of the Reorganization Agreement and approval
of the Merger. At the BioStar Special Meeting, you will also be asked to
consider and vote upon a proposal to approve and adopt an amendment to the
BioStar Restated Certificate of Incorporation (the "BioStar Certificate
Proposal") which provides that the holders of BioStar preferred stock will only
receive the consideration for their shares set forth in the Reorganization
Agreement. Consummation of the Merger is contingent upon approval of the BioStar
Certificate Proposal. The BioStar Board unanimously recommends a vote in favor
of the adoption and approval of the BioStar Certificate Proposal.
In the materials accompanying this letter you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
proposals to be voted upon at the BioStar Special Meeting and a proxy card. The
Joint Proxy Statement/Prospectus more fully describes the Merger, the
Reorganization Agreement and the BioStar Certificate Proposal.
All stockholders are cordially invited to attend the BioStar Special
Meeting in person. If you attend the BioStar Special Meeting, you may vote in
person if you wish even though you have previously returned your completed
proxy. WHETHER OR NOT YOU PLAN TO ATTEND THE BIOSTAR SPECIAL MEETING, IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED, REGARDLESS OF THE NUMBER OF
SHARES YOU HOLD. THEREFORE, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN
THE ENCLOSED ENVELOPE. PLEASE DO NOT SEND IN THE STOCK CERTIFICATE(S)
REPRESENTING YOUR BIOSTAR COMMON STOCK OR PREFERRED STOCK AT THIS TIME.
On behalf of the BioStar Board, we thank you for your support and ask you
to vote in favor of the Merger Proposal and the BioStar Certificate Proposal.
Sincerely,
Teresa W. Ayers
President/Chief Executive Officer
YOUR VOTE IS IMPORTANT -- PLEASE RETURN YOUR PROXY PROMPTLY
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BIOSTAR, INC.
6655 LOOKOUT ROAD
BOULDER, COLORADO 80301
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ ], 1998
---------------------
TO THE STOCKHOLDERS OF BIOSTAR, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "BioStar
Special Meeting") of BioStar, Inc., a Delaware corporation ("BioStar"), will be
held on [ ], 1998, at a.m., local time, at to consider
and vote upon the following proposals:
1. To (i) adopt and approve the Agreement and Plan of Merger and
Reorganization (the "Reorganization Agreement"), dated as of December 22,
1997, among BioStar, Cortech, Inc., a Delaware corporation ("Cortech"), and
Cortech Merger Sub, Inc., a Delaware corporation and wholly owned
subsidiary of Cortech ("Merger Sub"), and (ii) approve the merger of Merger
Sub with and into BioStar pursuant to which BioStar would become a wholly
owned subsidiary of Cortech (the "Merger"). A copy of the Reorganization
Agreement is attached as Appendix A to the Joint Proxy Statement/Prospectus
accompanying this Notice.
2. To adopt and approve an amendment to the BioStar Restated
Certificate of Incorporation which provides that the holders of BioStar
preferred stock would only receive the consideration for their shares set
forth in the Reorganization Agreement (the "BioStar Certificate Proposal").
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The proposed Merger, the Reorganization Agreement, the BioStar Certificate
Proposal and other related matters are more fully described in the attached
Joint Proxy Statement/Prospectus.
Stockholders of record at the close of business on [ ], 1998 are
entitled to notice of, and to vote at, the BioStar Special Meeting and any
adjournments or postponements thereof.
All stockholders are cordially invited to attend the BioStar Special
Meeting in person. Whether or not you expect to attend, WE URGE YOU TO SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the BioStar Board
Edward C. Pritchard
Secretary
Boulder, Colorado
, 1998
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY OR THE SOLICITATION OF ANY PROXY,
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES OR THE SOLICITATION OF ANY
PROXY, IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
SUBJECT TO COMPLETION FEBRUARY 13, 1998
CORTECH, INC.
AND
BIOSTAR, INC.
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS TO BE HELD ON [ ], 1998
---------------------
CORTECH, INC.
PROSPECTUS
FOR UP TO 28,500,000 SHARES OF COMMON STOCK
PAR VALUE $0.002 PER SHARE
This Joint Proxy Statement/Prospectus is being furnished to holders of
common stock, $.002 par value per share ("Cortech Common Stock"), of Cortech,
Inc., a Delaware corporation ("Cortech"), in connection with the solicitation of
proxies by the Board of Directors of Cortech (the "Cortech Board") for use at a
special meeting of the stockholders of Cortech to be held on [ ],
1998, as well as at any adjournments or postponements thereof (the "Cortech
Special Meeting"). This Joint Proxy Statement/Prospectus is also being furnished
to holders of common stock, $.0001 par value per share, and preferred stock,
$.0001 par value per share (collectively, "BioStar Capital Stock"), of BioStar,
Inc., a Delaware corporation ("BioStar"), in connection with the solicitation of
proxies by the Board of Directors of BioStar (the "BioStar Board") for use at a
special meeting of the stockholders of BioStar to be held on [ ],
1998, as well as at any adjournments or postponements thereof (the "BioStar
Special Meeting"). The Cortech Special Meeting and the BioStar Special Meeting
are being called to consider and vote upon a proposal (the "Merger Proposal") to
adopt and approve the Agreement and Plan of Merger and Reorganization dated as
of December 22, 1997 (the "Reorganization Agreement") among Cortech, BioStar and
Cortech Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary
of Cortech ("Merger Sub"), and the transactions contemplated thereby (including
the merger of Merger Sub with and into BioStar (the "Merger") and (in the case
of Cortech) the related issuance of Cortech Common Stock to the BioStar
stockholders). The stockholders of Cortech and BioStar also will consider and
vote upon other proposals at the Cortech Special Meeting and the BioStar Special
Meeting, respectively. Such proposals are discussed more fully elsewhere in this
Joint Proxy Statement/Prospectus.
Upon consummation of the proposed Merger, BioStar will become a wholly
owned subsidiary of Cortech, each outstanding share of BioStar Capital Stock
will be converted into the right to receive shares of Cortech Common Stock and
all outstanding options and warrants to acquire BioStar Capital Stock will
become options and warrants to acquire Cortech Common Stock. The number of
shares of Cortech Common Stock to be issued in the Merger in exchange for the
outstanding shares of BioStar Capital Stock and in respect of outstanding
options and warrants for BioStar Capital Stock will not exceed 28,500,000 shares
in the aggregate (prior to the effect of a one-for[ ] reverse stock split which
is being proposed for approval at the Cortech Special Meeting). The fraction of
a share of Cortech Common Stock into which each share of BioStar Capital Stock
will be converted pursuant to the Reorganization Agreement is referred to as the
"Exchange Ratio". Although the Exchange Ratio will depend upon the
capitalization of BioStar at the time of the Merger and the market price for
Cortech Common Stock prior to the Merger, BioStar presently estimates that the
Exchange Ratio will be approximately .5512 (based upon BioStar's capitalization
as of the date of this Joint Proxy Statement/Prospectus and assuming a per share
market price for Cortech Common Stock of $0.656 (the market price per share of
Cortech Common Stock as of the date of the Reorganization Agreement) immediately
prior to the Effective Time (as defined below)). See "The Reorganization
Agreement -- Merger Consideration".
The obligations of Cortech and BioStar to effect the Merger and otherwise
consummate the transactions contemplated by the Reorganization Agreement are
subject to the satisfaction or waiver of various conditions,
<PAGE> 8
including (i) approval of the Merger Proposal by a majority of the shares of
Cortech Common Stock having voting power present in person or by proxy at the
Cortech Special Meeting and (ii) approval of the Merger Proposal by (a) holders
of a majority of the outstanding shares of BioStar Capital Stock, voting
together as a single class (on an as-converted basis), and (b) holders of a
majority of the shares of each series of BioStar preferred stock, voting as
separate classes. The Merger is expected to be consummated shortly after such
approvals are obtained and the other conditions to the consummation of the
Merger are satisfied or waived. It is currently anticipated that the Merger will
be consummated in [ ], 1998.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Cortech included as a part of a registration statement filed with the Securities
and Exchange Commission relating to up to 28,500,000 shares of Cortech Common
Stock issuable in connection with the Merger. All information contained herein
concerning Cortech has been furnished by Cortech, and all information contained
herein concerning BioStar has been furnished by BioStar.
This Joint Proxy Statement/Prospectus does not cover any resales of the
Cortech Common Stock issuable in the Merger. No person is authorized to make use
of this Joint Proxy Statement/Prospectus in connection with any such resale.
Holders of BioStar Capital Stock will be entitled to appraisal rights with
respect to the proposed Merger by complying with the procedures set forth in
Section 262 of the Delaware General Corporation Law. Holders of Cortech Common
Stock have no appraisal rights in connection with the Merger.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxies
are first being mailed to stockholders of Cortech and BioStar on or about
, 1998.
---------------------
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS OF CORTECH AND BIOSTAR ARE STRONGLY URGED TO
READ AND CONSIDER CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS
ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER "RISK FACTORS" BEGINNING AT
PAGE 14.
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THE SHARES OF CORTECH COMMON STOCK TO BE ISSUED IN THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
The date of this Joint Proxy Statement/Prospectus is , 1998.
<PAGE> 9
TABLE OF CONTENTS
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AVAILABLE INFORMATION
SUMMARY..................................................... 1
The Companies............................................. 1
Cortech, Inc. ......................................... 1
BioStar, Inc. ......................................... 1
Cortech Merger Sub, Inc. .............................. 2
The Cortech Special Meeting............................... 2
Time, Date, Place and Purpose.......................... 2
Record Date and Vote Required.......................... 2
The BioStar Special Meeting............................... 3
Time, Date, Place and Purpose.......................... 3
Record Date and Vote Required.......................... 3
The Merger................................................ 4
General................................................ 4
Effective Time of the Merger; Closing Date............. 4
Stock Ownership Following the Merger................... 5
Exchange of BioStar Stock Certificates................. 5
Cortech's Reasons for the Merger....................... 5
Recommendation of the Cortech Board.................... 6
Opinion of Financial Advisor to Cortech................ 6
BioStar's Reasons for the Merger....................... 6
Recommendation of the BioStar Board.................... 6
Non-Solicitation....................................... 6
Conduct of Business.................................... 6
Composition of the Cortech Board and Officers.......... 7
Conditions to the Merger............................... 7
Termination............................................ 7
Expenses and Termination Fees.......................... 8
Interests of Certain Persons in the Merger............. 9
Registration Rights.................................... 9
Comparison of Stockholder Rights....................... 9
Certain Federal Income Tax Consequences................ 9
Accounting Treatment................................... 9
Appraisal Rights....................................... 10
Risk Factors.............................................. 10
Markets and Market Prices................................. 10
Cortech Certificate Proposal.............................. 10
Selected Historical Financial Information................. 11
Summary Selected Unaudited Consolidated Pro Forma
Financial Data......................................... 12
Comparative Per Share Data................................ 13
RISK FACTORS................................................ 14
Risks Related to the Merger............................... 14
Risks Related to the Business and Operations of Cortech
and BioStar............................................ 15
INTRODUCTION................................................ 30
THE CORTECH SPECIAL MEETING................................. 30
Purpose of the Cortech Special Meeting.................... 30
Date, Time and Place of Meeting........................... 30
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i
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Record Date; Voting Rights and Outstanding Shares......... 30
Solicitation of Proxies; Expenses......................... 30
Quorum; Vote Required..................................... 31
Effect of Abstentions and Broker Nonvotes................. 31
Voting and Revocability of Proxies........................ 31
THE BIOSTAR SPECIAL MEETING................................. 33
Purpose of the BioStar Special Meeting.................... 33
Date, Time and Place of Meeting........................... 33
Record Date; Voting Rights and Outstanding Shares......... 33
Solicitation of Proxies; Expenses......................... 33
Quorum; Vote Required..................................... 33
Effect of Abstentions..................................... 34
Voting and Revocability of Proxies........................ 34
CORTECH STOCK PRICE AND DIVIDEND INFORMATION................ 34
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS............. 35
Background of the Merger.................................. 35
Cortech's Reasons for the Merger.......................... 37
Cortech Board Recommendation.............................. 39
BioStar's Reasons for Merger.............................. 39
Opinion of Financial Advisor to Cortech................... 40
Interests of Certain Persons in the Merger................ 45
Voting Agreements......................................... 46
Affiliate Agreements...................................... 47
Certain Federal Income Tax Consequences................... 47
Anticipated Accounting Treatment.......................... 49
Regulatory Matters........................................ 49
Rights of Dissenting Stockholders......................... 50
Resale of Cortech Common Stock............................ 51
Effect under Cortech Rights Plan.......................... 51
THE REORGANIZATION AGREEMENT................................ 52
General................................................... 52
Merger Consideration...................................... 52
No Fractional Shares...................................... 53
Stock Options and Warrants................................ 53
Stock Ownership Following the Merger...................... 53
Conversion of Shares; Procedures for Exchange of
Certificates........................................... 53
Effect on Certificates.................................... 54
Corporate Matters; Composition of the Cortech Board and
Officers............................................... 54
Conditions to the Merger.................................. 54
Representations and Warranties............................ 57
Covenants................................................. 58
Termination............................................... 63
Expenses and Termination Fees............................. 64
PROPOSAL TO AMEND THE CORTECH CERTIFICATE OF
INCORPORATION............................................. 66
Corporate Name Change..................................... 66
Reverse Split............................................. 66
Effects of the Reverse Split.............................. 67
Federal Income Tax Consequences........................... 68
Exchange of Shares........................................ 68
Required Vote............................................. 69
Board Recommendation...................................... 69
</TABLE>
ii
<PAGE> 11
<TABLE>
<CAPTION>
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<S> <C>
AMENDMENT OF BIOSTAR CERTIFICATE OF INCORPORATION........... 70
Effect of Amendment....................................... 70
Required Vote............................................. 70
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION............................................... 71
Unaudited Pro Forma Combined Consolidated Balance Sheet... 72
Unaudited Pro Forma Condensed Consolidated Statements of
Operations............................................. 73
CORTECH BUSINESS............................................ 74
Overview.................................................. 74
Cortech's Work with Protease Inhibitors................... 74
Cortech's Work with Bradykinin Antagonists................ 76
Product Development Risks................................. 78
Patents, Trade Secrets and Licenses....................... 78
CP-0127 Development Corporation........................... 79
Marketing Strategy........................................ 80
Manufacturing............................................. 80
Competition............................................... 80
Government Regulation..................................... 81
Third-Party Reimbursement................................. 83
Human Resources........................................... 83
Properties................................................ 83
Legal Proceedings......................................... 83
CORTECH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 84
General................................................... 84
Results of Operations..................................... 84
Liquidity and Capital Resources........................... 85
Other Matters............................................. 86
CORTECH MANAGEMENT AND EXECUTIVE COMPENSATION............... 87
Compensation of Directors................................. 87
Compensation of Executive Officers........................ 88
Stock Option Grants and Exercises......................... 88
CORTECH PRINCIPAL STOCKHOLDERS.............................. 90
BIOSTAR BUSINESS............................................ 92
Overview.................................................. 92
Industry Overview......................................... 93
Strategy.................................................. 94
Thin Film Technologies.................................... 94
Products and Markets...................................... 96
Sales and Marketing....................................... 101
Manufacturing............................................. 102
Strategic Relationships................................... 102
Research and Development.................................. 104
Competition............................................... 105
Patents, Trade Secrets and Trademarks..................... 106
Regulation................................................ 106
Reimbursement............................................. 109
Technical and Business Advisors........................... 109
Human Resources........................................... 110
Facilities................................................ 110
Legal Proceedings......................................... 110
</TABLE>
iii
<PAGE> 12
<TABLE>
<CAPTION>
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<S> <C>
BIOSTAR MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 111
General................................................... 111
Results of Operations..................................... 111
Liquidity and Capital Resources........................... 113
Other Matters............................................. 113
BIOSTAR MANAGEMENT AND EXECUTIVE COMPENSATION............... 114
Compensation of Directors................................. 115
Compensation of Executive Officers........................ 116
Stock Option Grants and Exercises......................... 117
Employment Agreements..................................... 118
BIOSTAR PRINCIPAL STOCKHOLDERS.............................. 119
CERTAIN TRANSACTIONS........................................ 122
DESCRIPTION OF CORTECH CAPITAL STOCK........................ 124
Authorized Capital Stock.................................. 124
Cortech Common Stock...................................... 124
Cortech Preferred Stock................................... 124
Cortech Options........................................... 124
Warrants.................................................. 125
Certain Anti-takeover Provisions.......................... 125
Stockholder Rights Plan................................... 125
Registration Rights....................................... 126
COMPARISON OF STOCKHOLDERS' RIGHTS.......................... 127
Class Votes............................................... 127
Classified Board of Directors............................. 127
Removal of Directors...................................... 127
Limitation on Directors' Liability; Indemnification of
Directors and Officers................................. 128
Amendments to the Certificate of Incorporation............ 128
Power to Call Special Stockholders' Meeting; Action By
Consent................................................ 128
Inspection of Stockholders' List.......................... 129
Dividends and Repurchases of Shares....................... 129
Amendment of Bylaws....................................... 129
Approval of Certain Corporate Transactions................ 129
Certain Business Combination.............................. 129
Appraisal Rights.......................................... 130
Dissolution............................................... 130
Registration Rights....................................... 130
STOCKHOLDER PROPOSALS....................................... 131
EXPERTS..................................................... 131
LEGAL MATTERS............................................... 131
REPRESENTATIVES OF INDEPENDENT PUBLIC ACCOUNTANTS........... 131
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDIX A -- Agreement and Plan of Merger and
Reorganization............................................ A-1
APPENDIX B -- Proposed Amendments to Cortech Certificate of
Incorporation............................................. B-1
APPENDIX C -- Opinion of Cowen & Company ................... C-1
APPENDIX D -- Section 262 of the Delaware General
Corporation Law........................................... D-1
</TABLE>
iv
<PAGE> 13
AVAILABLE INFORMATION
Cortech is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Cortech with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as at the Commission's regional offices at CitiCorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such material may also be obtained
from the Commission at prescribed rates by writing to the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Under the rules and regulations of the Commission, the vote on the Merger
Proposal by holders of BioStar Capital Stock constitutes an offering of the
Cortech Common Stock to be issued in connection with the Merger. Accordingly,
Cortech has filed with the Commission a Registration Statement on Form S-4
(herein, together with all amendments and exhibits thereto, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to such Cortech Common Stock. This Joint Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted pursuant to
the rules and regulations of the Commission and to which portions reference is
hereby made. Statements contained in this Joint Proxy Statement/Prospectus as to
the contents of any contract or other document are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to Cortech, BioStar, the Merger, the securities offered hereby and
related matters, reference is made to the Registration Statement. The
Registration Statement and the exhibits thereto may be inspected, without
charge, at the offices of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies may be obtained from the Commission at prescribed rates.
The Commission maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov.
---------------------
This Joint Proxy Statement/Prospectus is being furnished to Cortech's
stockholders in connection with the solicitation of proxies by the Cortech Board
for use at the Cortech Special Meeting and to BioStar's stockholders in
connection with the solicitation of proxies by the BioStar Board for use at the
BioStar Special Meeting. Each copy of this Joint Proxy Statement/Prospectus
mailed to the Cortech stockholders is accompanied by a form of proxy for use at
the Cortech Special Meeting and each copy of this Joint Proxy
Statement/Prospectus mailed to the BioStar stockholders is accompanied by a form
of proxy for use at the BioStar Special Meeting. This Joint Proxy
Statement/Prospectus is also being furnished by Cortech to holders of BioStar
Capital Stock as a prospectus in connection with the shares of Cortech Common
Stock to be issued upon consummation of the Merger.
<PAGE> 14
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING AND THE SOLICITATION MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY CORTECH, MERGER SUB OR BIOSTAR. THIS
JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY INFERENCE THAT THERE HAS NOT BEEN ANY CHANGE
IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF EITHER CORTECH OR
BIOSTAR SINCE THE DATE HEREOF.
---------------------
This Joint Proxy Statement/Prospectus contains trademarks of Cortech and
BioStar as well as trademarks of other companies.
<PAGE> 15
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. This summary is not, and is not intended
to be, complete by itself. This Joint Proxy Statement/Prospectus contains
forward-looking statements that involve risks and uncertainties. Cortech's,
BioStar's and the combined company's actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Joint Proxy Statement/Prospectus. This summary is qualified in its entirety by
reference to the more detailed information contained elsewhere in this Joint
Proxy Statement/Prospectus, the appendices attached hereto and the documents
referred to herein. Stockholders of Cortech and BioStar are urged to review
carefully all of the information contained in this Joint Proxy
Statement/Prospectus, the Reorganization Agreement attached hereto as Appendix A
and the other appendices attached hereto.
THE COMPANIES
CORTECH, INC.
Cortech is a biopharmaceutical company whose principal focus has been the
discovery and development of novel therapeutics for the treatment of
inflammatory disorders. Specifically, Cortech has directed its research and
development efforts towards protease inhibitors and bradykinin antagonists.
These efforts have produced certain intellectual property rights.
In response to disappointing test results and its loss of collaborative
partner support, Cortech has implemented a series of reductions in force over
the past three-and-one-half years which has reduced the number of full-time,
regular employees from more than 200 to fewer than 15 and effectively
discontinued all internal efforts to advance its research and development
activities. In addition, Cortech is currently de-commissioning its laboratories,
has sold most of its scientific and technical equipment and, unless BioStar opts
to retain such assets, plans to sell most of its office furniture and equipment
and, where possible, its leasehold improvements.
As a result of these actions, Cortech no longer has the staff or operative
facilities required to re-commence internal research and development activities.
Cortech has retained a core group of professionals who, among other things, are
actively engaged in ongoing efforts to realize appropriate value from Cortech's
tangible and intangible assets. It is uncertain, however, whether Cortech will
be able to retain employees with sufficient knowledge and experience to realize
appropriate value from Cortech's intangible assets. In light of the above,
Cortech's management has focused on evaluating various strategic alternatives.
As a result, Cortech entered into the Reorganization Agreement with BioStar on
December 22, 1997.
Cortech was incorporated in 1982 in Colorado and reincorporated in Delaware
in August 1991. The principal executive offices of Cortech are located at 6850
N. Broadway, Suite G, Denver, Colorado 80221 (the "Cortech Principal Offices").
Cortech's telephone number is (303) 650-1200.
BIOSTAR, INC.
BioStar develops, manufactures and markets point-of-care diagnostic tests
using its proprietary, highly-sensitive, thin film technologies. BioStar's
current products employ its Optical ImmunoAssay (OIA(R)) technology, a thin
film, platform technology developed for the rapid detection of a variety of
medical conditions. BioStar's OIA tests help caregivers, in a cost-effective and
efficient manner, to identify causes of illness and select appropriate patient
therapy by providing information during the initial patient encounter.
Internally and through collaborative arrangements, BioStar is developing
additional thin film technologies which are intended to broaden the range of
applications for its existing products and to enable the introduction of new
products.
BioStar was incorporated in Delaware in May 1992. The principal executive
offices of BioStar are located at 6655 Lookout Road, Boulder, Colorado 80301
(the "BioStar Principal Offices"). BioStar's telephone number is (303) 530-3888.
1
<PAGE> 16
CORTECH MERGER SUB, INC.
Merger Sub is a corporation recently organized as a wholly owned subsidiary
of Cortech for the purpose of effecting the Merger. Merger Sub has no material
assets and has not engaged in any activities except in connection with the
Merger.
The principal executive offices of Merger Sub are located at 6850 N.
Broadway, Suite G, Denver, Colorado 80221. Merger Sub's telephone number is
(303) 650-1200.
THE CORTECH SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The Cortech Special Meeting will be held at on [ ],
1998, at a.m. local time. The purpose of the Cortech Special Meeting is to
vote upon proposals to (i) approve and adopt the Reorganization Agreement,
attached hereto as Appendix A, and the transactions contemplated thereby
(including the Merger and the related issuance of Cortech Common Stock to the
BioStar stockholders) (the "Merger Proposal") and (ii) approve an amendment (the
"Cortech Certificate of Amendment") of the Certificate of Incorporation of
Cortech, attached hereto as Appendix B, which provides for a change in Cortech's
corporate name to "BioStar Holdings, Inc." and a one-for-[ ] reverse stock
split (collectively, the "Cortech Certificate Proposal"). Approval of the
Cortech Certificate Proposal is not a condition to consummation of the Merger
and would be implemented only if the Merger is consummated. Holders of Cortech
Common Stock may also consider and vote upon such other matters as may be
properly brought before the Cortech Special Meeting or any postponements or
adjournments thereof.
RECORD DATE AND VOTE REQUIRED
Only Cortech stockholders of record at the close of business on
[ ,] 1998 (the "Cortech Record Date") are entitled to vote at the
Cortech Special Meeting. Approval of the Merger Proposal will require approval
by a majority of the shares of Cortech Common Stock having voting power present
in person or by proxy at the Cortech Special Meeting (the "Required Cortech
Stockholder Vote"). Approval of the Cortech Certificate Proposal will require
approval by the holders of a majority of the outstanding shares of Cortech
Common Stock entitled to vote at the Cortech Special Meeting.
Certain directors, an officer and other affiliates of Cortech, who together
hold approximately 2.3% of the Cortech Common Stock outstanding as of the
Cortech Record Date, have entered into voting agreements with BioStar (the
"Cortech Voting Agreements") pursuant to which such directors, officer and other
affiliates of Cortech have agreed to vote in favor of the Merger Proposal and
the Cortech Certificate Proposal and have granted BioStar an irrevocable proxy
to vote their shares of Cortech Common Stock in favor of the Merger Proposal and
the Cortech Certificate Proposal. See "Approval of the Merger and Related
Transactions -- Voting Agreements".
This Joint Proxy Statement/Prospectus and accompanying Notice of Special
Meeting of Stockholders are being mailed to all of the holders of record of
Cortech Common Stock as of the Record Date and constitute notice of the Cortech
Special Meeting in conformity with the requirements of the Delaware General
Corporation Law (the "DGCL").
2
<PAGE> 17
THE BIOSTAR SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The BioStar Special Meeting will be held at on [
,] 1998, at a.m. local time. The purpose of the BioStar's
Special Meeting is to vote upon (i) a proposal to approve and adopt the Merger
Proposal (excluding action specific to Cortech such as the related issuance of
Cortech Common Stock) and (ii) a proposal to approve and adopt an amendment (the
"BioStar Certificate of Amendment") of the Restated Certificate of Incorporation
of BioStar, attached to the Reorganization Agreement as Exhibit B, which
provides that the holders of BioStar preferred stock will only receive the
consideration for their shares as set forth in the Reorganization Agreement (the
"BioStar Certificate Proposal"). Consummation of the Merger is conditioned upon
approval of the BioStar Certificate Proposal. BioStar stockholders may also
consider and vote upon such other matters as may be properly brought before the
BioStar Special Meeting or any postponements or adjournments thereof.
RECORD DATE AND VOTE REQUIRED
Only BioStar stockholders of record at the close of business on
, 1998 (the "BioStar Record Date") are entitled to vote at the BioStar Special
Meeting. The Merger Proposal and the BioStar Certificate Proposal each will
require approval by the affirmative vote of the holders of a majority of the
outstanding shares of BioStar common stock and BioStar preferred stock (voting
on an as-converted basis), voting together as a single class, and the
affirmative vote of the holders of a majority of the shares of each series of
BioStar preferred stock voting as separate classes (the "Required BioStar
Stockholder Vote").
Certain directors, officers and other affiliates of BioStar, who together
hold approximately 65% of the BioStar common stock and preferred stock voting
together as a single class (the "Voting Agreement Stockholders"), and 100% of
the Series A Preferred Stock, 100% of the Series B Preferred Stock, 100% of the
Series C Preferred Stock, at least 50% of the Series D Preferred Stock and at
least 38% of the Series E Preferred Stock outstanding as of the BioStar Record
Date, have entered into voting agreements with Cortech (the "BioStar Voting
Agreements") pursuant to which such Voting Agreement Stockholders have agreed to
vote in favor of the Merger Proposal and the BioStar Certificate Proposal and
have granted Cortech an irrevocable proxy to vote their shares of BioStar
Capital Stock in favor of the Merger Proposal and the BioStar Certificate
Proposal. See "Approval of the Merger and Related Transactions -- Voting
Agreements".
This Joint Proxy Statement/Prospectus and accompanying Notice of Special
Meeting of Stockholders were mailed to all BioStar stockholders of record as of
the BioStar Record Date and constitute notice of the BioStar Special Meeting in
conformity with the requirements of the DGCL.
3
<PAGE> 18
THE MERGER
GENERAL
At the Effective Time (as defined below), Merger Sub will merge with and
into BioStar, the separate existence of Merger Sub will cease and BioStar will
become a wholly owned subsidiary of Cortech. It is currently anticipated that
the Effective Time will occur during [ ] 1998. In addition, the
Reorganization Agreement provides that, subject to the terms and conditions
thereof, at the Effective Time the following will occur:
Conversion of BioStar Capital Stock. Subject to the provisions contained in
the Reorganization Agreement relating to the payment of cash in lieu of
fractional shares and shares with respect to which appraisal rights have
properly been exercised, each share of BioStar common stock and preferred stock
(collectively, "BioStar Capital Stock") then outstanding will be converted into
the right to receive a number of shares of Cortech Common Stock equal to the
"Exchange Ratio." The Exchange Ratio is equal to a fraction the numerator of
which is 28,500,000 and the denominator of which is the number of shares of
BioStar Capital Stock outstanding plus the number of shares of BioStar Capital
Stock issuable upon exercise of all (x) outstanding BioStar Warrants (defined
below) and (y) outstanding BioStar Options (defined below), in each case as of
immediately prior to the Effective Time. Although the Exchange Ratio will depend
upon the capitalization of BioStar at the Effective Time and the market price
for Cortech Common Stock prior to the Effective Time, BioStar presently
estimates that the Exchange Ratio will be approximately .5512 (based upon
BioStar's capitalization as of the date of this Joint Proxy Statement/Prospectus
and assuming a per share market price for Cortech Common Stock of $0.656 (the
per share market price of Cortech Common Stock as of the date of the
Reorganization Agreement) immediately prior to the Effective Time). See "The
Reorganization Agreement -- Merger Consideration". The number of shares of
Cortech Common Stock to be issued in the Merger in exchange for the outstanding
shares of BioStar Capital Stock (and in respect of outstanding options and
warrants for BioStar Capital Stock) will not exceed 28,500,000 shares in the
aggregate (prior to the effect of the one-for-[ ] reverse stock split to be
considered at the Cortech Special Meeting).
BioStar Stock Options. Each unexpired and unexercised option to purchase
shares of BioStar common stock granted under the 1995 Equity Incentive Plan
("BioStar Options") will be assumed by Cortech. Each BioStar Option so assumed
by Cortech will continue to have, and be subject to, substantially the same
terms and conditions set forth in the documents governing such BioStar Options
immediately prior to the Effective Time (subject to appropriate adjustments to
the exercise price and number of shares subject thereto based upon the Exchange
Ratio). As promptly as possible after the consummation of the Merger, Cortech
will file a Registration Statement on Form S-8 to register the shares of Cortech
Common Stock issuable upon exercise of the BioStar Options. See "The
Reorganization Agreement -- Options".
BioStar Warrants. Unless otherwise provided by the terms of each
outstanding warrant to purchase securities of BioStar which are not exercised
prior to the Merger and which do not expire if not exercised prior to the Merger
(the "BioStar Warrants"), all rights with respect to BioStar Capital Stock
underlying the BioStar Warrants will be converted into and become rights with
respect to Cortech Common Stock, and Cortech will assume each such BioStar
Warrant in accordance with its terms (subject to appropriate adjustments to the
exercise price and number of shares subject thereto based upon the Exchange
Ratio). See "The Reorganization Agreement -- Warrants".
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware or at such later time as
may be specified in the Certificate of Merger (the "Effective Time"). The
consummation of the transactions contemplated by the Reorganization Agreement
will take place on a date to be agreed upon by Cortech and BioStar (the "Closing
Date"), which will be no later than the tenth business day after the
satisfaction or waiver of all of the conditions to closing of the Merger set
forth in the Reorganization Agreement. Assuming that all of the conditions to
the Merger are satisfied or waived, it
4
<PAGE> 19
is anticipated that the Merger will be consummated in [ ] 1998. See "The
Reorganization Agreement -- Conditions to the Merger".
STOCK OWNERSHIP FOLLOWING THE MERGER
A maximum of 28,500,000 shares of Cortech Common Stock will be issued or
issuable to holders of BioStar Capital Stock, BioStar Options and BioStar
Warrants (prior to the effect of the one-for-[ ] reverse stock split to be
considered at the Cortech Special Meeting). Based upon the number of shares of
Cortech Common Stock issued and outstanding as of the Cortech Record Date, and
after giving effect to the additional shares of Cortech Common Stock that are
proposed to be issued or issuable pursuant to the Merger, the former holders of
BioStar Capital Stock would hold approximately 60% of Cortech's total issued and
outstanding shares (assuming exercise of all BioStar Options and BioStar
Warrants).
EXCHANGE OF BIOSTAR STOCK CERTIFICATES
As soon as reasonably practicable after the Effective Time, an exchange
agent to be selected by Cortech (the "Exchange Agent") will mail to the holders
of BioStar Capital Stock (i) a letter of transmittal (the "Letter of
Transmittal") with respect to the surrender of valid certificates representing
shares of BioStar Capital Stock ("BioStar Stock Certificates") in exchange for
certificates representing Cortech Common Stock and (ii) instructions for use of
the Letter of Transmittal. BIOSTAR STOCKHOLDERS SHOULD NOT SURRENDER THEIR
BIOSTAR STOCK CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL. See "The Reorganization Agreement -- Conversion of Shares;
Procedures for Exchange of Certificates".
CORTECH'S REASONS FOR THE MERGER
In approving the Reorganization Agreement and the Merger, the Cortech Board
considered a number of factors, including that: (i) the combination of Cortech's
cash resources and status as a public company with BioStar's products, platform
technology and organization would offer Cortech's stockholders an opportunity to
realize appropriate value from their investment in Cortech; (ii) the combination
would afford Cortech's existing technology an enhanced opportunity to be (a)
recognized as valuable and (b) advanced in externally funded development,
thereby permitting Cortech stockholders an opportunity to realize any benefits
therefrom; (iii) as compared with a voluntary corporate liquidation, (a) the
combination would permit Cortech's stockholders an opportunity to share in
potential value which would otherwise be lost in a liquidation (such as value
potentially to be derived from Cortech's public company status as well as the
potential going concern value of other intangible and tangible Cortech assets)
and (b) Cortech's stockholders would not have to face risks as to whether or not
reserves allocated to cover residual liabilities in connection with any
liquidation would prove to be adequate; (iv) after reviewing numerous potential
strategic transactions, and balanced against Cortech's diminishing prospects and
status as a stand-alone entity (due, primarily, to continued incremental
depletion of cash assets, the impairment of Cortech's ability (through a series
of corporate downsizings) to undertake internal research and development and the
resulting/growing potential for technological stagnation), management and the
Cortech Board determined that an alternative transaction of comparable or
superior terms for Cortech's stockholders likely would not become available to
Cortech within the reasonably foreseeable future (if ever); and (v) BioStar
possesses a variety of assets and resources that would bring value to a combined
entity and thereby potentially benefit Cortech's stockholders, including: (a) a
capable management team with the demonstrated ability to lead the development
and commercialization of products; (b) a business plan for continued efforts to
develop and commercialize products; and (c) current product revenues which will,
at least partially, offset continuing research and development expenses (and
thereby extend the cash resources of a combined company). See "Approval of the
Merger and Related Transactions -- Cortech's Reasons for the Merger" and "The
Cortech Special Meeting -- Board Recommendation".
5
<PAGE> 20
RECOMMENDATION OF THE CORTECH BOARD
The Cortech Board has unanimously approved the Reorganization Agreement and
the Merger and has unanimously recommended a vote FOR approval of the Merger
Proposal. The Cortech Board also has unanimously approved the Cortech
Certificate of Amendment and has unanimously recommended a vote FOR approval of
the Cortech Certificate Proposal.
OPINION OF FINANCIAL ADVISOR TO CORTECH
Cowen & Company ("Cowen") delivered its opinion dated December 22, 1997
(the "Cowen Opinion") to the Cortech Board that, as of the date of such opinion
and subject to the various considerations set forth therein, the financial terms
of the Merger are fair from a financial point of view to Cortech. The full text
of the Cowen Opinion, which sets forth, among other things, assumptions made,
matters considered and limitations on the scope of the review undertaken in
connection with the Cowen Opinion, is attached hereto as Appendix C and is
incorporated herein by reference. Holders of Cortech Common Stock are urged to,
and should, read the Cowen Opinion in its entirety. See "Approval of the Merger
and Related Transactions-Opinion of Financial Advisor to Cortech".
BIOSTAR'S REASONS FOR THE MERGER
The BioStar Board considered a wide variety of information and a number of
factors in connection with its evaluation of the proposed Merger and the
Reorganization Agreement, and determined that the Merger provides an opportunity
that serves the best interests of BioStar and its stockholders. The BioStar
Board believes that the Merger may result in a number of benefits to BioStar and
its stockholders, including, among other benefits, the following: (i) providing
BioStar with substantially greater resources, including cash and a
publicly-traded security; (ii) providing BioStar's stockholders with liquidity;
and (iii) providing BioStar with access to the intangible assets associated with
Cortech's business. See "Approval of the Merger and Related
Transactions -- BioStar Reasons for the Merger," and "The BioStar Special
Meeting -- Board Recommendation".
RECOMMENDATION OF THE BIOSTAR BOARD
The BioStar Board has unanimously approved the Reorganization Agreement and
the Merger and has unanimously recommended a vote FOR the Merger Proposal. The
BioStar Board also has unanimously recommended a vote FOR the BioStar
Certificate Proposal.
NON-SOLICITATION
Pursuant to the Reorganization Agreement, Cortech and BioStar each have
agreed not to directly or indirectly solicit or initiate discussions or
negotiations relating to a transaction (other than the Merger) involving a
merger, consolidation, sale or similar transaction involving a significant
portion of the stock or assets of Cortech or BioStar, respectively. However,
Cortech and BioStar may each furnish information and enter into discussions or
negotiations in response to a bona fide, unsolicited acquisition proposal if and
only to the extent that the board of directors of the company receiving the
proposal determines in good faith (i) after consultation with its financial
advisor, that the acquisition proposal is reasonably likely to result in an
offer superior to the one proposed in the Reorganization Agreement and (ii)
after consultation with its outside counsel, that such actions are required in
order for such board of directors to comply with its fiduciary obligations. See
"The Reorganization Agreement -- Non-Solicitation".
CONDUCT OF BUSINESS
Pursuant to the Reorganization Agreement, BioStar and Cortech have made
certain covenants regarding the conduct of their respective businesses during
the period from the date of the execution of the Reorganization Agreement
through the Effective Time, including, without limitation, covenants to: (i)
conduct their respective business and operations (a) in the ordinary course and
in accordance with operating parameters previously discussed among Cortech and
BioStar with regard to Cortech and in
6
<PAGE> 21
accordance with past practices with regard to BioStar and (b) in compliance with
all applicable legal requirements and material contracts; (ii) use all
reasonable efforts to preserve their respective business organizations and the
services of their current officers and employees and maintain their respective
relations and goodwill with suppliers, customers, landlords, creditors,
licensors, licensees, employees and other persons; (iii) maintain insurance
policies; (iv) provide all reasonable notices, assurances and support required
by any material contract relating to proprietary assets; and (v) cause their
officers to report regularly concerning the status of their respective business
to the other party. See "The Reorganization Agreement -- Covenants -- Conduct of
BioStar's Business" and "-- Conduct of Cortech's Business".
COMPOSITION OF THE CORTECH BOARD AND OFFICERS
Cortech has agreed to use all reasonable efforts to have the Cortech Board
consist of five persons from and after the Effective Time to serve until the
next election of directors (for each director's respective class), three of whom
have been specified by BioStar. Promptly following the Effective Time, it is
expected that the Cortech Board will be composed of Teresa W. Ayers, with a term
expiring in 2000, Alexander E. Barkas, Ph.D., with a term expiring in 1999,
Thomas A. Bologna, with a term expiring in 2000, Bert Fingerhut, with a term
expiring in 1999, and Kenneth R. Lynn, with a term expiring in 1998. Ms. Ayers
and Messrs. Barkas and Bologna have been specified by BioStar. See "Cortech
Management and Executive Compensation" and "BioStar Management and Executive
Compensation". Promptly following the Effective Time, the BioStar executive
officers will become the executive officers of Cortech.
CONDITIONS TO THE MERGER
The obligations of Cortech and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by the Reorganization
Agreement are subject to the satisfaction or waiver of certain conditions
relating to, among other things: (i) the accuracy of the representations and
warranties of BioStar contained in the Reorganization Agreement (subject to
certain materiality limitations); (ii) the performance in all material respects
by BioStar of certain covenants and obligations contained in the Reorganization
Agreement; (iii) the approval of the Merger Proposal by BioStar's stockholders
and Cortech's stockholders and the approval of the BioStar Certificate Proposal
by BioStar's stockholders; (iv) fewer than 10% of the outstanding shares of
BioStar Capital Stock having asserted appraisal rights under the DGCL; (v)
receipt of certain consents; (vi) receipt of certain certificates and legal
opinions; (vii) the absence of any material adverse change to BioStar; (viii)
the absence of restraining orders, injunctions and other orders preventing the
consummation of the Merger; (ix) the absence of certain litigation or
administrative actions or proceedings; (x) delivery of affiliate agreements by
certain directors and officers of BioStar; and (xi) the Cowen Opinion not having
been withdrawn as of the date of this Joint Proxy Statement/Prospectus.
The obligation of BioStar to effect the Merger and otherwise consummate the
transactions contemplated by the Reorganization Agreement is subject to the
satisfaction of certain conditions relating to, among other things: (i) the
accuracy of the representations and warranties of Cortech contained in the
Reorganization Agreement (subject to certain materiality limitations); (ii) the
performance in all material respects by Cortech of certain covenants and
obligations contained in the Reorganization Agreement; (iii) the approval of the
Merger Proposal by BioStar's stockholders and Cortech's stockholders and the
approval of the BioStar Certificate Proposal by BioStar's stockholders; (iv)
receipt of certain legal opinions and certificates; (v) the absence of any
material adverse change to Cortech; (vi) the absence of restraining orders,
injunctions and other orders preventing the consummation of the Merger; (vii)
the taking of all actions necessary by Cortech to cause the Cortech Board to
consist of five persons, three of whom have been specified by BioStar; (viii)
the absence of certain litigation or administrative actions or proceedings; and
(ix) receipt of certain consents. See "The Reorganization
Agreement -- Conditions to the Merger".
TERMINATION
The Reorganization Agreement may be terminated prior to the Effective Time,
whether before or after approval of the Merger Proposal by the stockholders of
Cortech and BioStar: (i) by mutual written consent of Cortech and BioStar; (ii)
subject to certain exceptions, by either Cortech or BioStar if the Merger shall
not
7
<PAGE> 22
have been consummated by May 31, 1998; (iii) by either Cortech or BioStar in
connection with certain legal or governmental actions having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger; (iv) by
Cortech or BioStar if the BioStar Special Meeting shall have been held and the
Merger Proposal and the BioStar Certificate Proposal shall not have been
approved by BioStar's stockholders; (v) by Cortech or BioStar if the Cortech
Special Meeting shall have been held and the Merger Proposal shall not have been
approved by Cortech's stockholders; (vi) by BioStar if (a) the Cortech Board
withdraws or amends in a way adverse to BioStar its unanimous recommendation in
favor of the Merger and approval of the Reorganization Agreement, (b) Cortech
shall have failed to include in this Joint Proxy Statement/Prospectus such
recommendation of its board, (c) the Cortech Board fails to reaffirm its
unanimous recommendation within five business days of BioStar's request, (d) the
Cortech Board shall have approved, endorsed or recommended a proposal (other
than the Merger) for, or entered into a letter of intent or contract relating
to, the acquisition of Cortech, (e) Cortech shall have failed to timely hold the
Cortech Special Meeting, (f) subject to certain limitations, a tender or
exchange offer for Cortech's securities shall have been commenced and Cortech
does not within five days recommend rejection of such tender or exchange offer
or (g) a proposal (other than the Merger) to acquire Cortech is publicly
announced and Cortech does not issue a press release announcing its opposition
to the proposal within five days or otherwise fails actively to oppose such
proposal (any such event, a "Cortech Triggering Event"); (vii) by Cortech if (a)
the BioStar Board withdraws or amends in a way adverse to Cortech its unanimous
recommendation in favor of the Merger and approval of the Reorganization
Agreement, (b) BioStar shall have failed to include in this Joint Proxy
Statement/Prospectus such recommendation of its board, (c) the BioStar Board
fails to reaffirm its unanimous recommendation within five business days of
Cortech's request, (d) the BioStar Board shall have approved, endorsed or
recommended a proposal (other than the Merger) for, or entered into a letter of
intent or contract relating to, the acquisition of BioStar, (e) BioStar shall
have failed to timely hold the BioStar Special Meeting, (f) subject to certain
limitations, a tender or exchange offer for BioStar's securities shall have been
commenced and BioStar does not within five business days recommend rejection of
such tender or exchange offer or (g) a proposal (other than the Merger) to
acquire BioStar is publicly announced and BioStar does not issue a press release
announcing its opposition to the proposal within five business days or otherwise
fails actively to oppose such proposal (any such event, a "BioStar Triggering
Event"); (viii) by Cortech, subject to certain limitations, if any of BioStar's
representations and warranties contained in the Reorganization Agreement shall
be or shall have become materially inaccurate, if any of BioStar's covenants in
the Reorganization Agreement shall have been breached or if Cowen withdraws its
fairness opinion on or before the date of this Joint Proxy Statement/Prospectus;
(ix) by BioStar, subject to certain limitations, if any of Cortech's
representations and warranties contained in the Reorganization Agreement shall
be or shall have become materially inaccurate or if any of Cortech's covenants
contained in the Reorganization Agreement shall have been breached. See "The
Reorganization Agreement -- Termination".
EXPENSES AND TERMINATION FEES
Pursuant to the Reorganization Agreement, except as set forth below, all
fees and expenses incurred in connection with the Reorganization Agreement and
the transactions contemplated by the Reorganization Agreement shall be paid by
the party incurring such expenses, whether or not the Merger is consummated;
provided, however, that Cortech and BioStar shall share equally all fees and
expenses, other than attorney's fees, incurred in connection with the printing,
filing and mailing of this Joint Proxy Statement/Prospectus and the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part. In the event
that the Reorganization Agreement is terminated by Cortech (i) following the
occurrence of a BioStar Triggering Event or (ii) due to a breach of the
Reorganization Agreement by BioStar, then BioStar shall pay Cortech a
termination fee of $500,000 plus the amount of professional fees and expenses
(not to exceed $150,000) incurred by Cortech in connection with the Merger.
Similarly, in the event that the Reorganization Agreement is terminated by
BioStar (i) following the occurrence of a Cortech Triggering Event or (ii) due
to a breach of the Reorganization Agreement by Cortech, then Cortech shall pay
BioStar a termination fee of $500,000 plus the amount of professional fees and
expenses (not to exceed $150,000) incurred by BioStar in connection with the
Merger. See "The Reorganization Agreement -- Expenses and Termination Fees".
8
<PAGE> 23
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Cortech Board and the BioStar
Board with respect to the Reorganization Agreement and transactions contemplated
thereby, Cortech and BioStar stockholders should be aware that certain members
of Cortech's management and the Cortech Board and BioStar's management and the
BioStar Board have interests in the Merger that are in addition to the interests
of each corporation's stockholders generally. These interests arise from, among
other things, certain employment agreements, severance plans, management
incentive and retention programs, indemnification arrangements and other
matters. For a discussion and quantification of these interests, see "Approval
of the Merger and Related Transactions -- Interests of Certain Persons in the
Merger".
REGISTRATION RIGHTS
Cortech will assume BioStar's obligations to persons who have registration
rights with BioStar under the BioStar Restated Investors' Rights Agreement (the
"Investors' Rights Agreement"); however, such agreement provides that such
persons may not request any registration until the earlier of (i) 90 days after
the effective date of a registration statement for the first public offering of
securities of Cortech following the Effective Time and (ii) the first
anniversary of the Effective Time. For a discussion of these registration
rights, see "Comparison of Stockholder Rights".
COMPARISON OF STOCKHOLDER RIGHTS
In the event that the Merger is consummated, holders of BioStar Capital
Stock will become holders of shares of Cortech Common Stock. The rights of
stockholders of Cortech differ from the rights of BioStar stockholders with
respect to certain matters. For a summary of these differences, see "Comparison
of Stockholders' Rights".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to be a tax-free reorganization for federal income
tax purposes, so that no gain or loss will be recognized by the BioStar
stockholders on the exchange of BioStar Capital Stock for Cortech Common Stock,
except to the extent that BioStar stockholders receive cash pursuant to the
exercise of appraisal rights or in lieu of fractional shares. The Reorganization
Agreement does not require the parties to obtain a ruling from the Internal
Revenue Service as to the tax consequences of the Merger. As a condition to the
closing of the Merger, BioStar and Cortech are to receive opinions from their
respective counsel that, based on certain assumptions and certifications, the
Merger will be treated as a tax-free reorganization for federal income tax
purposes. BIOSTAR STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER. See "Approval of the
Merger and Related Transactions -- Certain Federal Income Tax Consequences".
ACCOUNTING TREATMENT
Although as a legal matter Cortech is acquiring BioStar, the Merger will be
accounted for as a "purchase" of Cortech by BioStar for accounting and financial
reporting purposes. Accordingly, BioStar's historical financial statements will
be the financial statements of the post-merger combined company. Under the
purchase method of accounting, Cortech's results of operations will be combined
with those of BioStar from and after the Effective Time, and Cortech's specific
tangible and identifiable intangible assets and liabilities will be recorded on
BioStar's books at their respective fair values at the Effective Time. A
determination of the fair value of Cortech's specific tangible and identifiable
intangible assets and liabilities will be made in order to allocate the purchase
price to the assets acquired and the liabilities assumed. See "Approval of the
Merger and Related Transactions -- Anticipated Accounting Treatment".
9
<PAGE> 24
APPRAISAL RIGHTS
Holders of BioStar Capital Stock are generally entitled to appraisal rights
with respect to the Merger under the DCGL. If the Merger Proposal is approved by
the Required BioStar Stockholder Vote and is not terminated in accordance with
the Reorganization Agreement, BioStar's stockholders who do not vote for the
Merger Proposal and who comply with all applicable provisions of the DCGL will
have the right to exercise appraisal rights and receive the "fair value" of
their shares of BioStar Capital Stock in cash. A dissenting stockholder of
BioStar must follow the appropriate procedures under the DGCL or suffer the
termination or waiver of such appraisal rights. For a more detailed description
of the procedures applicable to the exercise of appraisal rights, see "Approval
of the Merger and Related Transactions -- Rights of Dissenting Stockholders".
The full text of the pertinent statutory provisions of the DCGL relating to the
proper exercise of such appraisal rights is attached hereto as Appendix D and
should be read carefully and in its entirety.
Holders of Cortech Common Stock will not be entitled to exercise appraisal
rights under the DGCL with respect to the Merger.
RISK FACTORS
The Merger and an investment in securities of Cortech involve certain risks
and uncertainties, including risks related to the respective businesses of
Cortech and BioStar and other risks and uncertainties discussed under "Risk
Factors" and elsewhere in this Joint Proxy Statement/Prospectus. See "Risk
Factors".
MARKETS AND MARKET PRICES
Cortech Common Stock is listed on the Nasdaq National Market under the
symbol "CRTQ". On December 19, 1997, the last trading day before the
announcement by Cortech and BioStar that they had entered into the
Reorganization Agreement, the closing sale price of Cortech Common Stock as
reported on the Nasdaq National Market was $0.594 per share. On February 12,
1998, the closing sale price of Cortech Common Stock as reported on the Nasdaq
National Market was $0.61 per share. There can be no assurance as to the actual
market price of Cortech Common Stock prior to, at or at any time following the
Effective Time.
Following the Merger, assuming necessary stockholder approval of the
Cortech Certificate Proposal, Cortech will change its corporate name to "BioStar
Holdings, Inc." Cortech will apply to have the Cortech Common Stock, including
the Cortech Common Stock issuable upon the consummation of the Merger in
exchange for BioStar Capital Stock, approved for quotation by Nasdaq under the
symbol "BSTR". Cortech's continued listing on the Nasdaq National Market is
dependent upon Cortech achieving a minimum bid price of $1.00 per share of
Cortech Common Stock. See "Risk Factors -- Potentional Loss of Nasdaq National
Market Listing."
BioStar is privately held and no established trading market exists for
BioStar Capital Stock. Accordingly, information with respect to the market price
of Cortech Common Stock on an historical and equivalent per share basis has been
omitted.
CORTECH CERTIFICATE PROPOSAL
The Cortech Certificate Proposal, which would be implemented only if the
Merger is consummated, provides for a change in Cortech's corporate name to
"BioStar Holdings, Inc." and a one-for-[ ] reverse stock split. The
primary objective of the Cortech Board with respect to such reverse stock split
is to increase the per share market price of Cortech Common Stock. A significant
collateral effect will be to increase the number of authorized but unissued
shares of Cortech Common Stock. See "Proposal to Amend the Cortech Certificate
of Incorporation".
10
<PAGE> 25
SELECTED HISTORICAL FINANCIAL INFORMATION
The following tables set forth certain selected historical financial data
of Cortech and BioStar. This data is derived from and should be read in
conjunction with, and is qualified in its entirety by, the financial statements,
including the notes thereto, of Cortech and BioStar appearing elsewhere in this
Joint Proxy Statement/Prospectus. See "Cortech Financial Statements" and
"BioStar Financial Statements".
CORTECH
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 3,451 $ 7,422 $ 5,140 $ 1,470 $ 3,472
Losses from operations...................... $(7,717) $(7,531) $(18,106) $(28,489) $(15,432)
Net loss.................................... $(6,778) $(6,339) $(16,421) $(26,738) $(14,183)
Basic net loss per share.................... $ (0.37) $ (0.35) $ (0.92) $ (1.52) $ (0.95)
HISTORICAL BALANCE SHEET DATA:
Total assets................................ $16,445 $25,483 $ 28,643 $ 45,553 $ 68,763
======= ======= ======== ======== ========
Stockholders' equity........................ $15,383 $22,125 $ 26,977 $ 43,073 $ 66,354
======= ======= ======== ======== ========
</TABLE>
BIOSTAR
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS DATA:
Revenues....................................... $15,858 $12,367 $ 9,591 $ 3,990 $ 1,272
Losses from operations......................... $(1,143) $(3,172) $(4,624) $(7,096) $(6,341)
Net loss....................................... $(1,933) $(3,823) $(4,803) $(6,969) $(6,174)
Basic and diluted net loss per share........... $ (1.00) $ (2.23) $ (2.55) $ (5.39) $(18.13)
HISTORICAL BALANCE SHEET DATA:
Total assets................................... $ 6,329 $ 5,782 $ 6,916 $ 7,387 $ 5,930
Total short term and long term debt............ $ 8,499 $ 7,248 $ 5,249 $ 1,149 $ 593
Stockholders' equity (deficit)................. $(5,613) $(3,773) $ (16) $ 4,869 $ 4,274
</TABLE>
11
<PAGE> 26
SUMMARY SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
The following table sets forth unaudited pro forma condensed consolidated
financial data for Cortech and BioStar which gives effect to the Merger,
accounted for as a purchase of Cortech by BioStar for accounting and financial
reporting purposes, as if it had been consummated as of January 1, 1997 for
income statement data and as of December 31, 1997 for balance sheet data. See
"Approval of the Merger and Related Transactions -- Anticipated Accounting
Treatment." The pro forma data is not necessarily indicative of the results that
would have been achieved had such transaction been consummated on such dates and
should not be construed as representative of future operations. This
presentation is subject to the assumptions set forth in the notes to the
Unaudited Pro Forma Condensed Consolidated Financial Information appearing
elsewhere in this Joint Proxy Statement/Prospectus. The information presented
should be read in conjunction with such pro forma financial information and the
notes thereto, and the historical financial statements including the notes
thereto, of Cortech and BioStar, respectively, appearing elsewhere in this Joint
Proxy Statement/Prospectus. See "Unaudited Pro Forma Condensed Consolidated
Financial Information", "Cortech Financial Statements" and "BioStar Financial
Statements".
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED
DECEMBER 31, 1997
-----------------------------------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues.................................................. $19,309
Loss from operations...................................... $(8,860)
Net loss.................................................. $(8,118)
Basic and diluted net loss per share...................... $ (0.18)
Shares used in basic and diluted net loss per share
calculation............................................ 44,619
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
Total assets.............................................. $22,287
Total short term and long term debt....................... $ 2,434
Stockholders' equity...................................... $13,342
</TABLE>
12
<PAGE> 27
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Cortech
and BioStar, as well as unaudited pro forma per share data of Cortech and
BioStar based on the assumption that the Merger was effective on January 1, 1997
for income statement data and on December 31, 1997 for balance sheet data. The
pro forma data is not necessarily indicative of the results that would have been
achieved had such transaction been consummated on such dates and should not be
construed as representative of future operations. The pro forma presentation is
subject to the assumptions set forth in the notes to the unaudited pro forma
condensed consolidated financial information appearing elsewhere in this Joint
Proxy Statement/Prospectus. The information presented should be read in
conjunction with such unaudited pro forma condensed consolidated financial
information and notes thereto, and the historical financial statements and notes
thereto, of Cortech and BioStar, respectively, included elsewhere in this Joint
Proxy Statement/Prospectus. No cash dividends have ever been declared or paid on
Cortech Common Stock or BioStar Capital Stock. See "Unaudited Pro Forma
Condensed Consolidated Financial Information", "Cortech Financial Statements"
and "BioStar Financial Statements".
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
HISTORICAL -- CORTECH:
Basic and diluted net loss per common share................. $(0.37)
Book value per common share................................. $ 0.83
HISTORICAL -- BIOSTAR:
Basic and diluted net loss per common share................. $(1.00)
Book value per common share................................. $(2.86)
PRO FORMA COMBINED PER CORTECH SHARE:
Basic and diluted net loss per common share................. $(0.18)
Book value per common share................................. $ 0.30
PRO FORMA EQUIVALENT PER BIOSTAR SHARE (1):
Basic and diluted net loss per common share................. $(0.10)
Book value per common share................................. $ 0.17
</TABLE>
- ---------------
(1) Reflects the Pro Forma Combined Per Cortech Share amounts multiplied by the
estimated Exchange Ratio of .5512 of a share of Cortech Common Stock for
each share of BioStar Capital Stock. Such Exchange Ratio assumes a per share
market price of $.656 for Cortech Common Stock (based upon BioStar's
capitalization as of the date of this Joint Proxy Statement/Prospectus and
the per share market price of Cortech Common Stock as of the date of the
Reorganization Agreement) immediately prior to the Effective Time. See "The
Reorganization Agreement -- Merger Consideration".
13
<PAGE> 28
RISK FACTORS
The following factors should be considered carefully in evaluating the
proposals to be voted upon by the stockholders of Cortech and BioStar and in
evaluating an investment in the Cortech Common Stock offered hereby. For periods
following the Merger, references to the products, businesses, results of
operations or financial condition of Cortech or the combined company should be
considered to refer to Cortech and its subsidiaries, including BioStar, unless
the context otherwise requires.
RISKS RELATED TO THE MERGER
Dependence Upon BioStar Business, Operations and Management. Following the
Merger, the combined company's business, operations and management will consist
almost entirely of the business, operations and management of BioStar as
existing prior to the Merger. Cortech stockholders should be aware that the
Merger represents the investment of substantially all of Cortech's existing cash
resources into a new and different line of business, and that the combined
company's future performance will be almost entirely dependent upon (and subject
to the risks relating to) BioStar's business, strategy, operations, management
and personnel. Although Cortech and BioStar believe that the combined company
will be able to realize value from Cortech's tangible and intangible assets
after the Merger, there can be no assurance that the combined company will be
able to do so. In addition, there can be no assurance that stockholders of
Cortech and BioStar would not achieve greater returns on their investment if
Cortech and BioStar were to remain independent companies.
Potential Loss of Nasdaq National Market Listing. Trading in Cortech Common
Stock is presently quoted on the Nasdaq National Market. Cortech has been
advised by Nasdaq that the continued quotation of Cortech Common Stock on the
Nasdaq National Market is in jeopardy due to a bid price for Cortech Common
Stock of less than $1.00 per share. The reverse stock split included as part of
the Cortech Certificate Proposal (the "Reverse Split") is intended to increase
the post-Merger per share bid price of Cortech Common Stock in order to satisfy
Nasdaq's related requirement. In the event that the Merger Proposal is approved
but the Cortech Certificate Proposal is not implemented following the Cortech
Special Meeting (for example, because the Cortech Certificate Proposal is not
approved at the Cortech Special Meeting), Cortech would propose a reverse stock
split of Cortech Common Stock for approval at an Annual Meeting of the Cortech
Stockholders to be held as soon as reasonably practicable following the Cortech
Special Meeting. There can be no assurances that Cortech will be able to
maintain its Nasdaq National Market listing (whether as a result of failure to
meet the minimum bid price requirement or other requirements imposed by the
Nasdaq National Market). The absence of the quotation of trading in Cortech
Common Stock on the Nasdaq National Marketwould have an adverse effect on the
market for, and the market price of, Cortech Common Stock. See "Proposal to
Amend the Cortech Certificate of Incorporation -- Reverse Split".
Availability of Additional Shares. The Reverse Split will have the effect
of increasing the number of authorized but unissued shares of Cortech Common
Stock. This would permit Cortech to use such shares in connection with Cortech's
employee benefit plans, the options, warrants and rights formerly relating to
BioStar Capital Stock which will be assumed by Cortech in the Merger and
possible future issuances. At the Cortech Record Date, there were issued and
outstanding [ ] shares of Cortech Common Stock and options and warrants to
acquire an additional [ ] shares of Cortech Common Stock. The number of
shares of Cortech Common Stock to be issued in connection with the Merger will
not exceed 28,500,000 shares (pre-Reverse Split). Accordingly, only [ ]
of the 50,000,000 shares of Cortech Common Stock authorized would be available
for possible future issuances absent the Reverse Split. See "Proposal to Amend
the Cortech Certificate of Incorporation -- Reverse Split".
Shares Eligible for Future Sale. In excess of 80% of Cortech's currently
outstanding shares (as of January 30, 1998) are freely tradable (subject to
volume limitations applicable to affiliates). If the Merger is consummated,
Cortech will issue to securityholders of BioStar an aggregate maximum of
28,500,000 shares of Cortech Common Stock. Substantial sales of shares of
Cortech Common Stock could occur after the Merger. Immediately upon consummation
of the Merger, all of the shares issuable in the Merger will be freely-tradable
(subject to volume limitations and other restrictions of Rule 145 under the
Securities Act for persons who were affiliates of BioStar prior to the Merger or
who are affiliates of the combined company following the
14
<PAGE> 29
Merger). However, holders of approximately 23,139,053 of such shares have agreed
not to, directly or indirectly, sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any such shares for a period ending 180 days from the Effective Time (the
"lock-up period") without the prior written consent of Cortech. Based on the
number of BioStar Options outstanding as of January 31, 1998 and Cortech's
intent to file a registration statement with respect to the underlying shares of
Cortech Common Stock promptly following the Merger, an additional 2,403,050
shares could be sold upon the exercise of BioStar Options promptly following the
Effective Time. Also, holders of 25,324,452 shares of BioStar's Capital Stock
have certain rights to require that BioStar file a registration statement with
the Securities and Exchange Commission with respect to their shares. See
"Comparison of Stockholders' Rights". Future sales of a substantial number of
such shares of Cortech Common Stock could adversely affect or cause substantial
fluctuations in the market price of Cortech Common Stock.
RISKS RELATED TO THE BUSINESS AND OPERATIONS OF CORTECH AND BIOSTAR
History of Operating Losses; No Assurance of Future Profitability. Each of
Cortech and BioStar has incurred operating losses in each year since their
respective dates of inception. For the fiscal year ended December 31, 1997,
Cortech had a net loss of $6.8 million, and through such date has an accumulated
deficit of $84.6 million. For the fiscal year ended December 31, 1997, BioStar
had a net loss of $1.9 million, and through such date has an accumulated deficit
of $25.8 million. Each of Cortech's and BioStar's losses have resulted
principally from costs incurred in research and development and from selling,
general and administrative costs associated with their respective operations.
Cortech's costs have exceeded its revenues, which have come from research and
development funding and interest income from investment of excess cash.
BioStar's costs also have exceeded its revenues, which, to date, have
principally been derived from sales of diagnostic products, funding from
government research grants and payments from collaborators. After the Merger,
the combined company will continue to incur operating losses as a result of
increases in its expenses for research and product development, clinical trials,
regulatory approvals and expansion of sales and marketing capability. The amount
of future operating losses and time required by the combined company to reach
profitability, if ever, are highly uncertain. The combined company's ability to
generate significant revenues and become profitable is dependent in large part
on its ability to commercialize successfully new BioStar products, continue
selling current products and generate revenues through strategic partnerships.
There can be no assurance that the combined company will continue to generate
revenue from BioStar's current products, successfully commercialize any of
BioStar's current or future products or secure ongoing revenues from strategic
partners. See "Cortech Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "BioStar Management's Discussion and
Analysis of Financial Condition and Results of Operations".
No Assurance of Successful or Timely Development of Additional Diagnostic
Products. The combined company's business strategy will involve the development
of additional diagnostic products. The combined company's success in developing
new diagnostic products will depend on its ability to achieve scientific and
technological advances and to translate these advances into commercially
competitive products on a timely basis. Development of new products requires
significant research, development and testing efforts. There can be no assurance
that future diagnostic products will be successfully developed or commercialized
on a timely basis, if at all. The combined company will have limited resources
to devote to the development of products and, consequently, a delay in the
development of one product or the use of resources for product development
efforts that prove unsuccessful may delay or jeopardize the development of other
products. The combined company will also depend on collaborative partners
successfully and timely performing research and development activities on behalf
of or together with the combined company. The combined company's development
efforts may be adversely affected by a number of factors, many of which will be
beyond the combined company's control, including technological difficulties,
proprietary technologies of others, possible changes in government regulation of
diagnostic products and the availability of sources of funding. Even if future
diagnostic products become commercially viable, there can be no assurance that
such products will receive FDA clearance. Furthermore, the combined company may
experience significant delays in the commercial introduction of such products.
Any delay in the development, introduction and marketing of
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future diagnostic products could result in such products being marketed at a
time when their cost and performance characteristics would not enable them to
compete effectively in their respective markets. If the combined company is
unable, for technological or other reasons, to complete the development and
introduction of any new product or if any new product is not approved or cleared
for marketing or does not achieve a significant level of market acceptance, the
combined company's results of operation could be materially and adversely
affected. See "BioStar Business -- Products and Markets" and "-- Regulation".
No Assurance of Successful or Timely Development of Therapeutic Products.
Following the Merger, it is anticipated that the combined company will focus its
resources on the development, production and marketing of diagnostic products.
Since Cortech's therapeutic compounds are at an early stage of development and
will require significant additional research, development and preclinical and
extensive clinical testing prior to submission of any regulatory application for
commercial use, Cortech's current business must be evaluated in light of the
uncertainties and complications present in a development stage biopharmaceutical
company.
Due to the high costs associated with the research and development of its
technology, Cortech is currently seeking either to sell its rights to its
technology or to obtain financing from a corporate partner for further
development of such technology. Neither Cortech nor BioStar intends that the
combined company will undertake further development of Cortech's technology
without a collaborative partner. Presently, there are no agreements,
understandings or active, substantive negotiations between Cortech and any third
party to purchase any of Cortech's technology rights or fund further development
of such technology. There can be no assurance that the combined company will be
able to effect any transaction involving a sale of technology rights or
establish such a collaboration on favorable terms, if at all.
Even if a collaborative partner is found to fund the combined company's
research and development activities with respect to potential therapeutic
products, there can be no assurance that such activities will be successfully
completed, that the compounds under development will prove safe and effective in
clinical trials, that required regulatory approvals will be obtained, that
products will be manufactured at an acceptable cost and with appropriate
quantity and quality or that any approved products can be successfully marketed
or will be accepted by patients, health care providers and thirdparty payors.
See "Cortech Business -- Cortech's Work with Protease Inhibitors", "-- Cortech's
Work with Bradykinin Antagonists", "-- Regulation" and "-- Reimbursement".
Dependence on Collaborative Relationships and Third Parties for Diagnostic
Product Development and Commercialization. BioStar has entered into licensing
and research and development agreements with collaborative partners from which
it derived a significant percentage of its revenues in 1997. Contract revenues
consist of milestone payments, grant revenues, funded feasibility, product
development costs and licensing fees. Pursuant to these agreements, BioStar's
collaborative partners have significant responsibilities for the costs of
development, promotion, regulatory approval and/or sale of BioStar's products.
For example, BioStar's grants from the National Institutes of Health ("NIH") are
government funded and, as a result, are subject to the continued availability of
funding for medical research in the federal budget. The combined company will
continue to rely on collaborative partners for the development of products and
technologies. The amount and timing of resources that any of these partners
devotes to these activities will generally be based on progress by the combined
company in its product development efforts. In addition, several of these
agreements may be terminated by the partner upon prior notice without cause.
There can be no assurance that any of these partners will perform its
contractual obligations or that it will not terminate its agreement. The failure
to adapt BioStar products to different formats and instruments, or otherwise to
commercialize such products would have a material adverse effect on the combined
company's business, financial condition and results of operations.
Additionally, the combined company's strategy for future development,
clinical testing, manufacturing and commercialization of BioStar products is
largely dependent upon the establishment of collaborations with corporate
partners and other third parties. There can be no assurance that the combined
company will be able to negotiate such collaborative arrangements on acceptable
terms, if at all, or that current or future collaborative arrangements will be
successful. To the extent that the combined company is not able to establish
such arrangements, it would experience increased capital requirements to
undertake such activities at
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its own expense. The combined company also may encounter significant delays in
introducing diagnostic products into certain markets or find that the
development, manufacture or sale of diagnostic products in such markets is
adversely affected by the absence or lack of success of any such collaborations.
With respect to any products manufactured by third parties, there can be no
assurance that any such third-party manufacturer would perform acceptably or
that failures by third parties would not delay clinical trials or the submission
of products for regulatory approval or impair the combined company's ability to
deliver products on a timely basis. The combined company also will be dependent
on the efforts of such third parties to market or promote its products. See
"Cortech Business -- Cortech's Work with Protease Inhibitors", "-- Cortech's
Work with Bradykinin Antagonists" and "BioStar Business -- Strategic Partners".
Dependence on Collaborative Relationships and Third Parties for Therapeutic
Product Commercialization. Drug discovery and development programs are capital
intensive. Since management anticipates that it will focus its capital resources
on diagnostic products and believes that raising funds in the public capital
markets to use to develop therapeutic products may remain unattractive for the
combined company for the foreseeable future, the combined company's strategy for
the development, clinical testing, manufacture and commercialization of
potential therapeutic products largely depends upon collaborations with
corporate partners and other third parties. There can be no assurance that the
combined company will be able to negotiate any such collaborative arrangements
on acceptable terms, if at all. To the extent that the combined company is not
able to establish such arrangements, it would require more capital to undertake
such activities at its own expense. The combined company may also encounter
significant delays in introducing its products into certain markets or find that
the development, manufacture and sale of its products in such markets is
adversely affected by the absence or lack of success of any such collaborations.
There can be no assurance that any third party collaborator will perform
acceptably or that failures by such third parties would not delay clinical
trials or the submission of products for regulatory approval or impair the
combined company's ability effectively to commercialize any therapeutic
products. See "Cortech Business -- Cortech's Work with Protease Inhibitors" and
"-- Cortech's Work with Bradykinin Antagonists".
Seasonality of Products; Quarterly Fluctuations in Results of Operations.
BioStar's operating results have historically been subject to quarterly
fluctuations. For as long as the majority of BioStar's product sales are sales
of its group A streptoccocus ("GAS") tests, BioStar's revenues will be seasonal,
concurrent with the time of the year in which respiratory infections and viruses
are prevalent. In addition, two of BioStar's products in development are also
directed at respiratory infections (pneumonia and influenza). Consequently,
BioStar's revenues are, and BioStar and Cortech expect that the combined
company's revenues will be, concentrated in the first and fourth quarters of
each fiscal year. This seasonal variation could have negative effects on the
trading price of Cortech Common Stock. Cortech and BioStar believe that future
operating results of the combined company will also be subject to quarterly
fluctuations due to a variety of other factors, including whether and when new
products are successfully developed and introduced by the combined company or
its competitors, market acceptance of current or new products, regulatory
delays, product recalls, competition and pricing pressures from competitive
products, manufacturing delays, shipment problems and changes in the mix of
products sold. In addition, the combined company's operating results will be
adversely affected if its products do not gain substantial market acceptance or
if its product development efforts are unsuccessful or subject to delays. See
"BioStar Business".
Concentration of Sales of Diagnostic Products. In 1997, at least 80% of
BioStar's product sales revenues were derived from sales of GAS products. For
the foreseeable future, Cortech and BioStar expect that the combined company's
revenues and profitability will substantially depend on sales of GAS products.
Competitive pressures could erode the combined company's profit margins for its
GAS products. A decrease in the competitiveness or market acceptance of
BioStar's GAS products could have a material adverse effect on BioStar's
business, financial condition and results of operations. See "BioStar
Business -- Products and Markets".
Dependence on Externally Sourced Products for Growth. BioStar currently
sells four diagnostic products under license from Wyntek Diagnostics, Inc.
("Wyntek"), and BioStar may seek to expand its relationship with Wyntek to
include additional products. Termination of the Wyntek agreement could have a
material adverse effect on the combined company's business, financial condition
and results of operations. In addition
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to the Wyntek arrangement, the combined company's growth strategy includes sales
of externally sourced products. There can be no assurance that the combined
company will be able to identify suitable products or, once identified, be able
to enter into agreements to in-license such products on acceptable terms, if at
all. See "BioStar Business -- Products and Markets".
Reliance on Sales Force for Sales of Diagnostic Products. BioStar has
marketed and sold its products in the clinical and physician office markets in
the United States through a "flex" representative sales force. The costs
associated with hiring and training flex sales representatives are substantial,
and the orientation and training period for flex sales representatives can be as
long as three months. In the past, BioStar has experienced significant employee
turnover in its flex representative sales force and incurred substantial costs
as a result. There can be no assurances that the combined company will not
experience substantial turnover in the its sales force in the future. Such
substantial turnover could have a material adverse effect on the combined
company's business, financial condition and results of operations. In addition,
in order to effectively distribute the higher volume and greater breadth of
products that will be necessary for the combined company's success, the combined
company may need to expand the efforts of its sales force. Failure to do so
could materially and adversely affect the combined company's business, financial
condition and results of operations. See "BioStar Business -- Sales and
Marketing".
Dependence on Distribution Partners for Sales of Diagnostic Products. In
the United States hospital and reference laboratory markets, BioStar has
marketed and sold its products through the efforts of Murex Diagnostics, Inc.
("Murex"), one of BioStar's distributors. If the Murex distribution agreement is
terminated and the combined company is unable to enter into a replacement
agreement, or if the combined company elects to distribute new products
directly, it would have to invest in additional sales and marketing resources,
possibly including additional field sales personnel, which would significantly
increase expenses. Loss of effective distribution capability in the hospital and
reference laboratory markets could have a material adverse effect on the
combined company's sales of diagnostic products unless suitable alternatives can
be arranged. There can be no assurance that the combined company would be able
to enter into replacement distribution or marketing agreements on favorable
terms, if at all, or that if the combined company elected to replace
distributors, it would be able to do so successfully. See "BioStar
Business -- Sales and Marketing".
Risks Regarding Potential Future Acquisitions. The combined company's
growth strategy is dependent upon a number of factors, including its ability to
acquire complementary companies, products or technologies. Acquisitions involve
a number of risks such as short-term negative effects on the combined company's
reported operating results, diversion of management's attention, unanticipated
problems or legal liabilities, and the integration of potentially dissimilar
operations, some or all of which could have a material adverse effect on the
combined company's business, financial condition and results of operations. See
"BioStar Business -- Strategy".
No Assurance of Market Acceptance of Point-of-Care Diagnostic Products. The
majority of diagnostic testing is currently performed at large clinical
laboratories rather than point-of-care sites. There can be no assurance that the
combined company will be successful in developing and penetrating the
point-of-care market for diagnostic testing. To date, BioStar has penetrated
only a small portion of the point-of-care market. Market acceptance of the
combined company's point-of-care products will depend on the combined company's
ability to demonstrate the accuracy and value of its products and to persuade
caregivers to perform the combined company's tests in the caregivers' own
facilities rather than send those tests to clinical laboratories. In addition,
market acceptance of new products will depend on a number of factors, including
the receipt and timing of regulatory approvals or clearances, the availability
of third-party reimbursement and the establishment and demonstration in the
medical community of the clinical safety, efficacy and cost-effectiveness of
diagnostic products and their advantages over existing technologies and
products. There can be no assurance that the combined company will be able to
market potential diagnostic products successfully, even if they perform
successfully in clinical trials. Furthermore, there can be no assurance that
caregivers, laboratories or the medical community in general will accept and
utilize the point-of-care testing system in general or existing diagnostic
products or products that may be developed in particular. See "BioStar
Business -- Industry Overview," "-- Products and Markets," "-- Regulation" and
"-- Reimbursement".
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Dependence on Suppliers. The components of BioStar's OIA tests are chemical
and packaging supplies that are generally available from several suppliers,
except certain antibodies, absorbent papers which BioStar purchases from single
suppliers. BioStar mitigates the risk of a loss of supply by maintaining a
sufficient supply of such antibodies to ensure an uninterrupted supply for at
least six months. Although BioStar believes that it can substitute a new
supplier with respect to any of these components in a timely manner, there can
be no assurances that the combined company will be able to substitute a new
supplier in a timely manner and failure to do so could have a material adverse
effect on the combined company's business, financial condition and results of
operations.
Limited Manufacturing Experience with Diagnostic Products and Detection
Technologies in Development. Although BioStar has manufactured over ten million
diagnostic tests based on its OIA technology, certain of BioStar's diagnostic
products in development incorporate new surfaces and detection technologies with
which BioStar has no manufacturing experience. Assuming successful development
and receipt of required regulatory approvals, significant work may be required
to scale up production for each new product prior to such product's
commercialization. There can be no assurance that such work can be completed in
a timely manner and that such new products can be manufactured cost-effectively,
to regulatory standards or in sufficient volume.
Uncertainties Related to Therapeutic Product Development and Clinical
Trials. Before it can obtain regulatory approval for the commercial sale of any
of any therapeutic products, the combined company must demonstrate, through
preclinical studies and clinical trials, that the product is safe and effective
for use in each target indication. The results from preclinical studies and
early clinical trials may not be predictive of results that will be obtained in
large-scale testing. Indeed, Cortech discontinued planned development of its
lead bradykinin antagonist, Bradycor, after unsuccessful Phase II clinical
trials and suspended development of a lead HNE inhibitor, CE-1037, which was
also in Phase II clinical trials. There can be no assurance that the combined
company will conduct future clinical trials or that those trials will
demonstrate the safety or efficacy of any products or will result in marketable
products. See "Cortech Business -- Product Development Risks".
Reliance on Third Parties to Manufacture Therapeutic Products. The
manufacture of sufficient quantities of new drugs can be an expensive,
time-consuming and complex process, and it may require the use of materials with
limited availability or require dependence on sole-source suppliers. If the
manufacturing of compounds were ever required, the combined company would rely
on corporate partners or other third parties for manufacturing services. There
can be no assurance that such third-party arrangements could be established on a
timely or commercially reasonable basis, if at all. If such arrangements were
established, the combined company would depend on such third parties to perform
their obligations effectively and on a timely basis. There can be no assurance
that such parties would perform acceptably, and any failures by third parties
may delay clinical trial development or the submission of therapeutic products
for regulatory approval, impair the combined company's ability to deliver
therapeutic products on a timely basis or otherwise impair the combined
company's competitive position which could have a material adverse effect on the
combined company's business, financial condition and results of operations. If
the combined company could not find a suitable manufacturing partner or
contractor, it might be required to incur substantial financial obligations to
construct or acquire manufacturing facilities. See "Cortech
Business -- Manufacturing".
Reliance on Third Parties to Market Therapeutic Products. In the event that
any of the combined company's therapeutic compounds are ever approved for
marketing, the combined company would rely primarily upon arrangements with
other pharmaceutical or biotechnology companies to market such products.
Comprehensive sales and technical support services would be necessary to market
the combined company's therapeutic products. Neither Cortech nor BioStar
anticipates that the combined company will establish significant capabilities in
these areas in the foreseeable future, if ever. To the extent the combined
company enters into co-marketing, co-promotion or similar arrangements, any
revenues received by the combined company would be dependent on the efforts of
third parties, and there can be no assurance that such efforts would be
successful. See "Cortech Business -- Marketing Strategy".
Regulation of Diagnostics Products. The testing, manufacture and sale of
BioStar's diagnostic products has been, and the testing, manufacturing and sale
of the combined company's products will be, subject to
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regulation by numerous governmental authorities, principally the Food and Drug
Administration ("FDA") and corresponding state and foreign regulatory agencies.
Pursuant to the Federal Food, Drug, and Cosmetic Act, and the regulations
promulgated thereunder, the FDA regulates the preclinical and clinical testing,
manufacture, labeling, distribution and promotion of medical devices. The
combined company will not be able to commence marketing or commercial sales in
the United States of new products under development until it receives clearance
from the FDA. In addition, various foreign countries in which BioStar's products
are, or the combined company's products may be, sold impose local regulatory
requirements. The testing for, preparation of and subsequent FDA and foreign
regulatory review of required filings can be a lengthy, expensive and uncertain
process. Noncompliance with applicable requirements can result in, among other
consequences, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the government
to grant premarket clearance or premarket approval for devices, withdrawal of
marketing clearances or approvals, and criminal prosecution. The FDA also has
the authority to request recall, repair, replacement or refund of the cost of
any device manufactured or distributed by the combined company.
In the United States, medical devices are classified into one of three
classes (i.e., Class I, II or III) on the basis of the controls deemed necessary
by the FDA to ensure their safety and effectiveness. Class I devices are subject
to general controls (e.g., labeling, premarket notification and adherence to
current Good Manufacturing Practices ("cGMP") and Class II devices are subject
to general and special controls (e.g., performance standards, post-market
surveillance, patient registries and FDA guidelines). Generally, Class III
devices are those that must receive premarket approval by the FDA to ensure
their safety and effectiveness (e.g., life-sustaining, life-supporting and
implantable devices or new devices that have been found not to be substantially
equivalent to legally marketed devices). The majority of BioStar's products and
products under development are, and the combined company's diagnostic products
are expected to be, classified as Class I or Class II devices.
Before a new device can be introduced in the market, the manufacturer must
generally obtain FDA clearance or approval through either clearance of a 510(k)
premarket notification or approval of a product marketing application ("PMA"). A
PMA must be filed if a proposed device is a new device not substantially
equivalent to a legally marketed Class I or Class II device, or if it is a
preamendment Class III device for which the FDA has called for PMAs. A PMA must
be supported by valid scientific evidence to demonstrate the safety and
effectiveness of the device, typically including the results of clinical
investigations, bench tests and laboratory and, where applicable, animal
studies. The PMA must also contain a complete description of the device and its
components and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission must include the
proposed labeling, advertising literature and any training materials. The PMA
approval process can be expensive, uncertain and lengthy, and a number of
devices for which FDA approval has been sought by other companies have never
been approved for marketing.
A 510(k) clearance will be granted if the submitted information establishes
that the proposed device is "substantially equivalent" to a legally marketed
Class I or Class II medical device or a preamendment Class III medical device
for which the FDA has not called for PMAs. The FDA recently has been requiring
more rigorous demonstration of substantial equivalence than in the past,
including in some cases, requiring submission of clinical data. It generally
takes from four to 12 months from submission to obtain 510(k) premarket
clearance but may take longer. The FDA may determine that a proposed device is
not substantially equivalent to a legally marketed device or that additional
information is needed before a substantial equivalence determination can be
made. A "not substantially equivalent" determination, or a request for
additional information, could prevent or delay the market introduction of new
products that fall into this category. For any devices that are cleared through
the 510(k) process, modifications or enhancements that could significantly
affect safety or effectiveness, or constitute a major change in the intended use
of the device, will require new 510(k) submissions. Although all of BioStar's
internally developed products currently on the market have received 510(k)
clearances and all products currently under development are expected to be
subject to the 510(k) clearance process, there can be no assurance that the FDA
will not require the combined company to submit a PMA for any products in
development or any future products. If a PMA is
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required, introduction of such products likely will be significantly delayed,
which could have a material adverse effect on the combined company's business,
financial condition or results of operations.
There can be no assurance that the combined company will be able to obtain
necessary regulatory approvals or clearances for its products on a timely basis,
if at all, and delays in receipt of or failure to receive such approvals or
clearances, the loss of previously received approvals or clearances, limitations
on intended use imposed as a condition of such approvals or clearances or
failure to comply with existing or future regulatory requirements could have a
material adverse effect on the combined company's business, financial condition
and results of operations.
Before the manufacturer of a device can submit the device for FDA approval
or clearance, it generally must conduct a clinical investigation of the device.
Although clinical investigations of most devices are subject to the
investigational device exemption ("IDE") requirements, clinical investigations
of in vitro diagnostic tests, such as all of BioStar's products and products
currently under development, are exempt from the IDE requirements, including the
requirement to obtain the FDA's prior approval, provided the testing is
noninvasive, do not require an invasive sampling procedure that presents a
significant risk, does not intentionally introduce energy into the subject and
are not used as a diagnostic procedure without confirmation by another medically
established test or procedure. In addition, patient informed consents and
approvals from the Internal Review Board of the clinic sites must be obtained as
appropriate. The in vitro diagnostic test must be labeled "for research use
only" ("RUO") or "for investigative use only" ("IUO"), and distribution controls
must be established to assure that in vitro diagnostic tests distributed for
research or clinical investigation are used only for those purposes.
The combined company intends to conduct clinical investigations of
diagnostic products under development, which will entail distributing them in
the United States on an IUO basis. There can be no assurance that the FDA would
agree that the combined company's IUO distribution of its in vitro diagnostic
products under development will meet the requirements for IDE exemption.
Furthermore, failure by the combined company or the recipients of its products
under development to maintain compliance with the IDE exemption requirements
could result in enforcement action by the FDA, including, among other things,
the loss of the IDE exemption or the imposition of other restrictions on the
combined company's distribution of diagnostic products under development, which
would adversely affect the combined company's ability to conduct the clinical
investigations necessary to support marketing clearance or approval.
Any devices manufactured or distributed by the combined company pursuant to
FDA clearance are subject to extensive and continuing regulation by the FDA and
certain state agencies. Manufacturers of medical devices for marketing in the
United States are required to adhere to applicable regulations setting forth
detailed cGMP requirements, which include testing, control and documentation
requirements. Manufacturers must also comply with Medical Device Report ("MDR")
requirements that a manufacturer report to the FDA any incident in which its
product may have caused or contributed to a death or serious injury, or in which
its product malfunctioned and, if the malfunction were to recur, it would be
likely to cause or contribute to a death or serious injury. Labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
circumstances, by the Federal Trade Commission. Current FDA enforcement policy
prohibits the marketing of approved medical devices for unapproved uses.
BioStar is, and the combined company will be, subject to routine inspection
by the FDA and certain state agencies for compliance with cGMP requirements, MDR
requirements and other applicable regulations. The FDA has recently finalized
changes to the cGMP requirements, including the addition of design controls that
will likely increase the cost of compliance. Changes in existing requirements or
adoption of new requirements could have a material adverse effect on the
combined company's business, financial condition and results of operations.
There can be no assurance that the combined company will not incur significant
costs to comply with laws and regulations in the future, or that laws and
regulation will not have a material adverse effect upon the combined company's
business, financial condition and results of operations.
Distribution of diagnostic products outside the United States is, and will
be, subject to extensive government regulation. These regulations, including the
requirements for approvals or clearance to market, the time required for
regulatory review and the sanctions imposed for violations, vary from country to
country.
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There can be no assurance that the combined company will obtain regulatory
approvals in such countries or that it will not be required to incur significant
costs in obtaining or maintaining its foreign regulatory approvals. In addition,
the export by the combined company of certain of its products that have not yet
been cleared for domestic commercial distribution may be subject to FDA export
restrictions. Failure to obtain necessary regulatory approvals, the restriction,
suspension or revocation of existing approvals or any other failure to comply
with regulatory requirements could have a material adverse effect on the
combined company's business, financial condition and results of operations.
The combined company's customers which use diagnostic tests for clinical
purposes in the United States are also regulated under the Clinical Laboratory
Improvement Amendments of 1988 ("CLIA"). CLIA is intended to ensure the quality
and reliability of all medical testing in laboratories in the United States by
requiring that any health care facility in which testing is performed meet
specified standards in the areas of personnel qualification, administration,
participation in proficiency testing, patient test management, quality control,
quality assurance and inspections. The regulations have established three levels
of regulatory control based on test complexity -- "waived," "moderately complex"
and "highly complex". BioStar's current OIA tests and ACCEAVA Mono tests are
categorized as "moderately complex" tests for clinical use in the United States.
Under the CLIA regulations, all laboratories performing high or moderately
complex tests are required to obtain either a registration certificate or
certification of accreditation from the Health Care Financial Administration
("HCFA"). As a result of the CLIA requirements, physician office laboratories
and small volume test sites may be dissuaded from initiating, continuing or
expanding patient testing, particularly if the tests are classified as
moderately or highly complex tests. There can be no assurance that the CLIA
regulations and future administrative interpretations of CLIA will not have an
adverse impact on the potential market for the combined company's products.
BioStar's ACCEAVA hCG and ACCEAVA Strep A products are categorized as CLIA
"waived". Laboratories performing CLIA "waived" tests face less stringent
registration and certification requirements. See "BioStar Business -- Products
and Markets".
BioStar and Cortech are, and the combined company will be, subject to
numerous federal, state and local laws relating to such matters as safe working
conditions, manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous substances. There can
be no assurance that the combined company will not incur significant costs to
comply with laws and regulations in the future or that such laws or regulations
will not have a material adverse effect upon the combined company's business,
financial condition and results of operations. See "BioStar
Business -- Regulation".
Uncertain Availability of Third Party Reimbursement for Diagnostic
Products. In the United States, health care providers that purchase diagnostic
products, such as hospitals and physicians, generally rely on third party
payors, principally private health insurance plans, federal Medicare and state
Medicaid, to reimburse all or part of the cost of the procedure. Such third
party payors can affect the pricing or the relative attractiveness of BioStar
products by regulating the maximum amount of reimbursement provided by such
payors for testing services. Each BioStar test has been assigned a payment code
by the HCFA, which determines the amount of reimbursement that third party
payors will reimburse for using BioStar's diagnostic tests. Moreover, certain
health care providers are moving towards a managed care system in which such
providers contract to provide comprehensive health care for a fixed cost per
patient. There may be future changes in third party reimbursement methodology.
The combined company could be adversely affected by changes in reimbursement
policies of governmental or private health insurance payors for procedures in
which diagnostic products are used. Third party payors are increasingly
scrutinizing and challenging the prices charged for medical products and
services. Decreases in reimbursement amounts for tests performed using the
combined company's diagnostic products may decrease amounts physicians and other
practitioners are able to charge patients, which in turn may adversely affect
the combined company's ability to sell diagnostic products on a profitable
basis. Failure by physicians and other users to obtain reimbursement from third
party payors, or changes in government and private third party payors' policies
regarding reimbursement of tests utilizing diagnostic products, could have a
material adverse effect on the combined company's business, financial condition
or results of operation. Given the efforts to control and reduce health care
costs in the United States in recent years, there can be no assurance that
currently available levels of reimbursement will continue to be available in the
future for BioStar's existing products or products under development.
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Market acceptance of BioStar products in international markets is
dependent, in part, upon the availability of reimbursement within prevailing
health care payment systems. Reimbursement and health care payment systems in
international markets vary significantly by country, and include both government
sponsored health care and private insurance.
Cortech and BioStar each believe that the overall escalating cost of
medical products and services has led, and will continue to lead, to increased
pressures on the health care industry, both foreign and domestic, to reduce the
cost of products and services, including diagnostic products offered by BioStar
and to be offered by the combined company. There can be no assurance that third
party reimbursement and coverage will be available or adequate in either U.S. or
foreign markets, that current reimbursement amounts will not be decreased in the
future, or that future legislation, regulation or reimbursement policies of
third party payors will not adversely affect the demand for diagnostic products
or the combined company's ability to sell diagnostic products on a profitable
basis. See "BioStar Business -- Regulation" and "-- Reimbursement".
Regulation of the Pharmaceutical Industry. The FDA is the primary agency
regulating the research, development, manufacture, sale and marketing of drugs
in the United States. From the time at which a promising compound is identified,
regulations dictate its development, approval, marketing and sale. Product
development and approval within this regulatory framework takes a number of
years and involves the expenditure of substantial resources. Many products that
initially appear promising are never approved because they do not meet the
safety and efficacy requirements of the FDA. Regulatory requirements may change
at any stage of the combined company's product development efforts and may
affect approval, delay an application or require additional expenditures by the
combined company. If approval is obtained, failure to comply with ongoing
regulatory requirements, or new information that negatively impacts the safety
or effectiveness of the approved drug, could cause the FDA to withdraw approval
to market the product.
The time period between when a promising new compound is identified and
when human testing is initiated is generally referred to as the preclinical
development period. A series of pharmacologic studies are also performed during
preclinical development to identify the essential characteristics of the
compound's behavior. In addition, both in vitro and in vivo animal toxicity
studies are required to characterize the toxicity profile of the compound.
Preclinical studies are regulated by the FDA under a series of regulations
called the Good Laboratory Practice ("GLP") regulations. Violations of these
regulations can, in some cases, lead to invalidation of the studies, requiring
those studies to be repeated. During this time, a manufacturing process which is
capable of producing the compound in an adequately pure and well characterized
form for human use is developed. Production of compounds for use in humans is
governed by a series of FDA regulations known as GMP regulations, which regulate
all aspects of the manufacturing process.
The entire body of preclinical development work is summarized in a
submission to the FDA called a Notice of Claimed Exemption for Investigational
New Drug ("IND"). FDA regulations allow human clinical trials to begin 30 days
following the submission of the IND, unless the FDA requests additional
information, clarification or additional time to review the IND. There is no
assurance that the submission of an IND will allow a company to commence
clinical trials. Once trials have started, the company or the FDA may decide to
stop the trials because of concerns about the safety of the product or the
adequacy of the trial design. Such action can substantially delay individual
trials as well as the entire development program for that compound and, in some
cases, may require abandonment of a product.
Clinical testing of new compounds in humans is designed to establish both
safety and efficacy in treating a specific disease or condition. These studies
are usually conducted in three phases of testing. In Phase I, a small number of
healthy subjects or patients with the specific condition being targeted are
given the new compound to determine the pharmacokinetic and pharmacologic
actions of the drug in humans, the side effects associated with increasing doses
and, if possible, to gain early evidence of effectiveness. In Phase II, small
numbers of patients with the targeted disease are given the compound to test its
efficacy in treating the targeted disease, to determine the common short-term
side effects and risks associated with the drug and to establish effective dose
levels. Phase III studies are larger studies designed to confirm the compound's
efficacy and safety for the targeted disease and to provide an adequate basis
for physician labeling.
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When a drug is being developed for a condition that is life- or
organ-threatening, or for which there is no alternative therapy, the FDA may, in
certain cases, grant an accelerated approval process. However, there is no
assurance any of the combined company's therapeutic products would be eligible
for this accelerated approval process.
Once adequate data have been obtained in clinical testing to demonstrate
that the compound is both safe and effective for the intended use, all of the
data available is submitted to the FDA in a New Drug Application ("NDA"). The
FDA reviews this application and, once it decides that adequate data are
available which show that the new compound is both safe and effective, approves
the drug for marketing. The approval process may take several years and is a
function of a number of variables including the quality of the submission and
data presented, the potential contribution that the compound will make in
improving the treatment of the disease in question, and the extent of agreement
between the sponsor and the FDA on the product labeling. There can be no
assurance that any new drug will successfully proceed through this approval
process or that it will be approved in any specific period of time.
The FDA may, during its review of an NDA, ask for additional data and may
also require postmarketing testing, including potentially expensive Phase IV
studies. In addition, postmarketing surveillance to monitor the safety and
effectiveness of the drug must be done by the sponsor. The FDA may in some
circumstances impose additional restrictions on the use and or promotion of the
drug which may be difficult and expensive to administer.
Before marketing approval is granted, the facility in which the drug
product is manufactured must be inspected by the FDA and deemed to be adequate
for the manufacture, holding and distribution of drugs in compliance with GMP
requirements. Manufacturers must continue to expend time, money and effort in
the areas of production, quality control, labeling, advertising and promotion of
drug product to ensure full compliance with GMP requirements. Failure to comply
with applicable requirements can lead to FDA demands that production and
shipment cease, that products be recalled or to enforcement actions that can
include seizures, injunctions or criminal prosecution. Such failures or new
information that negatively impact the safety and effectiveness of the drug that
becomes available after approval may lead to FDA withdrawal of approval to
market the product.
There can be no assurances that any product developed by Cortech would
prove to be safe and efficacious in clinical trials or would meet all of the
applicable regulatory requirements necessary to obtain marketing approval.
Moreover, if regulatory approval of a drug is granted, such approval may entail
limitations on the indicated uses for which it may be marketed. In addition, a
failure to comply with applicable regulatory requirements can, among other
things, result in fines, suspension of regulatory approvals, product recalls,
seizure of products, operation restrictions and criminal prosecutions. In
addition, a marketed drug and its manufacturer are subject to continual review
and later discovery of previously unknown problems with a product or
manufacturer could lead to adverse consequences, including withdrawal of the
product from the market.
To market its therapeutic products abroad, the combined company also would
be required to satisfy regulatory requirements implemented by foreign regulatory
authorities. The foreign regulatory approval process includes all of the risks
associated with FDA approval set forth above and may introduce additional
requirements or risks. There can be no assurance that a foreign regulatory body
would accept the data developed by the combined company for any of its potential
therapeutic products. Approval by the FDA does not ensure approval in other
countries, nor does approval by any other country ensure approval decisions by
the FDA.
In Europe, human pharmaceutical products are subject to extensive
regulation concerning testing, manufacture, safety, efficacy, labeling, storage,
record keeping, advertising and promotion. Effective in January 1995, the
European Union enacted new regulations providing for a centralized licensing
procedure, which is mandatory for certain kinds of products, and a decentralized
(country by country) procedure for all other products. A license granted under
the centralized procedure authorizes marketing of the product in all of the
member states of the European Union. Under the decentralized procedure, a
license granted in one member state can be extended to additional member states
pursuant to a simplified application process. The
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assessment of products filed under the centralized procedure is coordinated by
the European Medicine Evaluation Agency ("EMEA"). See "Cortech
Business -- Regulation".
In addition to regulations enforced by the FDA, Cortech is also subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act, regulations promulgated by the United States Department of
Agriculture, and other federal, state or local laws and regulations. Cortech's
research and development involves the controlled use of hazardous materials,
chemicals, viruses and various radioactive compounds. Although Cortech believes
that its safety procedures for handling and disposing of such materials comply
with the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, Cortech could be held liable for
any damages that result and any such liability could exceed the resources of
Cortech.
Competition in the Diagnostics Industry. Competition in the human medical
diagnostics industry is, and is expected to remain, intense. The competitors
range from development stage diagnostics companies to major domestic and
international pharmaceutical companies. Many of these companies have financial,
technical, marketing, sales, manufacturing, distribution and other resources
significantly greater than those of the combined company. In addition, many of
these companies have name recognition, established positions in the market and
long standing relationships with customers and distributors. Moreover, the
diagnostics industry has recently experienced a period of consolidation during
which many of the large domestic and international pharmaceutical companies have
been acquiring mid-sized diagnostics companies, further increasing the
concentration of resources. There can be no assurance that technologies will not
be introduced which could be directly competitive with or superior to BioStar's
OIA technologies.
BioStar's primary competitors for rapid, point-of-care immunodiagnostic
tests and the markets in which they compete with BioStar are as follows: Abbott
Laboratories (GAS and Chlamydia), Carter-Wallace, Inc./Wampole Labs.
("Carter-Wallace") (GAS and Chlamydia), SmithKline Beckman (GAS), Becton,
Dickinson and Company ("Becton Dickinson") (GAS) and Quidel Corporation
("Quidel") (GAS). These companies are larger than BioStar and have substantial
resources and market presence. BioStar competes with these companies on the
basis of product performance and customer service. BioStar's OIA tests have been
demonstrated to be more sensitive and/or specific than any of the rapid,
point-of-care immunodiagnostic tests for GAS and chlamydia sold by these
competitors. Additionally, BioStar believes that its sales and marketing
organization is capable of providing more comprehensive customer support than
competitors who use third party distributors.
BioStar's primary laboratory-based competitor for highly sensitive
immunodiagnostic tests is Gen-Probe Incorporated ("Gen-Probe"). Gen-Probe has
GAS and chlamydia tests which are instrumented and used in high-volume
laboratories. Gen-Probe is a subsidiary of a Japanese company which has
substantial resources. BioStar competes with Gen-Probe on the basis of
cost-effective outcomes, speed, ease-of-use and customer service. BioStar's
products are as sensitive as Gen-Probe's tests and are more specific, but
Gen-Probe's tests require several hours reaction time and are not point-of-care
tests. Therefore, in populations where initial visit follow-up rates are low,
BioStar's tests offer the potential of improved treatment outcomes.
BioStar's OIA tests also compete with traditional agar culture tests for
GAS, GBS and chlamydia. Agar culture tests consist of commodity-based supply
materials. As a result, a variety of diagnostics companies market agar culture
tests. Agar culture tests have historically been considered the standard against
which diagnostic tests for GAS and GBS have been measured. BioStar competes with
agar culture tests on the basis of ease-of-use, reaction speed and sensitivity.
The market for the diagnostic tests that BioStar has under development and
that BioStar has targeted for development is highly competitive and subject to
rapid technological change. Other companies are devoting significant resources
to developing new tests and dominating distribution channels. BioStar believes
that for all of its immunodiagnostic assay products it competes on the basis of
how quickly companies can (i) develop products and demonstrate clinical
feasibility, (ii) complete clinical testing, (iii) obtain regulatory approval,
(iv) obtain favorable reimbursement policies and (v) supply commercial
quantities of the product to the market at a competitive price. The combined
company's inability to compete favorably with respect to any of
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these factors could have a material adverse effect on its business, financial
condition and results of operations. See "BioStar Business -- Competition".
Competition in the Pharmaceutical Industry. The drug development business
which Cortech has pursued in recent years faces intense competition from
pharmaceutical and other biotechnology companies, academic institutions,
governmental agencies and other organizations which conduct research, seek
patent protection and establish collaborative arrangements for product
development and marketing. Many of the competitors for such business have
substantially greater financial, technical and human resources than Cortech and
have significant products which are in development or have been approved. Many
of these competitors have significantly greater experience than Cortech in
undertaking preclinical testing and human clinical trials of new pharmaceutical
products and obtaining FDA approval for products. In addition, if Cortech ever
commences commercial sales of products, it would also be competing with respect
to manufacturing efficiency and marketing capabilities. Furthermore, these other
companies and institutions would compete with Cortech in recruiting and
retaining highly qualified scientific and management personnel.
Many companies are focused on research in the same areas that Cortech has
pursued in recent years. Human neutrophil elastase ("HNE") inhibitors have been
the target of research and development efforts by a number of large
pharmaceutical companies. While no company has succeeded in developing a small
molecular weight HNE inhibitor to the point of filing an application for
marketing approval, there can be no assurance that any of these programs will
not achieve success in the future. Furthermore, at least four other companies
have developed bradykinin antagonists and may be engaged in product development
activities. Numerous companies are developing alternative strategies to treat
inflammation.
Since Cortech has ceased research operations, is decommissioning its
laboratory facilities and reduced the number of full-time, regular employees
from more than 200 to fewer than 15, Cortech has effectively discontinued all
internal efforts to advance its therapeutic research and development activities.
There can be no assurance that the combined company's competitors will not
develop more effective or more affordable products or achieve earlier or more
efficient product commercialization than the combined company. See "Cortech
Business -- Competition".
Future Capital Needs; Uncertainty of Additional Funding. Assuming no
significant uses of cash in acquisition activities or other significant changes
in BioStar's activities, the combined company will have sufficient cash to
satisfy its funding needs for at least the next 24 months. However, both Cortech
and BioStar have incurred negative cash flow from operations since their
respective dates of inception, and neither Cortech nor BioStar expects the
combined company to generate positive cash flow to fund its operations for the
foreseeable future. If the combined company is not able to generate revenues
from collaborations with strategic partners, it may need to raise additional
capital to fund its research and development programs or acquisition activities.
If the combined company needs additional financing to meet its requirements,
there can be no assurance that it will be able to obtain such financing on terms
satisfactory to it, if at all. If the combined company obtains funds through
arrangements with strategic partners or others, as a condition of such funding
the combined company may be required to relinquish rights with respect to the
combined company's technologies, products or sales territories. Alternatively,
any additional equity financing may be dilutive to existing stockholders, and
debt financing, if available, may include restrictive covenants. If adequate
funds are not available, the combined company would be required to limit its
research and development activities, which could have a material adverse effect
on the combined company's business, financial condition and results of
operations.
Uncertainty of Protection of Patents, Trade Secrets and Trademarks. The
combined company's success will depend, in part, on its ability to obtain
patents and license patent rights, to maintain trade secret protection and to
operate without infringing on the proprietary rights of others. BioStar holds 15
United States patents which expire beginning in 1999 and ending in 2014 as well
as 44 foreign patents covering a number of inventions which comprise the OIA
technology, including the base OIA technology, optical surfaces for a variety of
assays, manufacturing methods and new instruments. An additional five United
States and 15 foreign patents are now pending. Cortech holds seven United States
patents and currently has 14 United States patent applications pending which
concern protease inhibitors. Cortech holds five United States patents
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and currently has 14 United States patent applications pending which concern
protease inhibitors. Cortech holds five United States patents, has four United
States patents pending and three patent applications which have been allowed
which concern bradykinin antagonists. Cortech's patents expire beginning in 2008
and ending in 2015. In addition, Cortech holds 26 foreign patents and has 40
foreign patents pending concerning protease inhibitors and bradykinin
antagonists.
Patent applications in the United States are maintained in secrecy until
patents issue, and since publication of discoveries in the scientific or patent
literature tends to lag behind actual discoveries, BioStar and Cortech cannot be
certain that they were the first creator of inventions covered by pending patent
applications or the first to file patent applications on such inventions. There
can be no assurance that BioStar's or Cortech's pending patent applications will
result in issued patents or that any of their issued patents will afford
meaningful protection against a competitor. In addition, patent applications
filed in foreign countries are subject to laws, rules and procedures that differ
from those of the United States and, thus, there can be no assurance that
foreign patent applications related to United States patents will issue.
Furthermore, if these patent applications issue, some foreign countries provide
significantly less patent protection than the United States.
The status of patents involves complex legal and factual questions and the
breadth of claims issued is uncertain. Accordingly, there can be no assurance
that patent applications filed by Cortech or BioStar will result in patents
being issued or that the Cortech or BioStar patents, or any patents that may be
issued to the combined company in the future, will afford protection against
competitors with similar technology. In addition, no assurances can be given
that patents issued to the combined company will not be infringed upon or
designed around by others, or that others will not obtain patents that the
combined company would need to license or design around. If existing or future
patents containing broad claims are upheld by the courts, the holders of such
patents could require other companies to obtain licenses. If the combined
company is found to be infringing third party patents, there can be no assurance
that licenses that might be required for the combined company's products would
be available on reasonable terms, if at all. In addition, a number of
pharmaceutical and biopharmaceutical companies and research and academic
institutions have filed patent applications or received patents in the combined
company's fields. Some of these applications or patents may be competitive with
the combined company's applications or may conflict in certain respects with
claims made under the combined company's applications. Such conflict could
result in a significant reduction of the coverage of the combined company's
patents, if issued. In addition, if patents are issued to other companies that
contain competitive or conflicting claims and such claims are ultimately
determined to be valid, there can be no assurance that the combined company
would be able to obtain licenses to these patents at a reasonable cost or be
able to develop or obtain alternative technology.
The combined company could incur substantial costs in defending itself or
its licensees in litigation brought by others or prosecuting infringement claims
against third parties. If the outcome of any such litigation is unfavorable to
the combined company, the combined company's business could be adversely
affected. To determine the priority of inventions, the combined company may have
to participate in interference proceedings declared by the United States Patent
Office, which could result in substantial cost to the combined company and could
result in an adverse decision as to the priority of the combined company's
inventions.
In addition to patent protection, Cortech and BioStar rely on the law of
unfair competition and trade secrets to protect their proprietary rights. It is
Cortech's and BioStar's policies to require their employees, consultants,
members of the Board, outside scientific collaborators and sponsored researchers
and other advisors to execute confidentiality agreements upon the commencement
of employment or consulting relationships with Cortech or BioStar, respectively.
These agreements provide that all confidential information developed or made
known to the individual during the course of the individual's relationship with
Cortech or BioStar, respectively, is to be kept confidential and not disclosed
to third parties except in specific circumstances. In the case of employees, the
agreements provide that all inventions conceived by the individual shall be the
exclusive property of Cortech or BioStar, respectively. There can be no
assurance that these agreements will not be breached or will provide meaningful
protection or adequate remedies in the event of unauthorized use of the combined
company's trade secrets or disclosure of such information. Cortech and
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BioStar each have taken appropriate physical security measures to protect their
respective intellectual property. There can be no assurance that such security
measures will be adequate. Cortech and BioStar have attempted, and the combined
company will attempt, to protect trade secrets and other proprietary information
through agreements with customers and suppliers, proprietary information
agreements with employees and consultants and other security measures. Although
the combined company intends to protect its rights vigorously, there can be no
assurance that these measures will be successful. See "Cortech Business --
Patents, Trade Secrets and Licenses" and "BioStar Business -- Patents, Trade
Secrets and Trademarks".
Dependence on Key Personnel. Because of the specialized nature of the
combined company's business, the success of the combined company will be highly
dependent upon its ability to attract and retain qualified scientific and
executive personnel. There can be no assurance that the combined company will be
successful in attracting and retaining such skilled personnel, who are generally
in high demand by pharmaceutical and biotechnology companies, universities and
other research institutions. The loss of, or inability to attract, key
scientific and executive personnel may have a material adverse effect on the
combined company's business, financial condition and results of operations. See
"Cortech Business -- Human Resources" and "BioStar Business -- Human Resources".
Risks Regarding Product Liability and Insurance. The testing, manufacturing
and marketing of medical diagnostic devices and therapeutic products entails an
inherent risk of product liability claims. To date, neither Cortech nor BioStar
has experienced any product liability claims, but any such claims arising in the
future could have a material adverse effect on the combined company's business,
financial condition and results of operations. Potential product liability
claims may exceed the amount of the combined company's insurance coverage or may
be excluded from coverage under the terms of the combined company's policy.
Additionally, there can be no assurance that BioStar's existing insurance can be
renewed by Cortech at a cost and level of coverage comparable to that presently
in effect, if at all. In the event that the combined company is held liable for
a claim against which it is not insured or for damages exceeding the limits of
its insurance coverage, such claim could have a material adverse effect on the
combined company's business, financial condition and results of operations.
Risks Regarding Use of Hazardous Materials. Cortech has used a number of
hazardous materials and is subject to federal, state and local laws and
regulations governing the use, storage, handling and disposal of such materials
and certain wastes. Although Cortech believes that its procedures for handling
and disposing of such materials has complied and continues to comply with the
standards prescribed by state and federal regulations, there can be no
assurances that the combined company will not incur significant costs to comply
with such laws and regulations or incur significant liability in connection
with, among other things, the de-commissioning of existing laboratory space and
any future on-site research and development work nor can there be any assurance
that future laws or regulation will not materially or adversely affect the
combined company.
No Assurance of Active Trading Market; Volatility of Cortech Stock
Price. There can be no assurance that an active trading market for Cortech
Common Stock will develop following the Merger, or if one does develop, that it
will be maintained. In addition, the market for Cortech Common Stock is expected
to be highly volatile. The trading price of Cortech Common Stock after the
Merger could be subject to wide fluctuations in response to a variety of
factors, including: (i) quarterly variations in operating and financial results;
(ii) announcement of the initiation or results of a significant research and
development collaboration; (iii) introduction of new product offerings by the
combined company or its competitors; (iv) changes in prices of the combined
company's or its competitors' products; (v) changes in the revenue and operating
income and revenue and operating income growth rates for the combined company;
(vi) changes in government regulation; and (vii) general conditions in the
health care industry and the economy, as well as other events or factors.
Statements or changes in opinions, ratings or earnings estimates by brokerage
firms or industry analysts relating to the market in which the combined company
does business, or relating to the combined company specifically, could result in
immediate and adverse effects on the market price of Cortech's Common Stock.
Such adverse effects could also affect the combined company and the market in
which the combined company will do business after the Merger. In addition, the
stock market has from time to time experienced extreme price and volume
fluctuations which have particularly affected the market price for the
securities of many companies in the health care industry and which often have
been unrelated to the operating
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performance of these companies. These broad market fluctuations may adversely
affect the market price of Cortech Common Stock. In the past, following periods
of volatility in the market price of a company's stock, securities class action
lawsuits have been filed against the publicly-held company. There can be no
assurance that such litigation will not occur in the future with respect to the
combined company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on the combined company's business and results of operations. Any
adverse determination in such litigation could also subject the combined company
to significant liabilities.
Anti-takeover Effect of Delaware Law and Certain Charter Provisions. The
Cortech Board has the authority to issue up to 2,000,000 shares of preferred
stock and to fix the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
stockholders. In addition, the Cortech Board has adopted a stockholder rights
plan (the "Rights Plan") pursuant to which the Cortech Board declared a dividend
of one preferred share purchase right (a "Right") for each then outstanding
share of Cortech Common Stock. When a person or group of affiliated persons (the
"Acquiror") acquires 15% or more of the outstanding Cortech Common Stock, the
holder of each Right (excluding the Acquiror) may exercise it and acquire a
certain number of shares of Cortech Common Stock at a below market price.
The rights of the holders of Cortech Common Stock are subject to and may be
adversely affected by the rights of the holders of any preferred stock that may
be issued in the future. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, may have the effect of delaying, deferring or preventing a
change in control of the combined company, may discourage bids for Cortech
Common Stock at a premium over the market price of such Common Stock and may
adversely affect the market price of and the voting and other rights of the
holders of Cortech Common Stock. In addition, certain provisions of the Cortech
Certificate of Incorporation, the Cortech Bylaws and Delaware law applicable to
the combined company could have the effect of discouraging certain attempts to
acquire the combined company which could deprive the combined company's
stockholders of opportunities to sell their shares at prices higher than
prevailing market prices. See "Description of Cortech Capital Stock".
Control by Directors, Executive Officers, Principal Stockholders and
Affiliated Entities. Upon consummation of the Merger, the combined company's
directors, executive officers, principal stockholders and entities affiliated
with them will, in the aggregate, beneficially own approximately 38.89% of the
outstanding Cortech Common Stock. These persons, if acting together, could
substantially control all matters requiring approval by the stockholders of
Cortech, including the election of directors and the approval of mergers or
other business combination transactions. See "Cortech Principal Stockholders"
and "BioStar Principal Stockholders".
Absence of Dividends. Neither Cortech nor BioStar has ever declared or paid
dividends on its capital stock. The combined company does not anticipate paying
any dividends in the foreseeable future. The combined company intends to retain
its earnings, if any, for the development of the business.
Cautionary Statement Regarding Forward-Looking Information. Certain
statements contained in this Joint Proxy Statement/Prospectus, such as those
concerning BioStar's business strategy, products and revenues, capital
requirements, governmental regulation and other statements regarding matters
that are not historical facts, are forward-looking statements (as such term is
defined in the Securities Act). Because such forward-looking statements include
risks and uncertainties, actual results may differ materially from those
expressed in or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include, but are not limited to, those
discussed herein under "Risk Factors," "Cortech Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Cortech -- Business," "BioStar Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "BioStar -- Business".
Cortech undertakes no obligation to publicly release the results of any revision
of those forward-looking statements that may be made to reflect events and
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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INTRODUCTION
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by (i) the Cortech Board to be used at the Cortech
Special Meeting and (ii) the BioStar Board to be used at the BioStar Special
Meeting. This Joint Proxy Statement/Prospectus is also furnished by Cortech to
BioStar stockholders in connection with the issuance of shares of Cortech Common
Stock in connection with the Merger described herein.
The information set forth herein concerning Cortech has been furnished by
Cortech and the information set forth herein concerning BioStar has been
furnished by BioStar.
THE CORTECH SPECIAL MEETING
PURPOSE OF THE CORTECH SPECIAL MEETING
The purpose of the Cortech Special Meeting is to consider and vote upon (i)
the approval and adoption of the Reorganization Agreement, attached hereto as
Appendix A, and the transactions contemplated thereby (including, the Merger and
the related issuance of Cortech Common Stock to the BioStar stockholders) (the
"Merger Proposal") and (ii) the approval of an amendment to Cortech's
Certificate of Incorporation to (a) change Cortech's corporate name to "BioStar
Holdings, Inc." and (b) effect a one-for [ ] reverse stock split of the
Cortech Common Stock (collectively, the "Cortech Certificate Proposal"). The
Cortech Certificate Proposal will be implemented only if the Merger Proposal is
approved. Approval of the Cortech Certificate Proposal is not a condition to the
consummation of the Merger. Cortech stockholders will also consider and vote
upon such other matters, if any, as may be properly brought before the Cortech
Special Meeting.
THE CORTECH BOARD HAS UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT,
THE MERGER AND THE CORTECH CERTIFICATE PROPOSAL AND HAS UNANIMOUSLY RECOMMENDED
A VOTE FOR APPROVAL OF THE MERGER PROPOSAL AND THE CORTECH CERTIFICATE PROPOSAL.
DATE, TIME AND PLACE OF MEETING
The Cortech Special Meeting will be held at on [ ], 1998,
at [ a.m.], local time.
RECORD DATE; VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Cortech Common Stock at the close of business
on[ ,] 1998 (the "Cortech Record Date") will be entitled to notice
of and to vote at the Cortech Special Meeting. On that date, there were
[ ] shares of Cortech Common Stock outstanding and entitled to vote.
Except for the stockholders identified herein under "Cortech Principal
Stockholders," as of the Cortech Record Date, to the knowledge of Cortech, no
other person beneficially owned more than 5% of the outstanding Cortech Common
Stock. See "Cortech Principal Stockholders".
Each holder of record of Cortech Common Stock on the Cortech Record Date
will be entitled to one vote for each share held on all matters to be voted upon
at the Cortech Special Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of proxies from holders of Cortech Common
Stock and all related costs will be borne by Cortech. In addition, Cortech may
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation materials to such
beneficial owners. Original solicitation of proxies by mail may be supplemented
by telephone, telegram or personal solicitation by directors, officers or other
regular employees of Cortech or, at Cortech's request, D.F. King & Co., Inc.
("D.F. King"). No additional compensation will be paid to directors, officers or
other regular employees for such
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<PAGE> 45
services, but D.F. King will be paid a fee, estimated to be up to approximately
$60,000 plus reasonable expenses, to assist in the solicitation of proxies.
QUORUM; VOTE REQUIRED
The presence, in person or by properly executed proxy, of the holders of a
majority of the issued and outstanding shares of Cortech Common Stock entitled
to vote at the Cortech Special Meeting is necessary to constitute a quorum.
Approval of the Merger Proposal by Cortech's stockholders is not required
by the DGCL. Such approval is, however, required by the rules of the Nasdaq
National Market because (i) the Merger would effect a change of control of
Cortech and (ii) the number of shares of Cortech Common Stock to be issued or
reserved for issuance in connection with the Merger would exceed 20% of the
number of shares of Cortech Common Stock outstanding prior to the Merger.
According to the Bylaws of Cortech and the rules of the Nasdaq National Market,
approval of the Merger Proposal requires the approval of a majority of the
shares of Cortech Common Stock having voting power present in person or by proxy
at the Cortech Special Meeting.
Approval of the Cortech Certificate Proposal requires the approval of a
majority of the outstanding shares of Cortech Common Stock entitled to vote as
of the Cortech Record Date.
The officers and directors of Cortech, who own approximately 2.3% of the
outstanding Cortech Common Stock as of the Cortech Record Date, have entered
into Voting Agreements with BioStar and have delivered an irrevocable proxy to
BioStar pursuant to which they have agreed, subject to certain limitations, to
vote in favor of the Merger Proposal and the Cortech Certificate Proposal.
EFFECT OF ABSTENTIONS AND BROKER NONVOTES
If an executed Cortech proxy is returned and the stockholder has
specifically abstained from voting on the Merger Proposal or the Cortech
Certificate Proposal, the shares represented by such proxy will be considered
present at the Cortech Special Meeting for purposes of determining a quorum, but
will not be considered to have been voted in favor of such matter. Accordingly,
abstentions will have the effect of a negative vote with respect to the Merger
Proposal and the Cortech Certificate Proposal.
Brokerage firms who hold shares in street name for customers have authority
to vote those shares with respect to certain matters if they do not receive
instructions from a beneficial owner. Brokers will not have the authority to
vote Cortech Common Stock with respect to the Merger Proposal or the Cortech
Certificate Proposal if they have not received instructions from the beneficial
owners of such shares. Broker nonvotes will be considered present for purposes
of determining a quorum, but will have no effect on the vote with respect to the
Merger Proposal. Broker nonvotes will have the effect of a negative vote with
respect to the Cortech Certificate Proposal.
VOTING AND REVOCABILITY OF PROXIES
All shares of Cortech Common Stock that are entitled to vote and are
represented at the Cortech Special Meeting, either in person or by properly
executed proxies received prior to or at the Cortech Special Meeting and not
duly and timely revoked, will be voted at the Cortech Special Meeting in
accordance with the instructions indicated on such proxies. If no such
instructions are indicated, such proxies will be voted FOR approval of the
Merger Proposal and FOR approval of the Cortech Certificate Proposal.
If any other matters are properly presented for consideration at the
Cortech Special Meeting (including, among other things, consideration of a
motion to adjourn or postpone the Cortech Special Meeting to another time and/or
place (including, without limitation, for the purpose of soliciting additional
proxies)), the persons named in the enclosed form of proxy and voting thereunder
will have the discretion to vote on such matters in accordance with their best
judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Cortech, at or before the taking of the vote
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<PAGE> 46
at the Cortech Special Meeting, a written notice of revocation bearing a later
date than the proxy; (ii) duly executing a later-dated proxy relating to the
same shares and delivering it to the Secretary of Cortech before the taking of
the vote at the Cortech Special Meeting or (iii) attending the Cortech Special
Meeting and voting in person (although attendance at the Cortech Special Meeting
will not in and of itself constitute a revocation of proxy). Any written notice
of revocation or subsequent proxy should be sent so as to be delivered to
Cortech, Inc. at 6850 North Broadway, Suite G, Denver, Colorado 80221,
Attention: Corporate Secretary, or hand-delivered to the Secretary at Cortech,
in each case at or before the taking of the vote at the Cortech Special Meeting.
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<PAGE> 47
THE BIOSTAR SPECIAL MEETING
PURPOSE OF THE BIOSTAR SPECIAL MEETING
The purpose of the BioStar Special Meeting is to consider and vote upon (i)
the approval and adoption of the Merger Proposal and (ii) the approval and
adoption of the BioStar Certificate Proposal.
THE BIOSTAR BOARD UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT AND THE
MERGER AND RECOMMENDS A VOTE FOR ADOPTION AND APPROVAL OF THE MERGER PROPOSAL
AND FOR APPROVAL OF THE BIOSTAR CERTIFICATE PROPOSAL.
DATE, TIME AND PLACE OF MEETING
The BioStar Special Meeting will be held at on [ ],
1998, at [ a.m.], local time.
RECORD DATE; VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of BioStar Capital Stock at the close of business on
, 1998 (the "BioStar Record Date") will be entitled to notice of and
to vote at the BioStar Special Meeting. On that date, there were
shares of BioStar Capital Stock outstanding and entitled to vote. Except for
the stockholders identified herein under "BioStar Principal Stockholders," as of
the BioStar Record Date, to the knowledge of BioStar, no other person
beneficially owns more than 5% of the outstanding BioStar Capital Stock. See
"BioStar Principal Stockholders".
Each holder of record of BioStar Capital Stock on the BioStar Record Date
will be entitled to one vote for each share held on all matters to be voted upon
at the BioStar Special Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of proxies from holders of BioStar Capital
Stock and all related costs will be borne by BioStar. In addition, BioStar may
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation materials to such
beneficial owners. Original solicitation of proxies by mail may be supplemented
by telephone, telegram or personal solicitation by directors, officers or other
regular employees of BioStar. No additional compensation will be paid to
directors, officers or other regular employees for such services.
QUORUM; VOTE REQUIRED
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of BioStar Capital Stock entitled to vote at
the BioStar Special Meeting is necessary to constitute a quorum.
Approval of the Merger Proposal and the BioStar Certificate Proposal will
each require approval by the affirmative vote of the holders of a majority of
the outstanding shares of BioStar common stock and BioStar preferred stock
(voting on an as-converted-to-common stock basis), voting together as a single
class, and the affirmative vote of a majority of the shares of each series of
BioStar preferred stock voting as separate classes.
Pursuant to the BioStar Voting Agreements, certain directors, officers and
other affiliates of BioStar, who together hold approximately 65% of the BioStar
common stock and BioStar preferred stock voting as a single class, and 100% of
the Series A Preferred Stock, 100% of the Series B Preferred Stock, 100% of the
Series C Preferred Stock, at least 50% of the Series D Preferred Stock and at
least 38% of the Series E Preferred Stock voting as separate classes,
outstanding as of the BioStar Record Date, have agreed to vote in favor of the
Merger Proposal and the BioStar Certificate Proposal. See "Approval of the
Merger and Related Transactions -- Voting Agreements".
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<PAGE> 48
EFFECT OF ABSTENTIONS
Abstentions may be specified on the Merger Proposal and the BioStar
Certificate Proposal. If an executed BioStar proxy is returned and the
stockholder has specifically abstained from voting on any matter, the shares
represented by such proxy will be considered present at the BioStar Special
Meeting for purposes of determining a quorum, but will not be considered to have
been voted in favor of such matter. Abstentions will have the effect of a
negative vote with respect to the Merger Proposal and the BioStar Certificate
Proposal.
VOTING AND REVOCABILITY OF PROXIES
All shares of BioStar Capital Stock that are entitled to vote and are
represented at the BioStar Special Meeting either in person or by properly
executed proxies received prior to or at the BioStar Special Meeting and not
duly and timely revoked will be voted at the BioStar Special Meeting in
accordance with the instructions indicated on such proxies. If no such
instructions are indicated, such proxies will be voted for the approval of the
Merger Proposal and for approval of the BioStar Certificate Proposal.
If any other matters are properly presented for consideration at the
BioStar Special Meeting (or any adjournments or postponements thereof)
including, among other things, consideration of a motion to adjourn or postpone
the BioStar Special Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed forms of proxy and voting thereunder will have the discretion to
vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of BioStar at or before the taking of the vote at the BioStar
Special Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of BioStar before the taking of the vote at the
BioStar Special Meeting or (iii) attending the BioStar Special Meeting and
voting in person (although attendance at the BioStar Special Meeting will not in
and of itself constitute a revocation of proxy). Any written notice of
revocation or subsequent proxy should be sent so as to be delivered to BioStar,
Inc. at 6655 Lookout Road, Boulder, Colorado 80301, Attention: Secretary, or
hand-delivered to the Secretary at BioStar, in each case at or before the taking
of the vote at the BioStar Special Meeting. Proxies given by BioStar
stockholders pursuant to the BioStar Voting Agreements are irrevocable.
CORTECH STOCK PRICE AND DIVIDEND INFORMATION
Since November 24, 1992, Cortech Common Stock has been quoted on the Nasdaq
National Market under the symbol "CRTQ". The following table sets forth, for the
quarters indicated, the reported high and low closing sales prices of Cortech
Common Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
CORTECH COMMON STOCK
---------------------
HIGH LOW
-------- -------
<S> <C> <C>
1996
First Quarter............................................. 3.688 2.188
Second Quarter............................................ 3.438 2.688
Third Quarter............................................. 3.188 2.125
Fourth Quarter............................................ 2.500 1.375
1997
First Quarter............................................. 2.000 0.844
Second Quarter............................................ 0.938 0.594
Third Quarter............................................. 0.813 0.500
Fourth Quarter............................................ 0.844 0.531
1998
First Quarter (through February 12, 1998)................. 0.688 0.578
------- ------
</TABLE>
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<PAGE> 49
The last sales price per share of Cortech Common Stock, as reported by the
Nasdaq National Market, was $0.594 on December 19, 1997, the last trading day
preceding the public announcement of the proposed Merger on December 22, 1997.
On February 12, 1998, the last reported sale price per share of Cortech Common
Stock on the Nasdaq National Market was $0.61.
As of the Cortech Record Date and the BioStar Record Date, respectively,
there were approximately 559 record holders of Cortech Common Stock and
approximately 239 record holders of BioStar Capital Stock. Neither Cortech nor
BioStar has ever paid cash dividends on its respective capital stock. The
policies of Cortech and BioStar are to retain earnings for use in their
respective businesses.
CORTECH AND BIOSTAR STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR CORTECH COMMON STOCK.
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
BACKGROUND OF THE MERGER
Following upon the terminations in December 1996 and March 1997 of
Cortech's corporate collaborative arrangements with key partners and the
announcement of disappointing test results involving Cortech's principal
technologies under development, Cortech's Board determined that (i) an
aggressive restructuring would be necessary to conserve Cortech's existing
resources and (ii) a strategic transaction would likely be required in order for
Cortech's stockholders to achieve appropriate value from their investment in
Cortech. In 1997, Cortech promptly began implementation in the second quarter of
a significant corporate-wide downsizing (from 75 full-time, regular employees to
approximately 30) and undertook an additional downsizing in the fourth quarter
(to less than 15 full-time, regular employees) following the contractually
scheduled end, on September 14, 1997, of Cortech's operational responsibilities
with respect to its last remaining corporate collaborative arrangement.
As a result of these downsizings, which were undertaken to accomplish the
fundamental objective of reducing Cortech's rate of spending thereby preserving
cash, Cortech no longer had the staff that would be required to conduct research
and development within Cortech. Accordingly, Cortech faced a limited number of
alternatives which included:
(i) continuing as a stand-alone entity (i.e., attempting to attract
new collaborative partners to support research and development of
technology, including in areas where significant corporate partners had
recently terminated arrangements and ceded back to Cortech related rights);
(ii) engaging in a voluntary corporate liquidation; or
(iii) entering into a strategic transaction to realize appropriate
value from Cortech's tangible and intangible assets in a reasonably
expedient manner.
Insofar as the stand-alone alternative would continue incrementally to
deplete Cortech's cash and impair Cortech's ability to realize appropriate value
from its technology assets, from April 1997 to the date of Cortech's execution
of the Reorganization Agreement, management and the Cortech Board reviewed
potential opportunities for the realization of appropriate value from Cortech's
tangible and intangible assets. This activity included reviewing numerous
potential strategic transactions with third parties involving either a
combination with Cortech or a sale of certain of its assets. Management and the
Cortech Board also reviewed, and used as a baseline analysis against which to
measure potential strategic transactions, the possible returns for stockholders
in the event of a voluntary corporate liquidation. With the exception of
BioStar, however, no discussions or exchanges by Cortech with any third party
during this period led to (i) any agreement in principle regarding a proposed
transaction or (ii) any sustained discussions regarding the terms of any
transaction which management or the Cortech Board believed might reasonably
represent a transaction for the stockholders to achieve appropriate value from
their investment in Cortech.
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<PAGE> 50
From December 1996 through early December 1997 Cortech internally discussed
and interviewed and held discussions with outside investment bankers regarding
potential strategic transactions. Such discussions did not result in a formal
engagement until December 8, 1997, at which time Cortech formally retained Cowen
to serve as its financial advisor in connection with Cortech's exploration of
strategic alternatives.
In February 1997, the BioStar Board began initial discussions concerning
the feasibility of a strategic transaction by which BioStar could achieve a
significant cash infusion to fund future growth opportunities and provide an
opportunity for stockholder liquidity. In May 1997, BioStar engaged Lehman
Brothers Inc. ("Lehman") to provide financial advisory services to BioStar
(including identifying opportunities for a potential strategic transaction).
Between May 1997 and the execution of the Reorganization Agreement, BioStar
engaged in discussions and exchanges with third parties regarding various
potential strategic transactions as well as the evaluation of a variety of
financing alternatives, both public and private.
On October 23, 1997, Teresa W. Ayers, President and Chief Executive Officer
of BioStar, was introduced to Kenneth R. Lynn, President, Chief Executive
Officer and Chairman of the Board of Cortech, through Cooley Godward LLP
("Cooley"). Cooley has acted as legal counsel to both entities (although Cortech
had retained Pillsbury Madison & Sutro LLP ("Pillsbury") in August 1997 to act
as legal counsel in connection with potential strategic transactions).
On October 24, 1997, officers of Cortech and BioStar (including Mr. Lynn
and Ms. Ayers) met at Cortech for a tour of its facilities, an exchange of
general information and a discussion regarding the potential benefits from a
combination of the two entities. The discussion was general in nature and no
formal proposal or relative valuation was discussed. Cortech and BioStar also
entered into a mutual non-disclosure agreement as of October 24, 1997.
On October 28, 1997, Mr. Lynn and Ms. Ayers participated in a telephone
conference with a representative from Lehman during which the possibility of a
combination of Cortech and BioStar was discussed. At the end of the conference,
Mr. Lynn and Ms. Ayers agreed to meet in person with the representative from
Lehman to engage in further discussions.
On October 31, 1997, officers of BioStar and Cortech (including Mr. Lynn
and Ms. Ayers) met at BioStar for a tour of its facility and discussion
concerning the business operations, products and financial results and prospects
of BioStar.
On November 5, 1997, officers of BioStar and Cortech (including Mr. Lynn
and Ms. Ayers) met with representatives of Lehman and discussed the possibility
of a business combination, including possible terms and structure. A
representative of Lehman outlined a proposed combination involving an issuance
of shares by Cortech to BioStar's stockholders to accomplish a relative
valuation between Cortech and BioStar, respectively, of approximately 30:70. Mr.
Lynn responded that such a relative valuation would be unacceptable for Cortech
and, following the November 5, 1997 meeting, officers of BioStar and Cortech
(principally Mr. Lynn and Ms. Ayers) engaged in various discussions regarding
relative valuation and other significant terms of a possible transaction.
On November 12, 1997, officers of Cortech (including Mr. Lynn) and one
outside member of the Cortech Board (Bert Fingerhut) met with Ms. Ayers and
Alexander E. Barkas, Ph.D., Chairman of the BioStar Board, to provide BioStar
with an overview of Cortech's business and technology development status.
On November 13, 1997, the BioStar Board met at a regularly scheduled
meeting at which the potential merits of a business combination with Cortech
were discussed relative to other financial and strategic alternatives available
to BioStar. Following such discussion, the BioStar Board authorized management
to undertake the negotiation of a potential business combination with Cortech.
On November 24, 1997, officers of BioStar and Cortech (including Mr. Lynn
and Ms. Ayers) met with representatives of Cowen. At this meeting, BioStar
presented an overview of its business operations, products and financial results
and prospects.
Following the November 24, 1997 meeting, representatives of Lehman
circulated an outline for a possible combination of BioStar and Cortech. As part
of the discussions concerning such outline, officers of BioStar
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<PAGE> 51
and Cortech addressed the matter of relative valuation, eventually agreeing upon
a relative valuation for Cortech and BioStar, respectively, of 40:60 as the
basis for a proposed combination.
During the period of meetings between officers of Cortech and BioStar, Mr.
Lynn communicated regularly with his fellow members of the Cortech Board
regarding the status of discussions between the parties. In addition, officers
of Cortech (including Mr. Lynn) consulted regularly with representatives from
Cowen and Pillsbury regarding such discussions.
From December 5, 1997, when a draft of the Reorganization Agreement was
first circulated, until December 22, 1997, representatives from Cortech, BioStar
and their respective legal counsel negotiated the terms of the Reorganization
Agreement as well as the terms of related arrangements and documents.
On December 12, 1997, the Cortech Board met at a regularly scheduled
meeting at which the potential merits of a business combination with BioStar
were discussed relative to other potential financial and strategic alternatives
available to Cortech (in particular, a voluntary corporate liquidation). The
meeting was attended by representatives of Cowen and Pillsbury. In addition,
BioStar's management team (including Ms. Ayers) and Chairman of the Board joined
the meeting to make a presentation to the Cortech Board regarding BioStar and to
answer questions regarding BioStar's business operations, products and financial
results and prospects. Following this presentation, the representatives of
BioStar were excused from the meeting and the Cortech Board considered the
preliminary analyses of Cowen regarding a combination of Cortech and BioStar
from a financial point of view as well as the alternative of a voluntary
corporate liquidation. Following discussion, and based upon its review of the
information presented at the meeting, the Cortech Board authorized management to
undertake the negotiation of a potential business combination with BioStar.
On December 19, 1997, at a special telephonic meeting of the BioStar Board,
(1) management of BioStar and representatives from Cooley reviewed the results
of their due diligence of Cortech, (2) management reviewed the possible benefits
and risks relating to the proposed combination, (3) the Directors reviewed with
management and representatives of Cooley the specific terms of the proposed
Reorganization Agreement and (4) Lehman presented an analysis regarding the
combination from a financial point of view. At the meeting, the BioStar Board
unanimously approved the Merger and the Reorganization Agreement.
On December 19, 1997, at a special meeting of the Cortech Board, (1)
management of Cortech and a representative from Pillsbury reviewed the results
of due diligence conducted with respect to BioStar, (2) management reviewed the
possible benefits and risks relating to the proposed combination, (3) the
Cortech Board reviewed with management and a representative of Pillsbury the
specific terms of the proposed Reorganization Agreement and (4) Cowen made a
presentation regarding the combination from a financial point of view. The
meeting was adjourned to December 22, 1997 at which time (i) the Cortech Board
reviewed with management and a representative of Pillsbury the proposed
Reorganization Agreement and related documents in their final form, (ii) Cowen
delivered its oral opinion that the financial terms of the Merger were fair, as
of such date and from a financial point of view, to Cortech (and such oral
opinion was subsequently confirmed by delivery of the written opinion of Cowen
dated December 22, 1997) and (iii) the Cortech Board unanimously approved the
Reorganization Agreement and the Merger.
On December 22, 1997, Cortech and BioStar executed the Reorganization
Agreement and, subsequently, issued a joint press release announcing the
execution of the Reorganization Agreement.
CORTECH'S REASONS FOR THE MERGER
In the course of reaching its decision to approve the Reorganization
Agreement and the Merger, the Cortech Board consulted with Cortech's legal and
financial advisors, as well as with Cortech's management and others, and
considered a number of factors, including that:
(1) The combination of Cortech's cash resources and status as a public
company with BioStar's products, platform technology and organization would
offer Cortech's stockholders an opportunity to realize appropriate value
from their investment in Cortech;
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<PAGE> 52
(2) The combination would afford Cortech's existing technology an
enhanced opportunity to be (i) recognized as valuable and (ii) advanced in
externally funded development, thereby permitting Cortech stockholders an
opportunity to realize any benefits therefrom;
(3) As compared with a voluntary corporate liquidation, (i) the
combination would permit Cortech's stockholders an opportunity to share in
potential value which would otherwise be lost in a liquidation (such as
value potentially to be derived from Cortech's public company status as
well as the potential going concern value of other intangible and tangible
Cortech assets) and (ii) Cortech's stockholders would not have to face
risks as to whether or not reserves allocated to cover residual liabilities
in connection with any liquidation would prove to be adequate;
(4) After reviewing numerous potential strategic transactions, and
balanced against Cortech's diminishing prospects and status as a
stand-alone entity (due, primarily, to continued incremental depletion of
cash assets, the impairment of Cortech's ability (through a series of
corporate downsizings) to undertake internal research and development and
the resulting/growing potential for technological stagnation), management
and the Cortech Board determined that an alternative transaction of
comparable or superior terms for Cortech's stockholders likely would not
become available to Cortech within the reasonably foreseeable future (if
ever); and
(5) BioStar possesses a variety of assets and resources that would
bring value to a combined entity and thereby potentially benefit Cortech's
stockholders, including: (i) a capable management team with the
demonstrated ability to lead the development and commercialization of
products; (ii) a business plan for continued efforts to develop and
commercialize products; and (iii) current product revenues which would, at
least partially, offset continuing research and development expenses (and
thereby extend the cash resources of a combined company).
In the course of its deliberations, the Cortech Board reviewed and
considered a number of other factors relevant to the Merger and the
Reorganization Agreement, including:
(a) Information concerning the respective businesses, financial
position, results of operations, product development schedules,
technologies and properties of Cortech and BioStar;
(b) Cowen's oral opinion, delivered on December 22, 1997 and
subsequently confirmed in writing, that as of such date the financial terms
of the Merger were fair, from a financial point of view, to Cortech;
(c) Analysis from management concerning the possible returns to
Cortech stockholders in the event of a voluntary corporate liquidation;
(d) Analysis from management concerning due diligence conducted with
respect to BioStar's business, operations, technology and competitive
position, as well as the potential opportunities for growth by a combined
company;
(e) Presentations from management and a representative from Pillsbury
concerning the specific terms of the Reorganization Agreement and related
documents, including the obligations of Cortech to refrain from soliciting
or encouraging other proposals with respect to a strategic combination,
provisions relating to the possible payment of a break-up fee, the possible
circumstances under which the Reorganization Agreement could be terminated
and the conditions precedent to a closing of the Merger; and
(f) The requirements that the Merger be approved by votes of the Cortech
and BioStar stockholders, respectively.
The Cortech Board also considered certain potentially negative factors in
its deliberations concerning the Merger, including (i) the possibility that the
anticipated benefits of the Merger would not be realized, (ii) the dilutive
effects of the issuance of shares of Cortech Common Stock in the Merger to the
stockholders of BioStar, (iii) the possibility that the Merger would not be
consummated and (iv) other risks described above
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<PAGE> 53
under "Risk Factors". The Cortech Board concluded that the potential
benefits of the Merger to Cortech and its stockholders outweighed the potential
risks.
The foregoing discussion of the information and factors considered by the
Cortech Board is not intended to be exhaustive, but is believed to include the
material information and factors considered by the Cortech Board. In reaching a
determination whether to approve the Reorganization Agreement and the Merger, in
view of the variety of factors considered the Cortech Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative or
specific weights to the information and factors considered in reaching its
determinations, and individual directors may have given differing weights to
different factors.
CORTECH BOARD RECOMMENDATION
FOR THE REASONS DISCUSSED ABOVE, THE CORTECH BOARD HAS DETERMINED THAT THE
TERMS OF THE REORGANIZATION AGREEMENT AND THE MERGER ARE FAIR TO, AND IN THE
BEST INTERESTS OF, CORTECH AND THE CORTECH STOCKHOLDERS. ACCORDINGLY, THE
CORTECH BOARD HAS UNANIMOUSLY RECOMMENDED THAT CORTECH STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE MERGER PROPOSAL.
BIOSTAR'S REASONS FOR THE MERGER
In reaching its decision to approve the Reorganization Agreement and the
Merger, the BioStar Board consulted with BioStar's legal and financial advisors,
and considered a number of factors, including that:
(1) The Merger is expected to provide BioStar with substantially
greater resources, including cash and a publicly-traded security, to fund
internal development work and pursue strategic transactions, including
acquisitions and strategic partnerships.
(2) BioStar's stockholders will receive Cortech Common Stock in the
Merger for which there is a ready public market, in contrast to the
illiquid nature of their present holdings of BioStar Capital Stock.
(3) The Merger is expected to provide BioStar with access to the
intangible assets associated with Cortech's business.
(4) The parties have overlapping technology interests. BioStar has
completed feasibility testing for brain marker assays which may be useful
for developing a brain trauma diagnostic test.
(5) The Merger is expected to provide BioStar with access to Cortech's
laboratory and office facilities in Denver, Colorado which may be useful
for BioStar's continued growth.
In addition to the factors described above, the BioStar Board considered,
among other things, the following factors:
(a) Detailed financial analyses, pro forma and other information with
respect to Cortech and BioStar presented by Lehman and BioStar's
management;
(b) The BioStar Board's own knowledge of Cortech, BioStar and their
respective businesses, financial position, historical and prospective
results of operations and product development plans;
(c) The current economic, financial and business climate, including
the states of the clinical diagnostics and pharmaceutical industries,
including current and future competition, and consolidations within the
industries;
(d) The historical price and volume trading data for Cortech's Common
Stock as well as the composition of Cortech's stockholder base;
(e) Other alternatives available to BioStar in short and long-term
time frames, including the availability of public and private financing, a
range of business combinations and a sale of BioStar to achieve BioStar's
funding, liquidity and other strategic objectives;
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<PAGE> 54
(f) The expectation that the Merger will be tax free for federal income
tax purposes to BioStar's stockholders; and
(g) Reports from management and legal and financial advisors
concerning the specific terms of the Reorganization Agreement and ancillary
documents, including the obligation of Cortech not to solicit or encourage
other acquisition proposals, the breakup fee provisions, the circumstances
under which either Cortech or BioStar can terminate the Reorganization
Agreement and the closing conditions to the Merger.
The BioStar Board also considered a number of potential risks relating to
the Merger, including (i) the risk that the Merger would not be consummated due
to the failure of the parties to satisfy conditions to the Merger, (ii) the risk
that the market price of Cortech Common Stock might decline between execution of
the Reorganization Agreement and consummation of the Merger, (iii) the risk that
despite the intentions and efforts of the parties, the key technical and
management personnel of Cortech and BioStar required to facilitate a successful
integration may not remain with the combined company, and (iv) the other risks
described above under "Risk Factors".
The foregoing discussion of the factors considered by the BioStar Board is
not intended to be exhaustive but is intended to include all of the material
factors considered by the BioStar Board. In view of the complexity and variety
of factors considered by the BioStar Board, the BioStar Board did not consider
it practical to quantify or otherwise attempt to assign any relative or specific
weights to the specific factors considered, and individual directors may have
given differing weights to different factors.
FOR THE REASONS DISCUSSED ABOVE, THE BIOSTAR BOARD HAS APPROVED THE
REORGANIZATION AGREEMENT AND THE MERGER AND HAS DETERMINED THAT THE TERMS OF THE
REORGANIZATION AGREEMENT AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS
OF, BIOSTAR AND THE BIOSTAR STOCKHOLDERS. ACCORDINGLY, THE BIOSTAR BOARD HAS
UNANIMOUSLY RECOMMENDED THAT THE BIOSTAR STOCKHOLDERS VOTE IN FAVOR OF APPROVAL
OF THE MERGER PROPOSAL.
OPINION OF FINANCIAL ADVISOR TO CORTECH
Pursuant to an engagement letter dated December 8, 1997 (the "Cowen
Engagement Letter"), Cortech retained Cowen to serve as its financial advisor in
connection with Cortech's exploration of strategic alternatives. As part of this
assignment, Cowen was asked to render an opinion to the Cortech Board as to the
fairness to Cortech, from a financial point of view, of the terms of the Merger.
On December 22, 1997, Cowen delivered its oral opinion to the Cortech
Board, subsequently confirmed in writing as of the same date, to the effect
that, as of December 22, 1997, the financial terms of the Merger pursuant to the
Reorganization Agreement were fair, from a financial point of view, to Cortech.
THE FULL TEXT OF THE WRITTEN OPINION OF COWEN, DATED DECEMBER 22, 1997, IS
ATTACHED HERETO AS APPENDIX C AND IS INCORPORATED BY REFERENCE. HOLDERS OF
CORTECH COMMON STOCK ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF
THE REVIEW BY COWEN. THE SUMMARY OF THE WRITTEN OPINION OF COWEN SET FORTH
HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION. COWEN'S ANALYSES AND OPINION WERE PREPARED FOR THE CORTECH BOARD AND
ARE DIRECTED TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE FINANCIAL
TERMS OF THE MERGER. THE OPINION DOES NOT CONSTITUTE AN OPINION AS TO THE MERITS
OF THE MERGER OR A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW TO VOTE ON THE
PROPOSED MERGER. THE AMOUNT OF STOCK CONSIDERATION WAS DETERMINED THROUGH
NEGOTIATIONS BETWEEN CORTECH AND BIOSTAR. COWEN DID NOT MAKE ANY RECOMMENDATION
TO CORTECH AS TO FORM AND AMOUNT OF CONSIDERATION TO BE PAID IN THE MERGER.
Cowen was selected by the Cortech Board as its financial advisor, and to
render an opinion to the Board, because Cowen is a nationally recognized
investment banking firm and because certain principals of Cowen have substantial
experience in transactions similar to the Merger and are familiar with Cortech
and its businesses. As part of its investment banking business, Cowen is
regularly engaged in the valuation of businesses and their securities in
connection with mergers, acquisitions and valuations for corporate and other
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purposes. In the ordinary course of its business, Cowen trades equity securities
of Cortech for its account and for the accounts of its customers, and,
accordingly, it may at any time hold a long or short position in such
securities.
In arriving at its opinion, Cowen (a) reviewed Cortech's financial
statements for the fiscal years ended December 31, 1994, 1995, and 1996 and for
the quarters ended September 30, 1996 and September 30, 1997, respectively,
certain publicly available filings with the Securities and Exchange Commission
and certain other relevant financial and operating data of Cortech; (b) reviewed
BioStar's financial statements for the fiscal years ended December 31, 1994,
1995, and 1996 and for the quarters ended September 30, 1996 and September 30,
1997, respectively, and certain other relevant financial and operating data of
BioStar; (c) reviewed a draft Reorganization Agreement, dated December 22, 1997;
(d) held meetings and discussions with management and senior personnel of
Cortech and BioStar to discuss the business, operations, historical financial
results and future prospects of Cortech and BioStar; (e) reviewed financial
projections furnished to Cowen by the management of Cortech, including, among
other things, the capital structure, sales, net income, cash flow, capital
requirements and other data of Cortech that Cowen deemed relevant; (f) reviewed
financial projections furnished to Cowen by the management of BioStar,
including, among other things, the capital structure, sales, net income, cash
flow, capital requirements and other data of BioStar that Cowen deemed relevant;
(g) reviewed the valuation of Cortech and BioStar in comparison to other similar
publicly traded companies; (h) analyzed the potential pro forma financial
effects of the Merger; and (i) conducted such other studies, analysis, inquiries
and investigations as Cowen deemed appropriate. Cowen was not requested to, and
did not, solicit third party indications of interest in acquiring all or
substantially all of the stock or assets of Cortech.
In rendering its opinion, Cowen relied upon Cortech's and BioStar's
managements with respect to the accuracy and completeness of the financial and
other information furnished to it as described above. Cowen assumed that
financial forecasts, projections and estimates of operating efficiencies and
potential synergies reflected the best currently available estimates of expected
future financial performance of their respective entities. Cowen has not assumed
any responsibility for independent verification of such information, including
financial information, nor has it made an independent evaluation or appraisal of
any of the properties or assets of Cortech or BioStar. Cowen has conducted no
inquiry as to legal matters relating to Cortech and BioStar, and Cowen expresses
no opinion with respect to any such matters.
Cowen's opinion is necessarily based on general economic, market, financial
and other conditions as they exist on, and can be evaluated as of, the date of
the opinion, as well as the information currently available to Cowen at that
time. It should be understood that, although subsequent developments may affect
Cowen's opinion, Cowen does not have any obligation to update, revise or
reaffirm its opinion. Cowen's opinion does not constitute a recommendation to
any stockholder as to how such stockholder should vote on the proposed Merger.
Cowen's opinion does not imply any conclusion as to the likely trading range for
Cortech Common Stock following consummation of the Merger or otherwise, which
may vary depending on numerous factors that generally influence the price of
securities. Cowen's opinion is limited to the fairness, from a financial point
of view, of the terms of the Merger. Cowen expresses no opinion with respect to
any other reasons, legal, business or otherwise, that may support the decision
of the Cortech Board to approve, or Cortech's decision to consummate, the
Merger.
For purposes of rendering its opinion, Cowen has assumed in all respects
material to its analysis, that the representations and warranties of each party
contained in the Reorganization Agreement are true and correct, that each party
will perform all of the covenants and agreements required to be performed by it
under the Reorganization Agreement and that all conditions to the consummation
of the Merger will be satisfied without waiver thereof. Cowen has also assumed
that all governmental, regulatory or other consents and approvals contemplated
by the Reorganization Agreement will be obtained and that in the course of
obtaining any of those consents no restrictions will be imposed or waivers made
that would have an adverse effect on the contemplated benefits of the Merger.
The following is a summary of certain financial analyses performed by Cowen
to arrive at its opinion. Cowen performed certain procedures, including each of
the financial analyses described below, and reviewed
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with the management of Cortech the assumptions on which such analyses were based
and other factors, including the historical and projected results of Cortech and
BioStar. No limitations were imposed by the Cortech Board with respect to the
investigations made or procedures followed by Cowen in rendering its opinion.
Valuation of Cortech
Analysis of Certain Publicly Traded Companies. Using publicly available
information, Cowen compared, among other things, the market value of the total
outstanding common equity (the "Market Value") and market value minus "cash"
(the "Technology Value") of Cortech to the corresponding Market Value and
Technology Value of certain other biotechnology companies (the "Biotech
Companies") whose securities are publicly traded and which Cowen deemed
comparable to Cortech. "Cash" equals cash and cash equivalents plus marketable
securities. The Technology Values of these companies is a measure of the value
attributed by the market to the current value of the companies' products under
development. Selected Biotech Companies included: Anergen, Inc., Corvas
International, Inc., Cytel Corporation, La Jolla Pharmaceutical Company,
Repligen Corporation, T Cell Sciences, Inc., and Xenova Group plc. Technology
Values ranged from a high of $45.2 million to a low of ($6.9) million. Cortech's
Technology Value was calculated to be ($4.0) million. Based on this analysis,
Cortech's Technology Value was shown to be at the low end of the range of
Technology Values of the Biotech Companies.
Although the Biotech Companies were used for comparison purposes, none of
such companies is directly comparable to Cortech. Accordingly, an analysis of
the results of such a comparison is not purely mathematical but instead involves
complex considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the Biotech Companies and
other factors that could affect the public trading value of the Biotech
Companies or the company to which they are being compared.
Liquidation Analysis. Cowen performed a liquidation analysis on Cortech as
a way of determining the cash value of Cortech assuming the Merger did not
occur. Such analysis assumes Cortech would complete its liquidation by the end
of 1998. This analysis was based upon certain assumptions described by,
projections supplied by and discussions held with the management of Cortech.
Based on this analysis, Cortech was projected to receive approximately $1.0
million in cash from interest income and the sale of assets by the end of 1998
and spend approximately $4.4 million in general and administrative expenses,
research and development salaries and overhead by the end of 1998. Given
Cortech's cash position of $15.4 million at the beginning of the first quarter
of 1998, the net result of these cash receipts and expenditures by the end of
the fourth quarter of 1998 would yield a cash position of $12.1 million as a
result of the liquidation of Cortech by the end of 1998.
In connection with the liquidation analysis, it should be noted that such
analysis is based upon observations and estimates of management as of December
1997. Management has not prepared a detailed plan in preparation for an actual
liquidation, and there can be no assurances that Cortech would receive the
projected income, that Cortech would not incur additional expenses (whether or
not relating to a liquidation) or that Cortech would seek to or could effect an
orderly liquidation by the end of 1998, if at all. Accordingly, there can be no
assurances that the projected cash position of $12.1 million (or a figure
approximating such amount) would result from the liquidation of Cortech.
Valuation of BioStar
Analysis of Certain Publicly Traded Companies. Cowen compared selected
historical operating and financial data and ratios for BioStar to the
corresponding financial data and ratios of certain other point-of-care
diagnostic companies (the "Diagnostics Companies") whose securities are publicly
traded and which Cowen deemed comparable to BioStar. These companies included:
Abaxis, Inc., Abbott Laboratories, Beckman Instruments, Inc., BioSite
Diagnostics, Incorporated, CardioVascular Diagnostics, Inc., Cholestech
Corporation, Diametrics Medical, Inc., i-STAT Corporation, International Murex
Technologies Corporation, Meridian Diagnostics, Inc. and Quidel Corporation.
Such data and ratios include the "Enterprise Value" of such Diagnostics
Companies as multiples of revenues, earnings before interest and taxes plus
depreciation and
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amortization ("EBITDA") and earnings before interest and taxes ("EBIT") for the
latest twelve months ("LTM"), estimated 1997 calendar year and estimated 1998
calendar year periods. Cowen also examined the ratios of the current prices of
the Diagnostics Companies to the LTM earnings per share ("EPS"), estimated 1997
calendar year EPS and estimated 1998 calendar year EPS, as estimated by Cowen or
First Call, for these companies.
Such analysis indicated that, for the Diagnostics Companies, (i) the median
values of Enterprise Value (a) as a multiple of LTM revenue, EBITDA and EBIT
were 3.50 times, 13.7 times and 22.4 times, respectively; (b) of estimated 1997
revenue, EBITDA and EBIT were 4.46 times, 28.5 times and 18.9 times,
respectively; (c) of estimated 1998 revenue, EBITDA and EBIT were 2.95 times,
10.9 times and 14.2 times, respectively; and (ii) the median values of price per
share as a multiple of LTM EPS, estimated 1997 EPS and estimated 1998 EPS were
25.6 times, 24.2 times and 19.1 times, respectively.
Although the Diagnostics Companies were used for comparison purposes, none
of such companies is directly comparable to BioStar. Accordingly, an analysis of
the results of such a comparison is not purely mathematical but instead involves
complex considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the Diagnostics Companies
and other factors that could affect the public trading value of the Diagnostics
Companies or BioStar to which they are being compared.
BioStar provided certain revenue projections and expense projections
("Management Case"). The Management Case was adjusted based upon certain
assumptions described by, projections supplied by and discussions held with the
managements of BioStar and Cortech (the "Adjusted Case"). Utilizing Adjusted
Case 1997 and 1998 revenue projections, a range of equity values for BioStar was
determined by applying such Adjusted Case revenue projections to median 1997 and
1998 Diagnostics Companies revenue multiples and subtracting projected debt as
of December 31, 1997 of $8.4 million and adding projected cash as of December
31, 1997 of $10,000. Once these equity values were determined, a 35% illiquidity
discount to compensate for the additional risk and lack of liquidity associated
with a private company was applied to BioStar's range of equity values, yielding
equity values for BioStar ranging from $33.5 million to $39.5 million.
Discounted Cash Flow Analysis. Cowen estimated the range of values for
BioStar based upon the discounted present value of the Management Case projected
after-tax free cash flows of BioStar for the years ending December 1997 through
December 2001, and of the terminal value of BioStar at December 30, 2001 based
upon estimated EBIT multiples and 2001 EBIT. After-tax cash flow was calculated
by taking projected EBIT and subtracting from such amount projected taxes,
capital expenditures, changes in working capital and changes in other assets and
liabilities and adding back projected depreciation and amortization. This
analysis was based upon certain assumptions described by, projections supplied
by and discussions held with the managements of Cortech and BioStar. In
performing this analysis, Cowen utilized discount rates ranging from 20% to 40%.
These discount rates were selected based on a number of criteria including the
estimated industry weighted average cost of capital for Diagnostics Companies
and as a way to account for the risks inherent in private diagnostics companies
and BioStar. Cowen utilized terminal multiples of EBIT ranging from 8.0 times to
12.0 times for BioStar. These multiples were derived by taking the general range
of 1998 EBIT multiples for the Diagnostics Companies and reducing these
multiples to 8.0 times to 12.0 times as a way to account for the risks inherent
in private diagnostics companies and BioStar. Such analysis resulted in a range
of equity values for BioStar to which a 35% illiquidity discount was applied to
account for the additional risk and lack of liquidity associated with a private
company. Utilizing this methodology, BioStar's midrange equity value ranged from
$22.3 million to $34.7 million.
IPO Valuation Analysis. As a result of the Merger, if consummated,
BioStar's shareholders will hold publicly traded securities. Cowen estimated the
range of equity values for BioStar assuming a theoretical initial public
offering ("IPO") of BioStar in 2000 and discounting such equity values to the
end of 1997. The equity value of BioStar was calculated by taking the average
1998 price to earnings multiple of publicly traded companies Cowen deemed most
comparable to BioStar. These companies included International Murex Technologies
Corporation, Meridian Diagnostics, Inc. and Quidel Corporation. The average 1998
price to earnings multiple of these companies was 14.2 times, to which a
standard 15% IPO discount was applied,
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yielding a multiple of 12.0 times. This multiple was then applied to BioStar's
Adjusted Case projected 2000 net income, yielding an equity valuation which was
discounted to the present at discount rates ranging from 20% to 40%. These
discount rates were selected based on a number of criteria, including the
estimated industry weighted average cost of capital for Diagnostics Companies
and as a way to account for the risks inherent in private diagnostics companies
and BioStar. Utilizing this methodology, BioStar's equity values ranged from
$27.6 million to $37.5 million.
Pro Forma Valuation
Pro Forma Analysis. Cowen analyzed the potential effect of the Merger on
the projected pro forma Management Case and Adjusted Case income statement of
BioStar for the years ended December 1998, 1999, 2000 and 2001. This analysis
was based on (a) the liquidation value of Cortech provided by Cortech's
management; (b) Management Case projections for BioStar; and (c) Adjusted Case
projections for BioStar. The analysis excluded all one-time events, including
the effects of a BioStar financing transaction projected to occur in the first
quarter of 1998. In addition, the analysis excluded the effects of any negative
goodwill amortization which may be created by the Merger. The analysis showed,
among other things, that on a pro forma Management Case basis, BioStar is
projected to earn $15.8 million in 2001 and on a pro forma Adjusted Case basis,
BioStar is projected to earn $7.3 million in 2001.
The summary set forth above does not purport to be a complete description
of the analyses performed by Cowen. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analyses and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. Cowen did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, notwithstanding the separate factors summarized above, Cowen
believes, and has advised the Cortech Board, that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the process underlying its opinion. In performing
its analyses, Cowen made numerous assumptions with respect to industry
performance, business and economic conditions and other matters, many of which
are beyond the control of Cortech and BioStar. These analyses performed by Cowen
are not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses or securities may
actually be sold. Accordingly, such analyses and estimates are inherently
uncertain and are subject to significant business, economic, competitive,
regulatory and other uncertainties and contingencies, all of which are difficult
or impossible to predict and are beyond the control of Cowen, Cortech and
BioStar. As mentioned above, the analyses supplied by Cowen and its opinion were
among several factors taken into consideration by the Cortech Board in making
its decision to enter into the Reorganization Agreement and should not be
considered as determinative of such decision.
Pursuant to the Cowen Engagement Letter, Cortech has agreed to pay certain
fees to Cowen for its financial advisory services provided in connection with
the Merger. Cowen has been paid a non-refundable retainer fee and a fairness
opinion fee totaling $250,000. In addition, if the Merger is consummated,
Cortech has agreed to pay Cowen an additional advisory fee of $150,000 in
consideration for Cowen's professional services. Additionally, Cortech has
agreed to reimburse Cowen for its out-of-pocket expenses (including the
reasonable fees and expenses of its counsel) incurred or accrued during the
period of, and in connection with, Cowen's engagement. Cortech has also agreed
to indemnify Cowen against certain liabilities, including liabilities under the
federal securities laws, relating to or arising out of services performed by
Cowen as financial advisor to the Cortech Board in connection with the Merger,
unless it is finally judicially determined that such liabilities arose out of
Cowen's gross negligence or willful misconduct. The terms of the fee arrangement
with Cowen, which are customary in transactions of this nature, were negotiated
at arms' length between Cortech and Cowen, and the Cortech Board was aware of
such arrangement, including the fact that a significant portion of the aggregate
fee payable to Cowen is contingent upon consummation of the Merger.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Cortech's and BioStar's management and the BioStar Board
may be deemed to have certain interests in the Merger that are in addition to
their interests as stockholders of Cortech or BioStar generally. The BioStar
Board and the Cortech Board were each aware of these interests and considered
them, among other matters, in approving the Reorganization Agreement and the
transactions contemplated thereby.
Indemnification. Under the Reorganization Agreement, Cortech has agreed to
provide indemnification, to the fullest extent permitted by applicable laws, to
any person who has served as a director or officer of Cortech or BioStar against
losses, claims, damages or expenses arising out of the fact that such person was
a director or officer of Cortech or BioStar.
Acceleration of Stock Options. At the Effective Time of the Merger, vesting
of options to purchase BioStar common stock held by the following BioStar
directors shall accelerate (or the repurchase option held by BioStar with
respect to shares underlying such options shall expire) so that the following
portions of options shall be vested as of such time: option to purchase 100,000
shares at an exercise price of $.23 per share held by Thomas Bologna (50,000
shares will be vested and the remainder will be canceled); options to purchase
200,000 shares at an exercise price of $.23 per share held by Alexander E.
Barkas (125,000 shares will be vested and the remainder will be canceled); and
100,000 shares subject to a repurchase option held by Marvin H. Caruthers
(50,000 shares will be vested and the remainder will be canceled).
BioStar Management Bonuses. In February 1998, the BioStar Board granted its
executive officers stock options in the following amounts as compensation for
services provided by such persons to BioStar in connection with the Merger:
Teresa W. Ayers (150,000 shares), Lyndal K. Hesterberg (130,000 shares), Noel T.
Doheny (115,000 shares), Kim L. Stebbings (95,000 shares) and Edward C.
Pritchard (10,000 shares), (each a "Bonus Option"). The Bonus Options are
exercisable at $.40 per share of BioStar Common Stock and will vest in full on
the first anniversary of the Merger. The Bonus Options will be assumed by
Cortech in the Merger. The Bonus Options may be exercised early pursuant to
restricted stock purchase agreements which provide that BioStar can repurchase
any shares if the employee leaves prior to the first anniversary of the Merger.
In addition, in February 1998, BioStar paid Ms. Ayers, Mr. Hesterberg, Mr.
Doheny, Ms. Stebbings and Mr. Pritchard a cash bonus equal to the exercise price
for the number of shares equal to two years of vesting on outstanding options
(the "Two Year Vesting Amount") held by such executive plus an amount equal to
such executive's tax liability. The executive officers are required to use the
cash bonus to exercise the Two Year Vesting Amount. The aggregate cash bonus
amount paid was $380,000.
Severance Arrangements. Cortech adopted an Executive Officers' Severance
Benefit Plan (the "Severance Plan") on September 18, 1995, which was amended on
December 13, 1996, to encourage senior employees to continue working on
Cortech's behalf during and following a change in control. In the event of an
involuntary termination of employment within 60 days prior to and up to 30
months following a change in control, all employees employed at the level of
Vice President or above, and such other management employees as may be
designated by the Chief Executive Officer, will receive compensation during the
Benefit Period (defined below), as well as a proportional bonus payment if one
was received the year preceding the year in which the termination date occurs,
and all outstanding unvested stock options held by any such employee will become
fully vested on the termination date. The "Benefit Period" for employees other
than the Chief Executive Officer is the period commencing on the termination
date and (i) continuing for 18 months following such date if the date occurs
within 60 days prior or up to 12 months after a change in control, or (ii) if
termination occurs beyond 12 months after a change in control, continuing for
the period following the termination date determined by reducing 30 months by
the number of months the eligible employee was employed by Cortech following a
change in control. With respect to the Chief Executive Officer, the "Benefit
Period" is the period commencing on the Chief Executive Officer's termination
date and (i) continuing for 24 months following such date if the date occurs
within 60 days prior or up to 12 months after a change in control, or (ii) if
termination occurs beyond 12 months after a change in control, continuing for
the period following such termination date determined by reducing 36 months by
the number of months the Chief Executive Officer was employed by Cortech
following a change in control.
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Cortech entered into an Executive Compensation and Benefits Continuation
Agreement with Kenneth R. Lynn (the "Employment Agreement") on October 14, 1997,
which provides, upon the occurrence of the Termination Event (defined below) for
the payment of the equivalent of 24 months base salary, the payment of health
insurance policies for up to 18 months following the Termination Event,
immediate vesting of all stock options not already vested and the payment of a
bonus (equal to the fraction of the current year worked multiplied by the bonus
paid for the prior year). A "Termination Event" is defined as the involuntary
termination of Mr. Lynn by Cortech without cause or the termination of
employment by Mr. Lynn on account of a material change in the business of
Cortech or the duties of Mr. Lynn prior to a change in control of Cortech or
within 30 months after a change in control of Cortech. The Employment Agreement
also provides that, with respect to any Termination Event that is also covered
by the Severance Plan, Mr. Lynn will receive compensation and benefits pursuant
to the Employment Agreement only and not pursuant to the Severance Plan. As part
of the arrangements relating to the Reorganization Agreement and the Merger, Mr.
Lynn would be terminated as Chief Executive Officer of Cortech at the Effective
Time. Accordingly, Mr. Lynn would become entitled to benefits under the
Employment Agreement upon such termination (and would not be entitled to any
benefits under the Severance Plan). In connection with arrangements relating to
the Reorganization Agreement, Mr. Lynn has agreed to an amendment of the
Employment Agreement. Pursuant to such amendment, Mr. Lynn would provide Cortech
with consulting services for up to 20 hours per week (on a non-cumulative basis)
for three months following the Effective Time and (ii) defer three months' worth
of base salary otherwise payable following the Merger as severance (to be paid,
on a month-to-month basis, over the course of such three-month consulting
period).
As a result of Mr. Lynn's Employment Agreement, it is anticipated that the
only individual covered by the Severance Plan will be Diarmuid F. Boran,
Cortech's Vice President of Corporate Development and Planning. As part of the
arrangements relating to the Reorganization Agreement and the Merger, it is
contemplated that Mr. Boran will be terminated as an officer of Cortech at the
Effective Time of the Merger. Pursuant to an agreement with Mr. Boran (the
"Boran Agreement"), the cash benefits payable under the Severance Plan would be
paid at the Effective Time. The Boran Agreement further provides that benefits
available under the Severance Plan would also be paid to Mr. Boran (with cash
payments made over the course of six months) in the event of Mr. Boran's
involuntary termination in the absence of the Merger.
Cortech Employment and Consulting Arrangements. Pursuant to agreements
reached between Cortech and BioStar, Cortech has entered into agreements with
three key employees of Cortech (including Mr. Boran, as part of the Boran
Agreement, but no other officers or directors of Cortech). Pursuant to these
agreements, Cortech has agreed to employ these individuals at their current
salaries as full or part-time employees and/or consultants for periods ranging
from six to nine months following the Effective Time (six months for Mr. Boran).
To ensure their continued employment, Cortech has agreed to make certain
additional payments to two of these employees (excluding Mr. Boran who would
otherwise be receiving benefits pursuant to the Severance Plan and in accordance
with the Boran Agreement).
VOTING AGREEMENTS
Certain directors, officers and other affiliates of BioStar (the "Voting
Agreement Stockholders"), who together hold approximately 65% of the BioStar
common stock and preferred stock voting together as a single class, and 100% of
the Series A Preferred Stock, 100% of the Series B Preferred Stock, 100% of the
Series C Preferred Stock, at least 50% of the Series D Preferred Stock and at
least 38% of the Series E Preferred Stock, outstanding as of the BioStar Record
Date, have entered into voting agreements with Cortech (the "BioStar Voting
Agreements") pursuant to which such Voting Agreement Stockholders have agreed to
vote in favor of the Merger Proposal and the BioStar Certificate Proposal and
have granted Cortech an irrevocable proxy to vote their shares of BioStar
Capital Stock in favor of the Merger Proposal and the BioStar Certificate
Proposal. In addition, subject to certain exceptions, the Voting Agreement
Stockholders have agreed not to Transfer any of their beneficial ownership of,
interest in, or risk relating to, securities owned by them unless and until the
proposed transferee of such securities shall have (i) executed a counterpart of
the BioStar Voting Agreement and an irrevocable proxy and (ii) agreed to hold
such securities subject to all of the terms and
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conditions of the BioStar Voting Agreement. See "Approval of the Merger and
Related Transactions -- Voting Agreements".
Certain directors, officers and other affiliates of Cortech, who together
hold approximately 2.3% of the Cortech Common Stock outstanding as of the
Cortech Record Date, have entered into the Cortech Voting Agreements pursuant to
which such directors, officer and other affiliates of Cortech have agreed to
vote in favor of the Merger Proposal and the Cortech Certificate Proposal and
have granted BioStar an irrevocable proxy to vote their shares of Cortech Common
Stock in favor of the Merger Proposal and the Cortech Certificate Proposal.
AFFILIATE AGREEMENTS
It is a condition to consummation of the Merger that each person who could
reasonably be determined to be an "affiliate," as such term is defined in Rule
145 promulgated under the Securities Act, of BioStar ("Affiliate") execute an
agreement that generally requires such holder, for the one year period following
consummation of the Merger, to sell shares to the public only in accordance with
the volume restrictions and manner of sale restrictions of Rule 144. These
restrictions generally require that sales to the public be made only through
unsolicited "brokers' transactions" or in transactions directly with a "market
maker," as such terms are defined in Rule 144. Additionally, the number of
shares to be sold by an affiliate (together with certain related persons and
certain persons acting in concert) within any three-month period for purposes of
Rule 145 may not exceed the greater of 1% of the outstanding shares of Cortech
Common Stock or the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. One year after the Effective Time, an
affiliate would be able to sell such Cortech Common Stock without such manner of
sale or volume limitations provided that Cortech was current with its Exchange
Act informational filings and such affiliate was not then an affiliate of
Cortech. This requirement will lapse if the SEC repeals the provisions currently
contained in Rule 145(c) in a manner that would apply to this transaction.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of BioStar
Capital Stock. This discussion is based on currently existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury Regulations thereunder and current administrative rulings and court
decisions, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences to Cortech, BioStar or
BioStar stockholders as described herein.
BioStar stockholders should be aware that this discussion does not deal
with all U.S. federal income tax considerations that may be relevant to
particular BioStar stockholders in light of their particular circumstances, such
as stockholders who are dealers in securities, banks, insurance companies or
tax-exempt organizations, who are subject to the alternative minimum tax
provisions of the Code, who are foreign persons, who acquired their shares in
connection with stock option or stock purchase plans or in other compensatory
transactions or who hold their shares as a hedge or as part of a hedging,
straddle, conversion or other risk reduction transaction. Further, this
discussion does not address the federal income tax treatment with respect to
holders of warrants for BioStar Capital Stock. In addition, the following
discussion does not address the tax consequences of the Merger under foreign,
state or local tax laws or the tax consequences of transactions effectuated
prior to or after the Merger (whether or not such transactions are in connection
with the Merger).
BIOSTAR STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
Neither Cortech nor BioStar has requested a ruling from the Internal
Revenue Service (the "IRS") with regard to any of the U.S. federal income tax
consequences of the Merger. As a condition to the consummation of the Merger,
Pillsbury Madison & Sutro LLP, counsel to Cortech, and Cooley Godward LLP,
counsel to BioStar, will each render an opinion (collectively, the "Tax
Opinions") that the Merger will constitute a
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reorganization under Section 368(a) of the Code (a "Reorganization"). Such
opinions are, and will be, based on certain assumptions as well as
representations (discussed below) and are and, will be subject to the
limitations discussed below. Moreover, such opinions will not be binding on the
IRS nor preclude the IRS from adopting a contrary position.
The discussion below assumes that the Merger will qualify as a
Reorganization, based upon the Tax Opinions. The tax description set forth below
has been prepared and reviewed by Pillsbury Madison & Sutro LLP and Cooley
Godward LLP, and in their opinion, to the extent such description relates to
statements of law, it is correct in all material respects.
Subject to the limitations and qualifications referred to herein, and as a
result of the Merger's qualifying as a Reorganization, the following U.S.
federal income tax consequences should result:
(i) No gain or loss will be recognized by the holders of BioStar
Capital Stock upon the receipt of Cortech Common Stock solely in exchange
for such BioStar Capital Stock in the Merger (except to the extent of cash
received in lieu of fractional shares);
(ii) The aggregate tax basis of the Cortech Common Stock so received
by BioStar stockholders in the Merger (including any fractional share of
Cortech Common Stock not actually received) will be the same as the
aggregate tax basis of BioStar Capital Stock surrendered in exchange
therefor;
(iii) The holding period of the Cortech Common Stock so received by
each BioStar stockholder in the Merger will include the period for which
the BioStar Capital Stock surrendered in exchange therefor was considered
to be held, provided that the BioStar Capital Stock so surrendered is held
as a capital asset at the Effective Time;
(iv) Cash payments received by holders of BioStar Capital Stock in
lieu of a fractional share will be treated as if such fractional share of
Cortech Common Stock had been issued in the Merger and then redeemed by
Cortech. A BioStar stockholder receiving such cash will recognize gain or
loss upon such payment, measured by the difference (if any) between the
amount of cash received and the basis in such fractional share. The gain or
loss should be capital gain or loss provided that such share of BioStar
Capital Stock was held as a capital asset at the Effective Time;
(v) A stockholder of BioStar who exercises dissenters' rights under
any applicable law with respect to a share of BioStar Capital Stock and
receives a cash payment for such stock will generally recognize capital
gain or loss (if such stock was held as a capital asset at the Effective
Time of the Merger) measured by the difference between the amount of cash
received and the stockholder's basis in such share, provided such payment
is neither essentially equivalent to a dividend within the meaning of
Section 302 of the Code nor has the effect of a distribution of a dividend
within the meaning of Section 356(a)(2) of the Code (collectively, a
"Dividend Equivalent Transaction"). A sale of BioStar shares incident to an
exercise of dissenters' rights will generally not be a Dividend Equivalent
Transaction if, as a result of such exercise, the dissenting stockholder
owns no shares of Cortech Common Stock (either actually or constructively
within the meaning of Section 318 of the Code); and
(vi) Neither Cortech nor BioStar will recognize gain solely as a result
of the Merger.
The Tax Opinions will be subject to certain assumptions and qualifications
and will be based on the truth and accuracy of certain representations of
Cortech, BioStar and certain stockholders of BioStar, including representations
in certain certificates delivered to counsel by the respective managements of
Cortech and BioStar and certain stockholders of BioStar. Of particular
importance are the assumptions and representations relating to the "continuity
of interest" requirement.
To satisfy the "continuity of interest" requirement, BioStar stockholders
must not, pursuant to a plan or intent existing at or prior to the Effective
Time, dispose of or transfer so much of either (i) their BioStar Capital Stock
in anticipation of the Merger or (ii) the Cortech Common Stock to be received in
the Merger (collectively, "Planned Dispositions"), such that the BioStar
stockholders, as a group, would no longer have a "significant equity interest"
in the BioStar business being conducted by Cortech after the Merger. BioStar
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stockholders will generally be regarded as having a "significant equity
interest" as long as the Cortech Common Stock received in the Merger (after
taking into account Planned Dispositions), in the aggregate, represents a
substantial portion of the entire consideration received by the BioStar
stockholders in the Merger. This requirement is frequently referred to as the
"continuity of interest" requirement. If the continuity of interest requirement
is not satisfied, the Merger would not be treated as a Reorganization. The law
is unclear as to what constitutes a "significant equity interest" or a
"substantial portion". The IRS ruling guidelines require a minimum of 50%
continuity (although such guidelines do not purport to represent the applicable
substantive law). The Reorganization Agreement and certificates from certain
BioStar stockholders regarding continuity contemplate that the 50% standard will
be applied. No assurance can be made that the "continuity of interest"
requirement will be satisfied, and if such requirement is not satisfied, the
Merger would not be treated as a Reorganization.
A successful IRS challenge to the Reorganization status of the Merger (as a
result of a failure of the "continuity of interest" requirement or otherwise)
could result in significant adverse tax consequences to the BioStar
stockholders. A BioStar stockholder would recognize gain or loss with respect to
each share of BioStar Capital Stock surrendered equal to the difference between
the stockholder's basis in such share and the fair market value, as of the
Effective Time, of the Cortech Common Stock received in exchange therefor. In
such event, a stockholder's aggregate basis in the Cortech Common Stock so
received would equal its fair market value, and the stockholder's holding period
for such stock would begin the day after the Closing Date.
Certain noncorporate BioStar stockholders may be subject to backup
withholding at a rate of 31% on cash payments received in lieu of a fractional
share interest in Cortech Common Stock. Backup withholding will not apply,
however, to a stockholder who furnishes a correct taxpayer identification number
("TIN") and certifies that he, she or it is not subject to backup withholding on
the substitute Form W-9 included in the Transmittal Letter, who provides a
certificate of foreign status on Form W-8, or who is otherwise exempt from
backup withholding. A stockholder who fails to provide the correct TIN on Form
W-9 may be subject to a $50 penalty imposed by the IRS.
Each BioStar stockholder will be required to retain records and file with
such holder's U.S. federal income tax return a statement setting forth certain
facts relating to the Merger.
ANTICIPATED ACCOUNTING TREATMENT
Although as a legal matter Cortech is acquiring BioStar, the Merger will be
accounted for as a "purchase" of Cortech by BioStar for accounting and financial
reporting purposes. Accordingly, BioStar's historical financial statements will
be the financial statements of the post-merger combined company. Under the
purchase method of accounting, Cortech's results of operations will be combined
with those of BioStar from and after the Effective Time, and Cortech's specific
tangible and identifiable intangible assets and liabilities will be recorded on
BioStar's books at their respective fair values at the Effective Time. A
determination of the fair value of Cortech's specific tangible and identifiable
intangible assets and liabilities will be made in order to allocate the purchase
price to the assets acquired and the liabilities assumed.
REGULATORY MATTERS
Antitrust. Cortech and BioStar do not believe that any governmental filings
with the Federal Trade Commission ("FTC") are required with respect to the
Merger. However, the FTC or the United States Department of Justice Antitrust
Division could take such action under the antitrust laws as it deems necessary
or desirable in the public interest, including seeking to enjoin consummation of
the Merger or seeking to cause divestiture of significant assets of Cortech or
BioStar or their subsidiaries. There can be no assurance that a challenge to the
Merger on antitrust grounds will not be made, or, if such challenge is made, of
what the result would be. Consummation of the Merger is conditioned upon, among
other things, the absence of any temporary restraining order, preliminary or
permanent injunction, or other order issued by any federal or state court in the
United States which prevents the consummation of the Merger.
Filing with the Delaware Secretary of State. Certificate of Merger must be
filed with the Secretary of State of the State of Delaware in order to
consummate the Merger.
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Securities Laws. Cortech and BioStar must comply with the federal
securities laws and applicable securities laws of various states.
RIGHTS OF DISSENTING STOCKHOLDERS
Stockholders of BioStar may, under certain circumstances and by following
the procedure prescribed by the DGCL, exercise appraisal rights and receive cash
for their shares of BioStar Capital Stock. The stockholders exercising appraisal
rights under the DGCL must follow the appropriate procedures under the DGCL or
suffer the termination or waiver of such rights.
If a holder of BioStar Capital Stock exercises appraisal rights in
connection with the Merger under Section 262 of the DGCL ("Section 262"), any
shares of BioStar Capital Stock in respect of which such rights have been
exercised and perfected will not be converted into Cortech Common Stock but
instead will be converted into the right to receive such consideration as may be
determined by the Delaware Court of Chancery (the "Court") to be due with
respect to such shares pursuant to the laws of the State of Delaware.
The following summary of the provisions of Section 262 is not intended to
be a complete statement of such provisions and is qualified in its entirety by
reference to the full text of Section 262, a copy of which is attached to this
Joint Proxy Statement/Prospectus as Appendix D and incorporated herein by
reference.
Holders of shares of BioStar Capital Stock who object to the Merger and who
follow the procedures in Section 262 will be entitled to have their shares of
BioStar Capital Stock appraised by the Court and to receive payment of the "fair
value" of such shares as of the Effective Time.
A stockholder of BioStar electing to exercise appraisal rights must, prior
to the BioStar Special Meeting, perfect his, her or its appraisal rights by
demanding in writing from BioStar the appraisal of his, her or its shares of
BioStar Capital Stock, as provided in Section 262. A holder who elects to
exercise appraisal rights should mail or deliver his, her or its written demand
to BioStar at 6655 Lookout Road, Boulder, Colorado 80301, Attn: Corporate
Secretary. The demand should specify the holder's name and mailing address, the
number of shares of BioStar Capital Stock owned and that such holder is
demanding appraisal of his, her or its shares. Only a holder of record of shares
of BioStar Capital Stock (or his, her or its duly appointed representative) is
entitled to assert appraisal rights for the shares registered in that holder's
name.
Within 120 days after the Effective Time, any stockholder who has made a
valid written demand and who has not voted in favor of approval and adoption of
the Reorganization Agreement and approval of the Merger may (i) file a petition
in the Court demanding a determination of the value of shares of BioStar Capital
Stock and (ii) upon written request, receive from BioStar a statement setting
forth the aggregate number of shares of BioStar Capital Stock not voted in favor
of approval and adoption of the Reorganization Agreement and approval of the
Merger and with respect to which demands for appraisal have been received and
the aggregate number of holders of such shares. Such statement must be mailed
within ten days after the written request therefor has been received by BioStar.
If a petition for an appraisal is timely filed, at a hearing on such
petition, the Court is required to determine the holders of BioStar Capital
Stock entitled to appraisal rights and will determine the "fair value" of such
BioStar Capital Stock exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the value of such BioStar Capital Stock. In
determining the "fair value" of such BioStar Capital Stock, the Court is
required to take into account all relevant factors, including the market value
of BioStar Capital Stock and the net asset and earnings value of BioStar. In
determining the fair value of interest, the Court may consider all relevant
factors including the rate of interest which BioStar would have had to pay to
borrow money during the pendency of the proceedings. Upon application by a
stockholder, the Court may also order that all or a portion of the expenses
incurred by any stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney's fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all the shares of BioStar Capital Stock entitled to
appraisal.
Any holder of BioStar Capital Stock who has duly demanded an appraisal
under Section 262 will not, after the Effective Time, be entitled to vote the
shares subject to such demand for any purpose or be entitled to
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the payment of dividends or other distributions on such BioStar Capital Stock
(except dividends or other distributions payable to stockholders of record as of
a date prior to the Effective Time).
If any holder of shares of BioStar Capital Stock who demands appraisal
under Section 262 effectively withdraws or loses his, her or its right to
appraisal, the shares of such holder will be converted into a right to receive
that number of shares of Cortech Common Stock as is determined in accordance
with the Reorganization Agreement. A holder will effectively lose his right to
appraisal if he, she or it votes in favor of approval and adoption of the
Reorganization Agreement and approval of the Merger, if no petition for
appraisal is filed within 120 days after the Effective Time or if the holder
delivers to BioStar a written withdrawal of such holder's demand for an
appraisal and an acceptance of the Merger, except that any such attempt to
withdraw made more than 60 days after the Effective Time requires the written
approval of BioStar. A holder of stock represented by certificates may also lose
his, her or its right of appraisal if he, she or it fails to comply with the
Court's direction to submit such certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings.
Holders of Cortech Common Stock are not entitled to appraisal rights under
the DGCL because Cortech is not a constituent corporation to the Merger under
the DGCL.
RESALE OF CORTECH COMMON STOCK
Cortech Common Stock issued in connection with the Merger will be freely
transferable, except that shares issued to any BioStar stockholder that may be
an "affiliate" of BioStar or who becomes an "affiliate" of Cortech are subject
to certain restrictions on resale. Affiliates generally include, without
limitation, directors, certain executive officers and certain other persons who
control a company. Certain stockholders of BioStar who may be deemed to be
affiliates have executed agreements that prohibit the sale, transfer or other
disposition of Cortech Common Stock received by such stockholders in the Merger,
except under certain circumstances, in order to comply with the requirements of
certain federal securities laws. See "Approval of the Merger and Related
Transactions -- Affiliate Agreements". Certain stockholders of BioStar have also
delivered to Cortech certificates certifying that such stockholders have no
present intention to dispose of certain of the shares of Cortech Common Stock to
be received by such stockholders in the Merger in order to comply with the
requirements of certain United States federal tax laws. See "-- Certain Federal
Income Tax Consequences".
EFFECT UNDER CORTECH RIGHTS PLAN
In 1995, the Cortech Board adopted a stockholder rights plan (the "Rights
Plan"). The Cortech Board has determined that neither the Merger, the
Reorganization Agreement nor the arrangements contemplated thereby will cause
any preferred stock purchase rights to become exercisable under the Rights Plan.
Although such an event is not anticipated, the Cortech Board has not taken any
action to prevent any former BioStar stockholder from triggering the
exercisability of such rights through any post-Merger holding or accumulation of
Cortech Common Stock (including, without limitation, shares issued pursuant to
the Merger). See "Description of Cortech Capital Stock -- Certain Anti-takeover
Provisions".
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THE REORGANIZATION AGREEMENT
GENERAL
The following is a summary of the material provisions of the Reorganization
Agreement, a copy of which is attached as Appendix A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. The following is
not a complete statement of all provisions of the Reorganization Agreement and
related agreements. Statements made in this Joint Proxy Statement/Prospectus
with respect to the terms of the Reorganization Agreement and such related
agreements are qualified in their respective entireties by reference to the more
detailed information set forth in the Reorganization Agreement and such related
agreements.
The Reorganization Agreement provides for the merger of Merger Sub with and
into BioStar. As a result of the Merger, Merger Sub will cease to exist, BioStar
will become a wholly owned subsidiary of Cortech and the former stockholders of
BioStar will become stockholders of Cortech. BioStar will continue as the
surviving corporation of the Merger (the "Surviving Corporation"). The Merger
will become effective upon the filing of a Certificate of Merger with the
Delaware Secretary of State. Such filing is anticipated to take place as soon as
practicable after the receipt of all required regulatory approvals and the
satisfaction or waiver of the other conditions to the Merger, including the
approval of the Merger Proposal by the stockholders of BioStar and Cortech. It
is currently anticipated that the Effective Time will occur on or about
1998. There can be no assurance, however, that the required
regulatory approvals will be obtained, that the other conditions to the Mergers
will be satisfied or waived by such date, or at all, or that the Reorganization
Agreement will not be terminated. See "-- Conditions to the Merger" and "The
Merger and Related Transactions -- Regulatory Matters".
MERGER CONSIDERATION
Subject to the provisions contained in the Reorganization Agreement
relating to the payment of cash in lieu of fractional shares and shares properly
exercising appraisal rights, each share of BioStar Capital Stock outstanding
will be converted into the right to receive shares of Cortech Common Stock equal
to the "Exchange Ratio." The Exchange Ratio is equal to a fraction the numerator
of which is 28,500,000 and the denominator of which is the number of shares of
BioStar Capital Stock outstanding plus the number of shares of BioStar Capital
Stock issuable upon exercise of all (x) outstanding BioStar Warrants and (y)
outstanding BioStar Options, in each case as of immediately prior to the
Effective Time. Although the Exchange Ratio will depend upon the capitalization
of BioStar at the Effective Time and the per share market price for Cortech
Common Stock prior to the Effective Time, BioStar presently estimates that the
Exchange Ratio will be approximately .5512 (based upon BioStar's capitalization
as of the date of this Joint Proxy Statement/Prospectus and assuming a per share
market price for Cortech Common Stock of $0.656 (the per share market price of
Cortech Common Stock as of the date of the Reorganization Agreement) immediately
prior to the Effective Time).
Certain outstanding debt of BioStar and related accrued interest will
convert into shares of BioStar preferred stock immediately prior to the Merger.
The rate at which such debt will be converted will depend upon, and vary with,
the average market price of Cortech Common Stock over a period ending shortly
before the Merger. BioStar will issue fewer shares to convert such debt as the
per share market price for Cortech Common Stock increases; similarly, BioStar
will issue a greater number of shares to convert such debt as such market price
decreases. The number of shares of BioStar Capital Stock outstanding immediately
prior to the Merger (and, therefore, the Exchange Ratio) will fluctuate based
upon such market price.
Assuming, (solely for purposes of illustration) that the per share market
price for Cortech Common Stock immediately prior to the Merger is (i) $0.35, the
Exchange Ratio is estimated to be .1055; (ii) $0.50, the Exchange Ratio is
estimated to be .3919; and (iii) $0.656 (the per share market price as of the
date of the Reorganization Agreement and the price assumed in preparing the
unaudited pro forma condensed consolidated financial information included
elsewhere herein), the Exchange Ratio is estimated to be .5512. To the extent
the per share market price for Cortech Common Stock is higher than $0.656, the
Exchange Ratio will increase accordingly.
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NO FRACTIONAL SHARES
No Fractional Shares of Cortech Common Stock will be issued in connection
with the Merger, and no certificates for any such fractional shares will be
issued. In lieu of such fractional shares, any holder of BioStar Capital Stock
(after aggregating all fractional shares of Cortech Common Stock issuable to
such holder) will, upon surrender of such holder's stock certificate(s)
representing BioStar Capital Stock to the Exchange Agent, be paid in cash the
dollar amount (rounded to the nearest whole cent), without interest, determined
by multiplying such fraction by the closing price of a share of Cortech Common
Stock on the Nasdaq National Market on the date the Merger becomes effective.
STOCK OPTIONS AND WARRANTS
At the Effective Time, each unexpired and unexercised BioStar Option shall
be assumed by Cortech and will continue to have and be subject to, substantially
the same terms and conditions set forth in the documents governing such options
immediately prior to the Effective Time, except that (i) such options will be
exercisable for that number of shares of Cortech Common Stock equal to the
number of shares of BioStar Common Stock subject to such BioStar Option
immediately prior to the Effective Time multiplied by the Exchange Ratio
(rounded down to the nearest whole share of Cortech Common Stock) and (ii) the
per share exercise price of such options will be equal to the exercise price per
BioStar share immediately prior to the Effective Time divided by the Exchange
Ratio (rounded up to the nearest whole share). As soon as practicable after the
Effective Time, the combined company shall issue to each holder of a BioStar
Option assumed in connection with the Merger a notice evidencing the stock
option assumption by the combined company. After the Merger, the combined
company will file a Form S-8 Registration Statement to register shares under the
BioStar 1995 Equity Incentive Plan.
Each BioStar Warrant shall be, in connection with the Merger, assumed by
Cortech. Each warrant so assumed by Cortech under the Reorganization Agreement
shall continue to have, and be subject to, the same terms and conditions set
forth in the respective warrant agreements governing such warrant immediately
prior to the Effective Time, except that each such warrant shall, following the
Effective Time, be exercisable only for shares of Cortech Common Stock in such
number, and at such exercise price as is determined by applying the Exchange
Ratio in accordance with the terms of the applicable warrant agreement.
STOCK OWNERSHIP FOLLOWING THE MERGER
A maximum of 28,500,000 shares of Cortech Common Stock will be issued to
holders of BioStar Capital Stock or reserved for issuance upon exercise of
BioStar Options or BioStar Warrants (prior to the effect of the one-for-[ ]
reverse stock split to be considered at the Cortech Special Meeting). Based upon
the number of shares of Cortech Common Stock issued and outstanding as of the
Cortech Record Date, and after giving effect to the additional shares of Cortech
Common Stock proposed to be issued, or reserved for issuance, in the Merger
(assuming the full exercise of all outstanding options and warrants to purchase
Cortech Common Stock), the former holders of BioStar Capital Stock, BioStar
Options and BioStar Warrants would hold and have voting power with respect to
approximately 60% of Cortech's total issued and outstanding shares.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES.
As soon as practicable after the Effective Time, the Exchange Agent will
mail to the registered holders of BioStar Capital Stock (i) a Letter of
Transmittal and (ii) instructions for the use of the Letter of Transmittal in
effecting the surrender of the BioStar Stock Certificates in exchange for
certificates representing Cortech Common Stock. Upon surrender of a BioStar
Stock Certificate to the Exchange Agent for exchange, together with a duly
executed Letter of Transmittal and such other documents as may reasonably be
required by the Exchange Agent or Cortech, the holder of such BioStar Stock
Certificate shall be entitled to receive in exchange therefor a certificate
representing the whole number of shares of Cortech Common Stock that such holder
has the right to receive. No fractional shares of Cortech Common Stock will be
issued in connection with the Merger, and no certificates for any such
fractional shares will be issued.
If any BioStar Stock Certificate has been lost, stolen or destroyed,
Cortech may require the owner of such
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lost, stolen or destroyed BioStar Stock Certificate to provide an appropriate
affidavit and to deliver a bond as indemnity against any claim that may be made
against the Exchange Agent, Cortech or BioStar with respect to such BioStar
Stock Certificate.
BIOSTAR STOCKHOLDERS SHOULD NOT SURRENDER THEIR BIOSTAR STOCK CERTIFICATES
FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
EFFECT ON CERTIFICATES
At the Effective Time, (i) all shares of BioStar Capital Stock outstanding
immediately prior to the Effective Time will automatically be canceled and
retired and will cease to exist, (ii) all holders of certificates representing
shares of BioStar Capital Stock that were outstanding immediately prior to the
Effective Time will cease to have any rights as stockholders of BioStar and
(iii) the stock transfer books of BioStar will be closed with respect to all
shares of BioStar Capital Stock outstanding immediately prior to the Effective
Time. No further transfer of any such shares of BioStar Capital Stock will be
made on such stock transfer books after the Effective Time. If, after the
Effective Time, a BioStar Stock Certificate is presented to the Exchange Agent
(or to BioStar or Cortech), such BioStar Stock Certificate will be canceled and
will be exchanged as provided above under the caption "-- Conversion of Shares;
Procedure for Exchange of Certificates".
CORPORATE MATTERS; COMPOSITION OF THE CORTECH BOARD AND OFFICERS
As of the Effective Time, the Certificate of Incorporation of Merger Sub
will be the Certificate of Incorporation of the Surviving Corporation and the
Bylaws of Merger Sub will be the Bylaws of the Surviving Corporation. Cortech
has agreed to use all reasonable efforts to have the Cortech Board consist of
five persons from and after the Effective Time to serve until the next election
of directors for each director's respective class, three of whom have been
specified by BioStar. Promptly following the Effective Time, it is expected that
the Cortech Board will be composed of Teresa W. Ayers, with a term expiring in
2000, Alexander E. Barkas, Ph.D., with a term expiring in 1999, Thomas A.
Bologna, with a term expiring in 2000, Kenneth R. Lynn, with a term expiring in
1998, and Bert Fingerhut, with a term expiring in 1999. Ms. Ayers and Messrs.
Barkas and Bologna have been specified by BioStar. As of the Effective Time, the
BioStar executive officers will become the executive officers of Cortech.
CONDITIONS TO THE MERGER
Cortech and Merger Sub. The obligations of Cortech and Merger Sub to effect
the Merger and otherwise consummate the transactions contemplated by the
Reorganization Agreement are subject to the satisfaction, at or prior to the
consummation of the transactions contemplated by the Reorganization Agreement
(the "Closing") of each of the following conditions:
(i) representations and warranties of BioStar contained in the
Reorganization Agreement, except for any representation and warranty that
refers specifically to the date of the Reorganization Agreement or to any
date or period prior to the date of the Reorganization Agreement, shall be
accurate in all material respects as of the date of the Closing (the
"Closing Date") as if made on and as of the Closing Date except that any
inaccuracies in such representations and warranties shall be disregarded if
the circumstances giving rise to such inaccuracies (individually and
collectively) do not constitute a Material Adverse Effect (as defined
below) on BioStar (it being understood that, for purposes of determining
the accuracy of such representations and warranties, (a) all "Material
Adverse Effect" qualifications and other materiality qualifications
contained in such representations and warranties shall be disregarded and
(b) any update of or modification to BioStar's disclosure schedule made or
purported to have been made after the date of the Reorganization Agreement
shall be disregarded);
(ii) each covenant or obligation that BioStar is required to comply
with or to perform at or prior to the Closing shall have been complied with
and performed in all material respects;
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(iii) this Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
shall have been issued by the Commission with respect to this Registration
Statement;
(iv) the Merger Proposal and the BioStar Certificate Proposal shall
have been duly approved by the Required BioStar Stockholder Vote, and the
Merger Proposal shall have been duly approved by the Required Cortech
Stockholder Vote;
(v) the holders of fewer than 10% of the outstanding shares of BioStar
Capital Stock shall have notified BioStar of their intention to assert
appraisal rights with respect to the Merger;
(vi) all material consents required to be obtained in connection with
the Merger and the other transactions contemplated by the Reorganization
Agreement shall have been obtained and shall be in full force and effect;
(vii) Cortech shall have received the following legal documents, each
of which shall be in full force and effect: (a) a legal opinion of Cooley
Godward LLP, dated as of the Closing Date, in the form reasonably
satisfactory to Cortech and its legal counsel, (b) a legal opinion of
Pillsbury Madison & Sutro LLP dated as of the Closing Date and addressed to
Cortech, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"); (c) a certificate executed on behalf of BioStar by
its President/Chief Executive Officer confirming that the conditions set
forth in clauses (i), (ii), (iv), (v), (vi) and (viii) have been duly
satisfied;
(viii) there shall have been no material adverse change in the
business, financial condition, capitalization, assets, liabilities,
operations or financial performance of the BioStar since the date of the
Reorganization Agreement;
(ix) no temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger shall
have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any legal requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal;
(x) there shall not be (i) pending or threatened any legal proceeding
in which a governmental body is or is threatened to become a party or is
otherwise involved (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
the Reorganization Agreement; (b) relating to the Merger and seeking to
obtain from Cortech or any of its subsidiaries any damages that may be
material to Cortech; or (c) which would materially and adversely affect the
right of Cortech to own the assets or operate the business of BioStar, or
(ii) pending any legal proceeding in which there is a reasonable
probability of an outcome that would have a Material Adverse Effect on
BioStar or on Cortech (a) challenging or seeking to restrain or prohibit
the consummation of the Merger or any of the other transactions
contemplated by the Reorganization Agreement; (b) relating to the Merger
and seeking to obtain from Cortech or any of its subsidiaries any damages
that may be material to Cortech; (c) seeking to prohibit or limit in any
material respect Cortech's ability to vote, receive dividends with respect
to or otherwise exercise ownership rights with respect to the stock of the
Surviving Corporation; or (d) which would materially and adversely affect
the right of Cortech to own the assets or operate the business of BioStar;
(xi) BioStar shall have delivered the Affiliate Agreements; and
(xii) The Cowen Opinion shall not have been withdrawn as of the date
of the mailing of the definitive Joint Proxy Statements/Prospectus to the
Cortech Stockholders.
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BioStar. The obligations of BioStar to effect the Merger and otherwise
consummate the transactions contemplated by the Reorganization Agreement are
subject to the satisfaction, at or prior to the Closing of the following
conditions:
(i) the representations and warranties of Cortech contained in the
Reorganization Agreement shall have been accurate in all material respects
as of the date of the Reorganization Agreement and shall be accurate as of
the Closing Date as if made on and as of the Closing Date except that any
inaccuracies in such representations and warranties shall be disregarded if
the circumstances giving rise to such inaccuracies (individually and
collectively) do not constitute a Material Adverse Effect on Cortech (it
being understood that, for purposes of determining the accuracy of such
representations and warranties, (a) all "Material Adverse Effect"
qualifications and other materiality requirements contained in such
representations and warranties shall be disregarded and (b) any update of
or modification to the Cortech Disclosure Schedule made or purported to
have been made after the date of the Reorganization Agreement shall be
disregarded);
(ii) all of the covenants and obligations that Cortech is required to
comply with or to perform at or prior to the Closing shall have been
complied with and performed in all material respects;
(iii) this Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
shall have been issued by the Commission with respect to this Registration
Statement;
(iv) the Merger Proposal and the BioStar Certificate Proposal shall
have been approved by the Required BioStar Stockholder Vote, and the Merger
Proposal shall have been duly approved by the Required Cortech Stockholder
Vote.
(v) The holders of fewer than 10% of the outstanding shares of BioStar
Capital Stock shall have notified BioStar of their intention to asset
appraisal rights with respect to the Merger;
(vi) BioStar shall have received the following documents: (a) a legal
opinion of Pillsbury Madison & Sutro LLP, dated as of the Closing Date, in
a form reasonably satisfactory to BioStar and its legal counsel, (b) a
legal opinion of Cooley Godward LLP, dated as of the Closing Date, to the
effect that the Merger will constitute a reorganization within the meaning
of Section 368 of the Code and (c) a certificate executed on behalf of
Cortech by an executive officer of Cortech, confirming that conditions set
forth in Sections (i), (ii), (iv), (v), (vii) and (xi) have been duly
satisfied;
(vii) there shall have been no material adverse change in Cortech's
business, financial condition, assets, liabilities, operations or financial
performance since the date of the Reorganization Agreement (it being
understood that a decline in Cortech's stock price or the delisting of
Cortech's stock shall not constitute, in and of itself, a Material Adverse
Effect);
(viii) no temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger by
BioStar shall have been issued by any court of competent jurisdiction and
remain in effect, and there shall not be any legislation enacted or deemed
applicable to the Merger that makes consummation of the Merger by BioStar
illegal;
(ix) Cortech shall have taken all actions necessary to cause the
Cortech Board following the Effective Time to consist of the following
individuals: Teresa W. Ayers, with a term expiring in 2000, Alexander E.
Barkas, Ph.D., with a term expiring in 1999, Thomas A. Bologna, with a term
expiring in 2000, Kenneth R. Lynn, with a term expiring in 1998 and Bert
Fingerhut, with a term expiring in 1999. Ms. Ayers and Messrs. Barkas and
Bologna have been specified by BioStar;
(x) all material consents required to be obtained in connection with
the Merger and the other transactions contemplated by the Reorganization
Agreement shall have been obtained and shall be in full force and effect;
and
(xi) there shall not be (i) pending or threatened any legal proceeding
to which a governmental body is or is threatened to become a party or is
otherwise involved (a) challenging or seeking to restrain or
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prohibit the consummation of the Merger or any of the other transactions
contemplated by the Reorganization Agreement; (b) relating to the Merger
and seeking to obtain from BioStar or any of its subsidiaries any damages
that may be material to BioStar; or (c) which would materially and
adversely affect the right of BioStar to own the assets or operate the
business of Cortech or (ii) pending any legal proceeding in which there is
a reasonable probability of an outcome that would have a Material Adverse
Effect on BioStar or on Cortech (a) challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by the Reorganization Agreement; (b) relating to the Merger
and seeking to obtain from BioStar any damages that may be material to
BioStar; (c) seeking to prohibit or limit in any material respect BioStar's
ability to vote, receive dividends with respect to or otherwise exercise
ownership rights with respect to the stock of the Surviving Corporation; or
(d) resulting in Cortech as constituted after the Effective Time not
containing all of the assets and business of Cortech as constituted
immediately prior to the Effective Time.
For purposes of the Reorganization Agreement, an event, violation,
inaccuracy, circumstance or other matter will be deemed to have a "Material
Adverse Effect" on BioStar if such event, violation, inaccuracy, circumstance or
other matter would have a material adverse effect on (i) the business, financial
condition, capitalization, assets, liabilities, operations or financial
performance of the BioStar, (ii) the ability of the party to consummate the
Merger or any of the other transactions contemplated by the Reorganization
Agreement or to perform obligations under the Reorganization Agreement, or (iii)
Cortech's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Surviving
Corporation. An event, violation, inaccuracy, circumstance or other matter will
be deemed to have a "Material Adverse Effect" on Cortech if such event,
violation, inaccuracy, circumstance or other matter would have a material
adverse effect on (i) the business, financial condition, assets, liabilities,
operations or financial performance of the Cortech Corporations taken as a
whole, (ii) the ability of Cortech to consummate the Merger or any of the other
transactions contemplated by the Reorganization Agreement or to perform its
obligations under the Reorganization Agreement, or (iii) the ability of
BioStar's stockholders to vote, receive dividends with respect to, or otherwise
exercise ownership rights with respect to the stock of Cortech received by them.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains certain representations and
warranties by BioStar as to: (i) due organization and subsidiaries; (ii)
BioStar's Certificate of Incorporation and Bylaws; (iii) capitalization; (iv)
financial statements; (v) absence of certain changes; (vi) title to assets;
(vii) real property, equipment and leaseholds; (viii) proprietary assets; (ix)
material contracts; (x) liabilities; (xi) compliance with legal requirements;
(xii) certain business practices; (xiii) governmental authorizations; (xiv) tax
matters; (xv) employee and labor matters and benefit plans; (xvi) environmental
matters; (xvii) insurance; (xviii) transactions with Affiliates; (xix) legal
proceedings and orders; (xx) authority and binding nature of the Reorganization
Agreement; (xxi) absence of existing discussions or negotiations concerning
other acquisition proposals; (xxii) vote required; (xxiii) non-contravention and
consents; (xxiv) brokers, finders, investment bankers or other fees or
commissions; and (xxv) full disclosure.
The Reorganization Agreement also contains representations and warranties
by Cortech and Merger Sub as to: (i) due organization and subsidiaries; (ii)
Cortech's Certificate of Incorporation and Bylaws; (iii) capitalization; (iv)
filings with the Commission and financial statements; (v) absence of certain
changes; (vi) title to assets; (vii) real property, equipment and leaseholds;
(viii) proprietary assets; (ix) material contracts; (x) liabilities; (xi)
compliance with legal requirements; (xii) certain business practices; (xiii)
governmental authorizations; (xiv) tax matters; (xv) employee and labor matters
and benefit plans; (xvi) environmental matters; (xvii) insurance; (xviii)
transactions with Affiliates; (xix) legal proceedings and orders; (xx) authority
and binding nature of the Reorganization Agreement; (xxi) absence of discussions
or negotiations concerning other acquisition proposals; (xxii) vote required;
(xxiii) non-contravention and consents; (xxiv) the receipt of a fairness opinion
from an investment bank; (xxv) valid issuance of Cortech Common Stock; (xxvi)
brokers, finders, investment bankers or other fees or commissions; (xxvii) full
disclosure; and (xxviii) cash position.
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COVENANTS
Conduct of BioStar's Business. The Reorganization Agreement requires that
during the period from the date of the Reorganization Agreement through the
Effective Time (the "Pre-Closing Period"), (i) BioStar shall conduct its
business and operations (A) in the ordinary course and in accordance with past
practices or the operating plan previously delivered by BioStar to Cortech and
(B) in compliance with all applicable legal requirements and the requirements of
all of material contracts to which any BioStar is a party, by which BioStar or
any of its assets is or may become bound or under which BioStar has or may be
come subject to any obligation, or under which BioStar has or may acquire any
rights or interest (a "BioStar Contract"); (ii) BioStar shall use all reasonable
efforts to ensure that BioStar preserves intact its current business
organization, keeps available the services of its current officers and employees
and maintains its relations and goodwill with all suppliers, customers,
landlords, creditors, licensors, licensees, employees and other Persons having
business relationships with BioStar; (iii) BioStar shall keep in full force
certain insurance policies or replace any such policies that terminate with
comparable or superior policies; (iv) BioStar shall provide all notices,
assurances and support required by any BioStar Contract relating to any
proprietary asset in order to ensure that no condition under such BioStar
Contract occurs which could result in, or could increase the likelihood of, any
transfer or public disclosure by BioStar of any proprietary asset; and (v)
BioStar shall (to the extent requested by Cortech) cause its officers to report
regularly Cortech concerning the status of the BioStar's business. During the
Pre-Closing Period, BioStar shall not (without the prior written consent of
Cortech):
(i) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities, except for repurchases at less than fair market value pursuant
to employment or consulting agreements in effect prior to the date of the
Reorganization Agreement;
(ii) sell, issue, grant or authorize the issuance or grant of (A) any
capital stock or other security (except BioStar common stock upon the valid
exercise of options or warrants to purchase BioStar Capital Stock
outstanding on the date of the Reorganization Agreement or pursuant to
equipment lease financings, in connection with BioStar's line of credit
with Venture Lending and similar transactions or otherwise in the ordinary
course of business), (B) any option, call, warrant or right to acquire any
capital stock or other security, or (C) any instrument convertible into or
exchangeable for any capital stock or other security; provided, however,
that notwithstanding the foregoing, BioStar may grant up to 800,000 options
to employees following the date of the Reorganization Agreement under its
existing stock option plans;
(iii) except as contemplated by the Reorganization Agreement, amend or
waive any of its rights under, or accelerate the vesting under, any
provision of any of the BioStar stock option plans, any provision of any
agreement evidencing any outstanding stock option or any restricted stock
purchase agreement, or otherwise modify any of the terms of any outstanding
option, warrant or other security or any related contract;
(iv) except as contemplated by the Reorganization Agreement, amend or
permit the adoption of any amendment to the BioStar Certificate of
Incorporation or Bylaws or other charter or organizational documents, or
effect or become a party to any merger, consolidation, share exchange,
business combination, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(v) form any subsidiary or acquire any equity interest or other
interest in any other entity;
(vi) make any capital expenditure, except capital expenditures through
December 31, 1997 in an aggregate amount of no more than the amount
provided for in the capital budget provided to Cortech for such period, and
thereafter in an aggregate amount of no more than is provided for in a 1998
capital budget to be provided to and approved by Cortech (such approval not
to be unreasonably withheld) prior to January 1, 1998;
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(vii) except as set forth in the operating plan provided to Cortech,
enter into or become bound by, or permit any of the assets owned or used by
it to become bound by, any material contract, or amend or terminate, or
waive or exercise any material right or remedy under, any material
contract;
(viii) acquire, lease or license any right or other asset from any
other person or sell or otherwise dispose of, or lease or license, any
right or other asset to any other person (except in each case for (A)
assets not constituting proprietary assets acquired, leased, licensed or
disposed of by BioStar in the ordinary course of business; (B) consistent
with past practices and except in the case of the in-licensing of
proprietary assets, agreements involving the payment of less than $25,000
per year and a royalty of less than 0.75% and (C) rights granted to
academic institutions and researchers to use the data collected pursuant to
tissue sample agreements for research purposes), or waive or relinquish any
material right;
(ix) lend money to any person, except travel advances and loans
related to relocation, education and immigration-related expenses made in
the ordinary course of business, and loans in connection with employee
stock purchases as provided for in agreements in effect on the date hereof,
or incur or guarantee any indebtedness or pledge or encumber any material
assets (except that BioStar may make routine borrowings in the ordinary
course of business and in accordance with past practices under its line of
credit with Venture Lending);
(x) except as set forth in the BioStar's disclosure schedule,
establish, adopt or amend any employee benefit plan, pay any bonus (except
pursuant to existing incentive plans and employment contracts or
understandings currently in effect) or make any profit-sharing or similar
payment to, or increase the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of
its directors, officers or employees;
(xi) change any of its methods of accounting or accounting practices
in any respect;
(xii) make any material tax election;
(xiii) commence or settle any legal proceeding;
(xiv) materially amend or otherwise modify any of the terms of its
engagement of Lehman Brothers Inc.;
(xv) amend or otherwise modify any of the terms of any warrants to
purchase BioStar Capital Stock, except to the extent necessary to terminate
such warrants or reduce the number of shares issuable upon exercise
thereunder;
(xvi) enter into any material transaction or take any other material
action in each case not specifically provided for in the operating plan
provided by BioStar to Cortech, or outside the ordinary course of business
or inconsistent with past practices; or
(xvii) agree or commit to take any of the actions described in clauses
(i) through (xvi).
During the Pre-Closing Period, BioStar must promptly notify Cortech in
writing of: (i) the discovery by BioStar of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of the
Reorganization Agreement and that caused or constitutes a material inaccuracy in
any representation or warranty made by BioStar in the Reorganization Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or exists
after the date of the Reorganization Agreement and that would cause or
constitute a material inaccuracy in any representation or warranty made by
BioStar in the Reorganization Agreement if (a) such representation or warranty
had been made as of the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance, or (b) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of the
Reorganization Agreement; (iii) any material breach of any covenant or
obligation of BioStar; and (iv) any event, condition, fact or circumstance that
would make the timely satisfaction of any of the conditions to closing set forth
in the Reorganization Agreement impossible or unlikely or that has had or could
reasonably be expected to have a Material Adverse Effect on BioStar. No
notification so given to Cortech will limit or otherwise affect any of the
representations, warranties, covenants or obligations of BioStar contained in
the Reorganization Agreement.
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Conduct of Cortech's Business. The Reorganization Agreement further
provides that during the Pre-Closing Period: (i) Cortech shall ensure that each
of the Cortech Corporations conducts its business and operations (A) in the
ordinary course and in accordance with operating parameters previously discussed
among Cortech and BioStar and (B) in compliance with all applicable legal
requirements and the requirements of all material contracts to which any Cortech
Corporation is a party, by which any Cortech Corporation or any of their
respective assets is or may become bound or under which any of the Cortech
Corporations has or may be come subject to any obligation, or under which any of
the Cortech Corporations has or may acquire any rights or interest (a "Cortech
Corporation Contract"); (ii) Cortech shall use all reasonable efforts to ensure
that each of the Cortech Corporations preserves intact its current business
organization, keeps available the services of its current officers and employees
and maintains its relations and goodwill with all suppliers, customers,
landlords, creditors, licensors, licensees, employees and other Persons having
business relationships with the respective Cortech Corporations; and (iii)
Cortech shall keep in full force certain insurance policies or replace such
policies with comparable or superior policies; and (iv) Cortech shall provide
all notices, assurances and support required by any Cortech Corporation Contract
relating to any proprietary asset in order to ensure that no condition under
such Cortech Corporation Contract occurs which could result in, or could
increase the likelihood of, any transfer or public disclosure by any Cortech
Corporation of any proprietary asset. During the Pre-Closing Period, Cortech
shall not (without the prior written consent of BioStar), and shall not permit
any of the other Cortech Corporations to:
(i) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities, except for repurchases at less than fair market value pursuant
to employment or consulting agreements in effect prior to the date hereof;
(ii) hire any new employees, excluding those persons hired to replace
employees who terminate their employment with a Cortech Corporation during
the Pre-Closing Period;
(iii) sell, issue, grant or authorize the issuance or grant of (A) any
capital stock or other security (except Cortech Common Stock upon the valid
exercise of options or warrants to purchase Cortech Common Stock
outstanding on the date of the Reorganization Agreement or the exercise of
rights under the Cortech ESPP or pursuant to equipment lease financings and
similar transactions or otherwise in the ordinary course of business), (B)
any option, call, warrant or right to acquire any capital stock or other
security, (C) any instrument convertible into or exchangeable for any
capital stock or other security;
(iv) except as contemplated by the Reorganization Agreement, amend or
waive any of its rights under, or accelerate the vesting under, any
provision of any of Cortech's stock option plans, any provision of any
agreement evidencing any outstanding stock option or any restricted stock
purchase agreement, or otherwise modify any of the terms of any outstanding
option, warrant or other security or any related contract;
(v) except as contemplated by the Reorganization Agreement, amend or
permit the adoption of any amendment to its Certificate of Incorporation or
Bylaws or other charter or organizational documents, or effect or become a
party to any merger, consolidation, share exchange, business combination,
recapitalization, reclassification of shares, stock split, reverse stock
split or similar transaction;
(vi) except as contemplated by the Reorganization Agreement and,
except as previously disclosed to BioStar, form any subsidiary or acquire
any equity interest or other interest in any other entity;
(vii) make any capital expenditure, except capital expenditures in an
aggregate amount of no more than $25,000;
(viii) establish, adopt or amend any employee benefit plan, or pay any
bonus or make any profit sharing or similar payment to, or increase the
amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees except as disclosed to BioStar;
(ix) change any of its methods of accounting or accounting practices
in any respect;
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(x) make any material tax election;
(xi) commence or settle any legal proceeding except in the ordinary
course of business;
(xii) materially amend or otherwise modify any of the terms of its
engagement of Cowen;
(xiii) enter into any material transaction or take any other material
action in each case either inconsistent with the operating plan provided by
Cortech to BioStar, or outside the ordinary course of business;
(xiv) except as previously disclosed to BioStar, sell or otherwise
dispose of, or grant an exclusive license or any other exclusive right to
utilize Cortech proprietary assets which individually or in the aggregate
constitute core technology material to the business of Cortech, or grant to
any third party a right of first refusal, first offer, or first negotiation
with regard to material products or such core technology;
(xv) make any expenditure singly or in the aggregate, that exceeds the
aggregate expenditures set forth in the Cortech cash projection during the
period ended March 31, 1998 by more than a net $350,000 or make any
expenditure, singly or in the aggregate, that exceeds the aggregate
expenditures set forth in the cash projections by more than a net $100,000
for the months of April 1998 or May 1998; or
(xvi) agree or commit to take any of the actions described in clause
(i) through (xv).
During the Pre-Closing Period, Cortech shall promptly notify BioStar in
writing of: (i) the discovery by Cortech of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of the
Reorganization Agreement and that caused or constitutes a material inaccuracy in
any representation or warranty made by Cortech in the Reorganization Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or exists
after the date of the Reorganization Agreement and that would cause or
constitute a material inaccuracy in any representation or warranty made by
Cortech in the Reorganization Agreement if (a) such representation or warranty
had been made as of the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance, or (b) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of the
Reorganization Agreement; (iii) any material breach of any covenant or
obligation of Cortech; and (iv) any event, condition, fact or circumstance that
would make the timely satisfaction of any of the conditions to closing
impossible or unlikely or that has had or could reasonably be expected to have a
Material Adverse Effect on the Cortech Corporations. No notification so given to
BioStar will limit or otherwise affect any of the representations, warranties,
covenants or obligations of Cortech contained in the Reorganization Agreement.
Non-Solicitation. Pursuant to the Reorganization Agreement, BioStar and
Cortech have each agreed that they will not directly or indirectly, and will not
authorize or permit any representative of BioStar, in the case of BioStar, or
any representative of Cortech or Merger Sub, in the case of Cortech, directly or
indirectly to (i) solicit, initiate, knowingly encourage or induce the making,
submission or announcement of any Acquisition Proposal (as such term is defined
below) or take any similar action, (ii) furnish any non-public information
regarding BioStar or any of the Cortech Corporations, respectively, to any
person in connection with or in response to an Acquisition Proposal, (iii)
engage in discussions or negotiations with any person with respect to any
Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
contract contemplating or otherwise relating to any Acquisition Transaction (as
such term is defined below). BioStar and Cortech and their respective boards of
directors are not prevented, however, from (i) furnishing information regarding
BioStar or any of the Cortech Corporations, respectively, to any person in
connection with or in response to a bona fide, unsolicited Acquisition Proposal
or engaging in discussions or negotiations with respect thereto if and only to
the extent that (a) the relevant board of directors determines in good faith,
after consultation with its financial advisor that such Acquisition Proposal is
reasonably likely to result in an offer for acquisition superior to the one
provided for in the Reorganization Agreement, (b) the relevant board of
directors determines in good faith, after consultation with its outside counsel
that such action is required in order for the board of directors to comply with
its fiduciary duties under applicable law, (c) the person who has requested such
information has
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executed and delivered to the relevant company a non-disclosure agreement that
is not less restrictive than the non-disclosure agreement in effect between
BioStar and Cortech, and (d) the company engaging in such activities has not
breached its obligations concerning non-solicitation set forth herein or (ii)
complying with Exchange Act Rules 14e-2 and 14d-9. Notwithstanding the
foregoing, the relevant board of directors may recommend a superior offer to its
stockholders, if the relevant board of directors determines, after consultation
with its outside counsel that, in light of such superior offer, such
recommendation is required in order for the relevant board of directors to
comply with its fiduciary obligations; provided, however, that Cortech provides
BioStar with at least 48 hours prior written notice of its intentions to
consider an Acquisition Proposal and Cortech does not recommend a superior offer
to its stockholders for at least two business days after Cortech has provided
BioStar with the material terms of such superior offer.
In addition, each of BioStar and Cortech shall promptly advise the other
orally and in writing of any Acquisition Proposal (including the identity of the
person making or submitting such Acquisition Proposal and the terms thereof)
that is made or submitted by any person during the Pre-Closing Period. Each of
BioStar and Cortech shall keep the other informed with respect to material
changes to the terms of any such Acquisition Proposal and any material
modification or proposed modifications thereto. BioStar and Cortech shall both
immediately cease and cause to be terminated any existing discussions with any
person that relate to any Acquisition Proposal and shall request the return or
destruction of any confidential information previously disclosed to such person
and shall use commercially reasonable efforts to ensure that such information is
destroyed or returned.
An "Acquisition Proposal" is any offer or proposal (other than an offer or
proposal between Cortech and BioStar) contemplating or otherwise relating to any
Acquisition Transaction. An "Acquisition Transaction" shall mean any transaction
or series of related transactions involving: (i) any merger, consolidation,
share exchange, business combination, issuance of securities, acquisition of
securities, tender offer, exchange offer or other similar transaction (a) in
which Cortech or BioStar is a constituent corporation, (b) in which a person or
"group" (as defined in the Exchange Act and the rules promulgated thereunder) of
persons directly or indirectly acquires Cortech or BioStar or more than 50% of
Cortech's business or BioStar's business or directly or indirectly acquires
beneficial or record ownership of securities representing more than 20% of the
outstanding securities of any class of voting securities of any of Cortech or
BioStar, or (c) in which any of Cortech or BioStar issues securities
representing more than 20% of the outstanding securities of any class of voting
securities of BioStar or Cortech, respectively; (ii) any sale, lease, exchange,
transfer, license, acquisition or disposition of more than 50% of the assets of
BioStar or Cortech; or (iii) any liquidation or dissolution of BioStar or
Cortech.
Meetings of Stockholders. Pursuant to the Reorganization Agreement, BioStar
will take all action necessary in accordance with applicable law to convene and
hold the BioStar Special Meeting to vote upon the approval of the Merger
Proposal and the BioStar Certificate Proposal. BioStar's obligation to call,
give notice of, convene and hold the BioStar Special Meeting will not be limited
or otherwise affected by the withdrawal, amendment or modification of the
recommendation of the board of directors of BioStar with respect to the Merger,
except as is required by applicable law. Pursuant to the Reorganization
Agreement, Cortech will take all action necessary in accordance with applicable
law to convert and hold the Cortech Special Meeting to vote upon the approval of
the Merger Proposal and the Cortech Certificate Proposal. Cortech's obligation
to call, give notice of, convene and hold the Cortech Special Meeting will not
be limited or otherwise affected by any withdrawal, amendment or modification of
the recommendation of the Cortech Board with respect to the Merger, except as
may be required by applicable law.
Election of Directors. Cortech must use all reasonable efforts to nominate
and appoint a five person board of directors as further set forth in the caption
above entitled "-- Composition of the Cortech Board".
Indemnification. Under the Reorganization Agreement, Cortech has agreed to
provide indemnification to the fullest extent permitted by applicable laws, to
any person who has served as a director or officer of Cortech or BioStar against
losses, claims, damages or expenses arising out of the fact that such person was
a director or officer of Cortech or BioStar.
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Registration Rights. Pursuant to the Reorganization Agreement, Cortech
shall assume all of BioStar's obligations to certain BioStar stockholders under
the BioStar Restated Investors' Rights Agreement to register shares of Cortech
Common Stock issued in exchange for BioStar Capital Stock in the Merger to such
stockholders; provided, however, the BioStar Restated Investors' Rights
Agreement shall provide that no party may request registration or participate in
a registration of Cortech Common Stock thereunder until the earlier of (a) the
date 90 days after the effective date of a registration statement for the first
public offering of Cortech's shares following the Effective Time and (b) the
first anniversary of the Effective Time.
Market Stand-off Agreement. BioStar shall obtain the agreement of certain
holders of BioStar Capital Stock that such holders shall not directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to donees who agree to be similarly bound) any Cortech Common
Stock issued to such BioStar stockholders in connection with the Merger for 180
days from the Effective Time.
Certain Other Covenants. The Reorganization Agreement contains certain
other covenants including covenants relating to: (i) information and access,
(ii) preparation and filing of the Registration Statement, (iii) obtaining
regulatory approvals, (iv) public announcements, (v) tax qualification and
opinion back-up certificates, (vi) resignation of Cortech's officers and certain
of Cortech's directors, (vii) the Foreign Investment in Real Property Tax Act,
(viii) affiliate agreements, (ix) further action and (x) obtaining required
consents.
TERMINATION
The Reorganization Agreement may be terminated prior to the Effective Time
(whether before or after approval of the Merger Proposal by the Required BioStar
Stockholder Vote and the Required Cortech Stockholder Vote);
(i) by mutual written consent of Cortech and BioStar;
(ii) by either Cortech or BioStar if the Merger shall not have been
consummated by May 31, 1998 (unless the failure to consummate the Merger is
attributable to a failure on the part of the party seeking to terminate the
Reorganization Agreement to perform any material obligation required to be
performed by such party at or prior to the Effective Time);
(iii) by either Cortech or BioStar if a court of competent
jurisdiction or other governmental body shall have issued a final and
nonappealable order, decree or ruling, or shall have taken any other
action, having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger;
(iv) by either Cortech or BioStar if (i) the BioStar Stockholders'
Meeting shall have been held and completed and (ii) the Merger Proposal
shall not have been approved at such meeting by the Required BioStar
Stockholder Vote;
(v) by either Cortech or BioStar if (i) the Cortech Stockholders'
Meeting shall have been held and completed and (ii) the Merger Proposal
shall not have been approved at such meeting by the Required Cortech
Stockholder Vote;
(vi) by Cortech (at any time prior to the approval of the Merger
Proposal and the BioStar Certificate Amendment by the Required BioStar
Stockholder Vote) if a BioStar Triggering Event (as such term is defined
below) shall have occurred;
(vii) by BioStar (at any time prior to the approval of the Merger
Proposal by the Required Cortech Stockholder Vote) if a Cortech Triggering
Event (as such term is defined below) shall have occurred;
(viii) by Cortech if (a) any of BioStar's representations and
warranties contained in the Reorganization Agreement shall be or shall have
become materially inaccurate, (b) if any of BioStar's covenants contained
in the Reorganization Agreement shall have been breached, and such
inaccuracy or breach would cause the condition set forth in clauses (i) or
(ii) under "-- Conditions to the Merger -- Cortech and Merger Sub" to not
be satisfied or (c) if Cowen withdraws its fairness opinion because of a
material
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change in the underlying assumptions of the financial projections provided
to Cowen by BioStar; provided, however, that if an inaccuracy in BioStar's
representations and warranties or a breach of a covenant by BioStar is
curable by BioStar and BioStar is continuing to exercise all reasonable
efforts to cure such inaccuracy or breach, then Cortech may not terminate
the Reorganization Agreement on account of such inaccuracy or breach until
20 days after delivery of written notice of the inaccuracy or breach to
BioStar by Cortech, if the inaccuracy or breach has not at that time been
cured or May 31, 1998, whichever shall first occur; or
(ix) by BioStar if any of Cortech's representations and warranties
contained in the Reorganization Agreement shall be or shall have become
materially inaccurate, or if any of Cortech's covenants contained in the
Reorganization Agreement shall have been breached, and such inaccuracy or
breach would cause the condition set forth in clauses (i) or (ii) under
"-- Conditions to the Merger -- BioStar" to not be satisfied (except as
BioStar may consider any breach of the covenant set forth in clause "(xv)"
under "-- Conditions to the Merger -- BioStar" to be a material breach);
provided, however, that (except with respect to a breach of the covenant
set forth in clause "(xv)" under "-- Conditions to the Merger -- BioStar"
which shall be considered a breach incapable of cure) if an inaccuracy in
Cortech's representations and warranties or a breach of a covenant by
Cortech is curable by Cortech and Cortech is continuing to exercise all
reasonable efforts to cure such inaccuracy or breach, then BioStar may not
terminate the Reorganization Agreement on account of such inaccuracy or
breach until 20 days after delivery of written notice of the breach or
inaccuracy to Cortech by BioStar, if the inaccuracy or breach has not at
that time been cured or May 31, 1998, whichever shall first occur.
A "Triggering Event" of a party shall be deemed to have occurred if: (i)
the board of directors of the party shall have failed to recommend, or shall for
any reason have withdrawn or shall have amended or modified in a manner adverse
to the other party its unanimous recommendation in favor of, the Merger or
approval of the Reorganization Agreement; (ii) the party shall have failed to
include in this Joint Proxy Statement/Prospectus the unanimous recommendation of
its board of directors in favor of approval of the Reorganization Agreement and
the Merger; (iii) the board of directors of the party fails to unanimously
reaffirm its recommendation in favor of approval of the Reorganization Agreement
and the Merger within five business days after the other party requests in
writing that such recommendation be reaffirmed; (iv) the board of directors of
the party shall have approved, endorsed or recommended any Acquisition Proposal;
(v) the party shall have entered into any letter of intent or similar document
or any contract relating to any Acquisition Proposal; (vi) the party shall have
failed to hold the relevant stockholders' meeting as promptly as practicable and
in any event within 45 days after this registration statement is declared
effective under the Securities Act; (vii) a tender or exchange offer relating to
securities of the party shall have been commenced and the party shall not have
sent to its security holders, within five business days after the commencement
of such tender or exchange offer, a statement disclosing that the party
recommends rejection of such tender or exchange offer; or (viii) an Acquisition
Proposal is publicly announced, and the party (A) fails to issue a press release
announcing its opposition to such Acquisition Proposal within five business days
after such Acquisition Proposal is announced or (B) otherwise fails to actively
oppose such Acquisition Proposal.
EXPENSES AND TERMINATION FEES
Pursuant to the Reorganization Agreement, except as provided below, all
fees and expenses incurred in connection with the Reorganization Agreement and
the transactions contemplated by the Reorganization Agreement shall be paid by
the party incurring such expenses, whether or not the Merger is consummated;
provided, however, that Cortech and BioStar shall share equally all fees and
expenses, other than attorneys' fees, incurred in connection with the filing,
printing and mailing of this registration statement and this Joint Proxy
Statement/Prospectus and any amendments or supplements thereto.
The Reorganization Agreements provides that if it is terminated by Cortech
pursuant to clause (vi) or (viii) under the caption "Termination," then BioStar
must pay to Cortech, in cash, a nonrefundable termination fee in the amount of
$500,000 plus the amount of professional fees and expenses which Cortech has
incurred in connection with the Merger, up to $150,000. If the Reorganization
Agreement is terminated by BioStar pursuant to clause (vii) or (ix) under
"Termination," then Cortech shall pay to BioStar, in cash, a
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nonrefundable termination fee in the amount of $500,000, plus the amount of
professional fees and expenses which BioStar has incurred in connection with the
Merger, up to $150,000.
Cowen has acted as a financial advisor to the Cortech Board in connection
with the Merger. Pursuant to the terms of the letter agreement with Cowen, Cowen
has been paid a non-refundable retainer fee and fairness opinion fee totalling
$250,000. If the Merger is consummated, Cortech has agreed to pay Cowen an
additional advisory fee of $150,000 in consideration for Cowen's professional
services. Cortech also has agreed to reimburse Cowen for its reasonable
out-of-pocket expenses and to indemnify Cowen and certain related persons
against certain liabilities, including liabilities under the federal securities
laws, relating to or arising out of its engagement.
Lehman has acted as financial advisor to the BioStar Board in connection
with the Merger. Pursuant to the terms of the letter agreement with Lehman,
BioStar will pay Lehman $ , including shares of BioStar
Series F Preferred Stock, for its financial advisory services. In addition,
BioStar has agreed to reimburse Lehman for its reasonable out-of-pocket expenses
and to indemnify Lehman and certain related persons against certain liabilities,
including liabilities under the federal securities laws, relating to or arising
out of its engagement.
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PROPOSAL TO AMEND THE CORTECH CERTIFICATE OF INCORPORATION
In addition to the Merger Proposal, at the Cortech Special Meeting the
stockholders of Cortech as of the Cortech Record Date are being asked to approve
the Cortech Certificate of Amendment (attached hereto as Appendix B) which will
effect (i) a corporate name change for Cortech and (ii) a reverse split of the
issued and outstanding Cortech Common Stock. Although these actions are further
described below, it should be noted that the Cortech Certificate of Amendment
would not be implemented in the event that the Cortech Certificate of Amendment
is approved but the Merger Proposal is not approved.
CORPORATE NAME CHANGE
As part of its consideration of the Merger and the Reorganization
Agreement, the Cortech Board has unanimously approved an amendment to the
Cortech Certificate, contingent upon the effectiveness of the Merger and
stockholder approval, to change the corporate name of Cortech to "BioStar
Holdings, Inc." (the "Name Change"). The Name Change would entail a new
quotation symbol of "BSTR" for Cortech Common Stock on the Nasdaq National
Market (provided that the combined company maintains its listing on the Nasdaq
National Market).
REVERSE SPLIT
The Cortech Board has unanimously approved an amendment to the Cortech
Certificate to effect a reverse split of the Cortech Common Stock (the "Reverse
Split"). The Reverse Split, if approved and implemented, would cause all issued
and outstanding shares of Cortech Common Stock to be split, on a reverse basis,
one-for-[ ]. However, the Reverse Split would not affect the number of
authorized shares of Cortech Common Stock. Accordingly, the Reverse Split would
effectively increase the number of available authorized shares of Cortech Common
Stock. The effective date of the Reverse Split would be the date on which the
Certificate of Amendment is filed with the Secretary of State of Delaware.
Implementation of the Reverse Split is contingent upon approval of the Cortech
Certificate Proposal and the Merger Proposal by the Cortech stockholders.
Assuming such implementation, the effective date of the Reverse Split is
anticipated to be at or about the Effective Time. As described below, the
primary objective of the Cortech Board in effecting the Reverse Split is to
increase the per share market price of Cortech Common Stock. A significant
collateral effect would be to increase the number of authorized but unissued
shares of Cortech Common Stock.
Trading in Cortech Common Stock is presently quoted on the Nasdaq National
Market. Cortech has been advised by Nasdaq that the continued quotation of
Cortech Common Stock on the Nasdaq National Market is in jeopardy due to a bid
price for Cortech Common Stock of less than $1.00 per share. The Reverse Split
is intended to increase the post-Merger per share bid price of Cortech Common
Stock in order to satisfy Nasdaq's related requirement. In the event that the
Merger Proposal is approved and the Cortech Certificate Proposal is not
implemented following the Cortech Special Meeting (for example, because the
Cortech Certificate Proposal is not approved at the Cortech Special Meeting),
Cortech would propose a reverse stock split of Cortech Common Stock for approval
at an Annual Meeting of the Cortech stockholders to be held as soon as
reasonably practicable following the Cortech Special Meeting. There can be no
assurances that Cortech will be able to maintain its Nasdaq National Market
Listing (whether as a result of failure to meet the minimum bid price
requirement or other requirements imposed by the Nasdaq National Market). The
absence of the quotation of trading in Cortech Common Stock on the Nasdaq
National Market would have an adverse effect on the market for, and the market
price of, Cortech Common Stock.
The Reverse Split will have the significant collateral effect of increasing
the number of authorized but unissued shares of Cortech Common Stock. This would
permit Cortech to use such shares in connection with Cortech's employee benefit
plans, the options, warrants and rights formerly relating to BioStar Capital
Stock which will be assumed by Cortech in the Merger and possible future
issuances. At the Cortech Record Date, there were issued and outstanding
[ ] shares of Cortech Common Stock and options and warrants to acquire
an additional [ ] shares of Cortech Common Stock. The number of shares
of Cortech Common Stock to be issued in connection with the Merger will not
exceed 28,500,000 shares (pre-Reverse
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Split). Accordingly, only [ ] of the 50,000,000 shares of Cortech Common
Stock authorized would be available for possible future issuances absent the
Reverse Split.
The Cortech Board believes that the Reverse Split is beneficial to
Cortech's future prospects since Cortech Common Stock will not continue to be
eligible for inclusion on the Nasdaq National Market if the Reverse Split does
not take place or if the market price for the Cortech Common Stock does not
otherwise meet the $1.00 minimum bid price. In addition, the Reverse Split will
provide the combined company flexibility in meeting its possible needs by
enabling it to raise additional capital through the issuance of Cortech Common
Stock or securities convertible into or exercisable for Cortech Common Stock,
make additional stock awards under Cortech's employee benefit plans (and the
employee benefit plans of the combined company) and/or employ Cortech Common
Stock as a form of consideration for acquisitions. Other than in connection with
the Merger, Cortech does not presently intend to issue any additional shares for
any specific purpose (except in connection with Cortech's employee benefit
plans, employee benefit plans of the combined company and the options, warrants
and rights formerly relating to BioStar Capital Stock which will be assumed by
Cortech in connection with the Merger).
For the foregoing reasons, the Cortech Board has determined that a
recapitalization through the Reverse Split, which would be implemented at or
about the Effective Time, would be in the best interests of Cortech and its
stockholders.
EFFECTS OF THE REVERSE SPLIT
General Effects. The principal effect of the Reverse Split would be to
decrease the number of outstanding shares of Cortech Common Stock. Specifically,
the [ ] shares of Cortech Common Stock issued and outstanding on the
Cortech Record Date would, as a result of the Reverse Split, be converted into
approximately [ ] shares of Cortech Common Stock (with the precise
number depending upon the extent of fractional shares resulting from the Reverse
Split, which will be converted to cash based upon the market price for a share
of Cortech Common Stock on the trading day prior to implementation of the
Reverse Split). After giving effect to the Merger (i.e., assuming the issuance
of an aggregate of 28,500,000 shares of Cortech Common Stock in connection with
the Merger), the [ ] shares of Cortech Common Stock issued and
outstanding would, as a result of the Reverse Split, be converted into
approximately [ ] shares of Cortech Common Stock (with the precise
number depending upon the extent of fractional shares). Since the number of
shares of Cortech Common Stock authorized for issuance by the Cortech
Certificate following the Reverse Split will remain at 50,000,000 shares, the
Reverse Split will result in approximately [ ] "new" (or
post-Reverse Split) shares of Cortech Common Stock ("New Shares") available for
issuance by Cortech.
Effect on Market for Cortech Common Stock. On [ ], 1998, the
closing price of Cortech Common Stock quoted on the Nasdaq National Market was
$[ ] per share. By decreasing the number of shares of Cortech Common
Stock otherwise outstanding without altering the aggregate economic interest in
Cortech represented by such shares, the Cortech Board believes that the per
share market price for Cortech Common Stock will be increased to the price
required for continued inclusion of the shares on the Nasdaq National Market.
Effect on Cortech's Stock Options and Warrants. The total number of shares
of Cortech Common Stock issuable upon the exercise of options and warrants to
acquire such shares, and the exercise price thereof, shall be proportionally
adjusted to reflect the Reverse Split.
Effect under Cortech's Rights Plan. Following the implementation of the
Reverse Split, each share of Cortech Common Stock will continue to have one
preferred share purchase right (a "Right") associated with it; however, the
number of shares of preferred stock issuable upon the exercise of each Right
shall be proportionally adjusted to reflect the Reverse Split (i.e., following
the effectiveness of the Reverse Split, each Right, under certain circumstances,
would be eligible to purchase up to [ ] one-hundredths of a
share of preferred stock). See "Description of Cortech Capital
Stock -- Stockholder Rights Plan".
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Changes in Stockholders' Equity. The Reverse Split would reduce Cortech's
stated capital, which consists of the par value per share of Cortech Common
Stock multiplied by the number of such shares outstanding, from the amount which
would otherwise exist following the Effective Time (assuming the effectiveness
of the Merger and the share amounts otherwise set forth above, the Reverse Split
would reduce Cortech's stated capital by approximately $[ ]. Although the
par value of Cortech Common Stock would remain at $.002 per share following the
Reverse Split, stated capital would be decreased because the number of shares
outstanding would be reduced. Correspondingly, Cortech's additional paid-in
capital, which consists of the difference between Cortech's stated capital and
the aggregate amount paid to Cortech upon the issuance by Cortech of all then
outstanding shares of Cortech Common Stock, would be increased.
Appraisal Rights. Pursuant to the DGCL, Cortech's stockholders are not
entitled to appraisal rights with respect to the Reverse Split.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the federal income tax consequences of the Reverse
Split is based on current law, including the Code, and is for general
information only. The tax treatment for any stockholder may vary depending upon
the particular facts and circumstances of such stockholder. Certain
stockholders, including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, non-resident aliens, foreign corporations and
persons who do not hold Cortech Common Stock as a capital asset, may be subject
to special rules not discussed below. ACCORDINGLY, EACH STOCKHOLDER SHOULD
CONSULT HIS OR HER TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO
HIM OR HER OF THE REVERSE SPLIT, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL OR FOREIGN INCOME TAXES AND OTHER LAWS.
The receipt of whole New Shares (excluding fractional New Shares) in the
Reverse Split should be non-taxable for federal income tax purposes.
Consequently, a stockholder receiving New Shares will not recognize either gain
or loss, or any other type of income, with respect to whole New Shares received
as a result of the Reverse Split. In addition, the tax basis of such
stockholder's shares of Cortech Common Stock prior to the Reverse Split will
carry over as the tax basis of the stockholder's New Shares. The holding period
of the New Shares should also include the stockholder's holding period of the
Cortech Common Stock prior to the Reverse Split, provided that such Cortech
Common Stock was held by the stockholder as a capital asset on the effective
date of the Reverse Split.
Any stockholder who receives cash in lieu of a fractional New Share
pursuant to the Reverse Split will recognize gain or loss equal to the
difference between the amount of cash received and the portion of the aggregate
tax basis in his or her shares of Cortech Common Stock allocable to such
fractional New Share. If the shares of Cortech Common Stock were held as a
capital asset on the effective date of the Reverse Split, then the stockholder's
gain or loss will be a capital gain or loss. Such capital gain or loss will be a
long-term capital gain or loss if the stockholder's holding period for the
shares of Cortech Common Stock is longer than eighteen months, a short-term
capital gain or loss if the stockholder's holding period is twelve months or
less and mid-term gain or loss if the stockholder's holding period is longer
than twelve months and less than eighteen months.
Based on certain exceptions contained in regulations issued by the Internal
Revenue Service, Cortech does not believe that it or its stockholders would be
subject to backup withholding or informational reporting with respect to cash
distributed in lieu of fractional New Shares.
EXCHANGE OF SHARES
On or after the effective date of the Reverse Split, Cortech will mail to
each Cortech stockholder of record a letter of transmittal. Cortech stockholders
will be able to receive a certificate representing New Shares and, if
applicable, cash in lieu of a fractional New Share only by transmitting to the
Exchange Agent such stockholder's stock certificate(s) for shares of Cortech
Common Stock outstanding prior to the Reverse Split, together with the properly
executed and completed letter of transmittal, and such evidence of ownership of
such shares as Cortech may require. Cortech stockholders will not receive
certificates for New
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Shares unless and until the certificates representing their shares of Cortech
Common Stock outstanding prior to the Reverse Split are surrendered. Cortech
stockholders should not forward their certificates to the Exchange Agent until
the letter of transmittal is received and should surrender their certificates
only with such letter of transmittal. Holders of BioStar Capital Stock prior to
the Merger will receive a letter of transmittal which combines the procedure for
exchanging their certificates representing BioStar Capital Stock for
certificates representing New Shares.
Payment in lieu of a fractional New Share will be made to any Cortech
stockholder entitled thereto promptly after receipt by Cortech or its Exchange
Agent of a properly completed letter of transmittal and stock certificate(s) for
all of his or her shares of Cortech Common Stock (or BioStar Capital Stock, as
the case may be) outstanding prior to the Reverse Split. There will be no
service charge payable by Cortech stockholders in connection with the exchange
of certificates or in connection with the payment of cash in lieu of the
issuance of a fractional New Share. These costs will be borne by Cortech.
REQUIRED VOTE
Approval and adoption of the Cortech Certificate Proposal (which includes
the Name Change and the Reverse Split) requires the affirmative vote of the
holders of a majority of the shares of Cortech Common Stock issued and
outstanding on the Cortech Record Date and entitled to vote. Therefore, the
effect of an abstention or broker nonvote on the proposal is the same as a vote
against the proposal.
BOARD RECOMMENDATION
THE CORTECH BOARD HAS UNANIMOUSLY APPROVED THE CORTECH CERTIFICATE OF
AMENDMENT, WHICH INCLUDES THE NAME CHANGE AND THE REVERSE SPLIT, AND RECOMMENDS
THAT STOCKHOLDERS VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE CORTECH
CERTIFICATE PROPOSAL.
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AMENDMENT OF THE BIOSTAR CERTIFICATE OF INCORPORATION
The BioStar Board has approved and submitted for a vote with the BioStar
stockholders an amendment (the "BioStar Certificate of Amendment") of the
Restated Certificate of Incorporation of BioStar. A copy of the proposed
amendment is attached as Exhibit B to the Reorganization Agreement attached
hereto as Appendix A.
Conditioned upon the satisfaction or waiver of the various conditions to
closing the Merger in the Reorganization Agreement, the BioStar Certificate of
Amendment provides that the holders of BioStar preferred stock will only receive
the consideration for their shares set forth in the Reorganization Agreement.
The Merger is conditioned upon approval of the BioStar Certificate of
Amendment by the BioStar preferred stockholders. If the BioStar Certificate of
Amendment is not approved then the Merger will not be implemented.
EFFECT OF AMENDMENT
Holders of BioStar preferred stock are entitled, under certain
circumstances, to receive payment of a preferential amount prior to any payments
or distributions in respect of BioStar common stock. Under BioStar's Restated
Certificate of Incorporation, the preferred stock preference is not payable in
the event of a merger in which BioStar stockholders obtain more than 50% of the
voting power of the entity "surviving or continuing" after such merger.
BioStar stockholders will hold more than 50% of the outstanding voting
power of Cortech following the Merger. Because of the legal structure of the
Merger, however, Cortech (rather than BioStar) could be deemed to be such
"surviving or continuing" entity. The BioStar Certificate of Amendment clarifies
that, despite the legal structure of the Merger, holders of BioStar preferred
stock will not receive in connection with the Merger any payments or amounts in
preference to the BioStar common stock, but will only receive the consideration
for their shares specified in the Reorganization Agreement.
REQUIRED VOTE
Approval and adoption of the BioStar Certificate of Amendment requires the
affirmative vote of the holders of a majority of the outstanding shares of
BioStar common stock and preferred stock, voting together as a single class (on
an as-converted basis), and the affirmative vote of the holders of a majority of
the shares of each series of BioStar preferred stock, voting as separate
classes. The effect of an abstention or broker nonvote on the proposal is the
same as a vote against the proposal.
Pursuant to the BioStar Voting Agreements, certain directors, officers and
other affiliates of BioStar, who together hold approximately 65% of the BioStar
common stock and BioStar preferred stock voting as a single class, and 100% of
the Series A Preferred Stock, 100% of the Series B Preferred Stock, 100% of the
Series C Preferred Stock, at least 50% of the Series D Preferred Stock and at
least 38% of the Series E Preferred Stock voting as separate classes,
outstanding as of the BioStar Record Date, have agreed to vote in favor of the
BioStar Certificate Proposal. See "Approval of the Merger and Related
Transactions -- Voting Agreements".
THE BIOSTAR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE BIOSTAR
CERTIFICATE AMENDMENT.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On December 22, 1997, Cortech, BioStar and Merger Sub entered into the
Reorganization Agreement pursuant to which BioStar would become a wholly owned
subsidiary of Cortech at the Effective Time and the stockholders of BioStar
would receive shares of Cortech Common Stock in exchange for their BioStar
Capital Stock. The Cortech Common Stock to be issued or reserved for issuance to
holders of BioStar Capital Stock, BioStar Options and BioStar Warrants amounts
to approximately 60% of the Cortech Common Stock issued and outstanding
immediately after the Merger (assuming the exercise in full of all BioStar
Options and BioStar Warrants). For financial reporting purposes, the transaction
would be accounted for as a reverse acquisition whereby BioStar is deemed the
acquiror of Cortech since the former stockholders of BioStar would have voting
control of Cortech after the transaction.
The following unaudited pro forma condensed consolidated balance sheet
gives effect to the consummation of the Merger as if it had occurred on December
31, 1997. The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1997 gives effect to the Merger as if
it had occurred on January 1, 1997. The unaudited pro forma condensed
consolidated financial information and notes thereto do not purport to represent
what the Company's results of operations would have been if the Merger had
occurred on such dates.
The pro forma adjustments are based upon currently available information
and upon certain assumptions that Cortech and BioStar management believe are
reasonable. The unaudited pro forma condensed consolidated financial information
and accompanying notes should be read in conjunction with the financial
statements and related notes thereto of both Cortech and BioStar, and other
financial information pertaining to Cortech and BioStar, including "Cortech
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "BioStar Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Joint Proxy
Statement/Prospectus.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CORTECH BIOSTAR
-------------------------------------- -------------------------------------- UNAUDITED
PRO FORMA PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED HISTORICAL ADJUSTMENTS AS ADJUSTED AS ADJUSTED
---------- ----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents...... $ 11,562 $ -- $11,562 $ 1 $ -- $ 1 $ 11,563
Short term investments......... 3,841 -- 3,841 -- -- -- 3,841
Trade accounts receivable,
net.......................... -- -- -- 1,663 -- 1,663 1,663
Inventories.................... -- -- -- 1,413 -- 1,413 1,413
Prepaid expenses and other..... 308 -- 308 285 -- 285 593
-------- -------- ------- -------- ------- -------- --------
Total current assets......... 15,711 -- 15,711 3,362 -- 3,362 19,073
-------- -------- ------- -------- ------- -------- --------
Laboratory and manufacturing
equipment.................... -- -- -- 3,040 -- 3,040 3,040
Leasehold improvements......... 8,026 (2,324)(1) 159 123 -- 123 282
(5,543)(2)
Office furniture and
equipment.................... 2,300 (2,043)(2) 257 617 -- 617 874
-------- -------- ------- -------- ------- -------- --------
10,326 (9,910) 416 3,780 -- 3,780 4,196
Less accumulated depreciation
and amortization............. (9,592) 2,006 (1) -- (1,624) -- (1,624) (1,624)
7,586 (2)
-------- -------- ------- -------- ------- -------- --------
734 (318) 416 2,156 -- 2,156 2,572
-------- -------- ------- -------- ------- -------- --------
Purchased patents.............. -- -- -- 920 -- 920 920
Deferred patent and trademark
costs........................ -- -- -- 815 -- 815 815
-------- -------- ------- -------- ------- -------- --------
-- -- -- 1,735 -- 1,735 1,735
Accumulated amortization....... -- -- -- (1,159) -- (1,159) (1,159)
-------- -------- ------- -------- ------- -------- --------
-- -- -- 576 -- 576 576
-------- -------- ------- -------- ------- -------- --------
Other assets................... -- -- -- 234 (168)(3) 66 66
-------- -------- ------- -------- ------- -------- --------
Total assets................... $ 16,445 $ (318) $16,127 $ 6,328 $ (168) $ 6,160 $ 22,287
======== ======== ======= ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Accounts payable and accrued
liabilities.................. $ 762 $ 2,026 (4) $ 2,788 $ 1,538 $ (88)(5) $ 2,350 $ 5,138
900 (6)
Accrued compensation........... 264 -- 264 880 -- 880 1,144
Deferred revenue and other..... 36 -- 36 166 -- 166 202
Note payable and line of
credit....................... -- -- -- 1,251 -- 1,251 1,251
Current portion of capital
lease obligations............ -- -- -- 374 -- 374 374
Current portion of subordinated
debt......................... -- -- -- 747 -- 747 747
Subordinated promissory
notes........................ -- -- -- 1,565 (1,565)(5) -- --
-------- -------- ------- -------- ------- -------- --------
1,062 2,026 3,088 6,521 (753) 5,768 8,856
-------- -------- ------- -------- ------- -------- --------
Capital lease obligations, net
of current portion above..... -- -- -- 62 -- 62 62
Convertible subordinated
debt......................... -- -- -- 4,500 (4,500)(7) -- --
Other long-term liabilities.... -- -- -- 858 (831)(7) 27 27
-------- -------- ------- -------- ------- -------- --------
-- -- -- 5,420 (5,331) 89 89
-------- -------- ------- -------- ------- -------- --------
Total liabilities............ 1,062 2,026 3,088 11,941 (6,984) 5,857 8,945
-------- -------- ------- -------- ------- -------- --------
Common stock................... 37 52 (8) 89 -- 1 (7) -- 89
(1)(9)
Convertible preferred stock.... -- -- -- 2 (2)(10) -- --
Warrants....................... 1,077 (1,077)(8) -- -- -- -- --
Additional paid in capital..... 98,909 (85,959)(8) 12,950 20,207 5,330 (7) 26,125 39,075
(900)(6)
2 (10)
58 (11)
(58)(11)
(168)(3)
1 (9)
1,653 (5)
Deferred compensation.......... (1) 1 (8) -- -- -- -- --
Accumulated deficit............ (84,639) (318)(1) -- (25,822) -- (25,822) (25,822)
(2,026)(4)
86,983 (8)
-------- -------- ------- -------- ------- -------- --------
Total stockholders' equity 15,383 (2,344) 13,039 (5,613) 5,916 303 13,342
-------- -------- ------- -------- ------- -------- --------
Total liabilities and
stockholders' equity......... $ 16,445 $ (318) $16,127 $ 6,328 $(1,068) $ 6,160 $ 22,287
======== ======== ======= ======== ======= ======== ========
</TABLE>
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<PAGE> 87
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED
CORTECH BIOSTAR PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Sponsored research and development revenues........... $ 3,451 $ 5,028 $ -- $ 8,479
Net sales............................................. -- 10,830 -- 10,830
---------- ------- ---------- ----------
Total revenues................................... 3,451 15,858 -- 19,309
---------- ------- ---------- ----------
Research and development expense...................... 7,552 3,236 -- 10,788
Cost of sales and other manufacturing costs........... -- 4,924 -- 4,924
Sales and marketing................................... -- 6,179 -- 6,179
General and administrative expense.................... 3,616 2,662 -- 6,278
---------- ------- ---------- ----------
Total expenses................................... 11,168 17,001 -- 28,169
---------- ------- ---------- ----------
Royalties and grants.................................. -- 94 -- 94
Interest income....................................... 939 4 -- 943
Interest expense...................................... -- (888) 470(12) (295)
123(13)
---------- ------- ---------- ----------
939 (790) 593 742
---------- ------- ---------- ----------
Net loss......................................... $ (6,778) $(1,933) $ 593 $ (8,118)
========== ======= ========== ==========
Basic and diluted net loss per share.................. $ (0.37) $ (0.18)
Weighted average common shares outstanding............ 18,521,758 26,096,950(8) 44,618,708
</TABLE>
- ---------------
(1) Represents the write-off of leasehold improvements and related accumulated
amortization of Cortech's leased facilities, as it is assumed BioStar will
not occupy such leased space.
(2) Represents the adjustment of the remaining tangible assets to estimated
fair market value.
(3) Represents historical costs incurred by BioStar related to the Merger which
will be offset against additional paid-in capital upon consummation of the
Merger.
(4) Represents additional costs to be incurred by Cortech related to severance
agreements ($1.3 million), continuing operating lease obligations
($226,000) and estimated costs to close the Merger of $500,000.
(5) Represents the conversion of BioStar subordinated promissory notes and
related accrued interest into BioStar preferred stock immediately prior to
the Effective Time. The actual conversion will include accrued interest
through the date of the Merger.
(6) Represents additional costs estimated to be incurred by BioStar in
connection with the Merger.
(7) Represents the conversion of BioStar convertible subordinated debt and
related accrued interest into BioStar preferred stock immediately prior to
the Effective Time. The actual conversion will include accrued interest
through the date of the Merger.
(8) Represents the issuance of approximately 26.1 million shares of Cortech
Common Stock upon the consummation of the Merger. The amount of Cortech
shares issued does not include Cortech shares to be reserved for issuance
in connection with the assumption of BioStar Options. As the Merger is to
be accounted for as a reverse acquisition, Cortech's stockholders' equity
balances are adjusted to reflect the fair market value of the Cortech
assets less the fair market value of the liabilities.
(9) Represents the elimination of the historical BioStar common stock balance,
as adjusted for the conversion of subordinated promissory notes and
convertible subordinated debt, together with accrued interest.
(10) Represents the conversion of BioStar's convertible preferred stock into
BioStar common stock immediately prior to the Effective Time.
(11) Represents the issuance of 160,000 shares of BioStar preferred stock
(valued at $0.36 per share) immediately prior to the Effective Time in
connection with BioStar's cancellation of the convertible contingent
payment instrument.
(12) Represents the elimination of interest expense on BioStar convertible
subordinated debt as such debt is assumed converted into BioStar preferred
stock as of January 1, 1997.
(13) Represents the elimination of interest expense on BioStar convertible
promissory notes as such notes are assumed converted into BioStar preferred
stock as of January 1, 1997.
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<PAGE> 88
CORTECH BUSINESS
OVERVIEW
Cortech is a biopharmaceutical company whose principal focus has been the
discovery and development of novel therapeutics for the treatment of
inflammatory disorders. Specifically, Cortech has directed its research and
development efforts toward protease inhibitors and bradykinin antagonists. These
efforts have produced certain intellectual property rights. See "-- Cortech's
Work with Protease Inhibitors" and "-- Cortech's Work with Bradykinin
Antagonists".
In response to disappointing test results and its loss of collaborative
partner support, Cortech has implemented a series of reductions in force over
the past three-and-one-half years which has reduced the number of full-time,
regular employees from more than 200 to fewer than 15 and effectively
discontinued all internal efforts to advance its research and development
activities. In addition, Cortech is currently de-commissioning its laboratories,
has sold most of its scientific and technical equipment and, unless BioStar opts
to retain such assets, plans to sell most of its office furniture and equipment
and, where possible, its leasehold improvements.
As a result of these actions, Cortech no longer has the staff or operative
facilities required to re-commence internal research and development activities.
Cortech has retained a core group of professionals who, among other things, are
actively engaged in ongoing efforts to realize appropriate value from Cortech's
tangible and intangible assets. It is uncertain, however, whether Cortech will
be able to retain employees with sufficient knowledge and experience to realize
appropriate value from Cortech's intangible assets. In light of the above,
Cortech's management has focused on evaluating various strategic alternatives.
As a result, Cortech entered into the Reorganization Agreement with BioStar on
December 22, 1997.
CORTECH'S WORK WITH PROTEASE INHIBITORS
Background. Proteases are enzymes that cleave peptide bonds within
proteins. Since proteins are one of the fundamental building blocks of
biological systems, proteases are among the most important regulators of
biological activity that have been described. As a result of an increased
understanding of the causative role proteases play in a number of disease
processes, protease inhibition has become a very important area of drug
discovery. Cortech's work has focused primarily on the discovery and synthesis
of inhibitors of human neutrophil elastase ("HNE"), a serine protease capable of
degrading a variety of connective tissue proteins, most notably elastin. Elastin
is found in the lungs, vasculature and skin, and therapy directed against HNE
may have therapeutic application in acute and chronic respiratory,
cardiovascular and skin disorders. As a result of its research and development
efforts in this field, Cortech has developed proprietary technology which it has
demonstrated has the potential to be applied to the discovery and synthesis of a
broader range of therapeutically interesting protease inhibitors.
During inflammation, neutrophils are activated and migrate to sites of
inflammation to help kill microorganisms and eliminate inflammatory debris.
Neutrophils release HNE which disrupts the lining of blood vessels (endothelium)
and allows the neutrophils to reach their target destination. Because HNE is so
potent at digesting protein and thereby damaging tissue, the body possesses a
number of defenses against excessive HNE release, limiting its effect in minor
inflammatory states. In certain severe inflammatory conditions, however, HNE
production overwhelms the body's natural defenses, resulting in tissue
destruction. High levels of HNE release have also been found in cases of organ
dysfunction, such as those associated with acute respiratory distress syndrome
("ARDS"). Further, HNE appears to play a significant role in a number of chronic
diseases marked by tissue destruction, including cystic fibrosis and emphysema.
HNE also appears to be involved in less severe forms of tissue destruction, such
as rheumatoid arthritis, psoriasis and periodontal disease.
CE-1037 -- HNE Inhibitor for Parenteral Administration. Cortech's early
work in the area of protease inhibition led to the establishment in 1987 of a
strategic partnering relationship with Marion Laboratories, Inc. ("Marion")
under which Cortech granted to Marion worldwide rights to develop, manufacture
and market any products resulting from Cortech's HNE inhibitor program, subject
to a royalty payable to Cortech based
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<PAGE> 89
on net sales, and Marion substantially funded the development of such products.
Although certain rights were granted back to Cortech in 1993 and 1996, this
relationship continued in force through subsequent merger transactions engaged
in by Marion (and its successor) which brought about the formation of Marion
Merrill Dow Inc., and subsequently Hoechst Marion Roussel, Inc. ("HMRI").
Cortech's work with HMRI (references to HMRI hereafter include, as applicable in
context, its predecessors) pursued discovery and development of a parenterally
administered inhibitor of HNE for use in the treatment of ARDS and cystic
fibrosis. As a result of this work, Cortech's scientists produced a lead
compound, designated "CE-1037", which Cortech ultimately advanced, with HMRI's
support, through Phase I and into Phase II clinical trials.
HMRI continued to fund Cortech's development of CE-1037 (ultimately
providing $14.1 million in funding) until December 1996 when HMRI terminated its
agreement with Cortech and returned all rights to CE-1037 to Cortech. HMRI
terminated the agreement following an analysis of the results from two
preliminary, preclinical, genotoxicity experiments which suggested that CE-1037
might have genotoxic properties.
When the disappointing results of the genotoxicity experiments became
available, a small pilot study in ARDS was underway. Cortech and HMRI decided to
suspend the clinical trial in order to evaluate the genotoxicity results and
conduct a repeat experiment, if warranted. Following HMRI's termination of its
agreement with Cortech, Cortech undertook a repeat (but more comprehensive) test
which was conducted at an independent contract facility. The results of this
repeat test recently became available and showed no genotoxic effects of
CE-1037. In the meantime, Cortech has also evaluated data from the small cohort
of patients in the ARDS trial, and such data suggest that CE-1037 may deserve
further study in this and other acute respiratory indications. Notwithstanding
these tentative findings, there can be no assurance that CE-1037 would be proven
safe and efficacious in clinical trials, that the regulatory approvals necessary
for its commercialization (if it is ever advanced to this stage) would be
obtained or that it could be manufactured at acceptable costs and in appropriate
quantity. Furthermore, Cortech does not intend to undertake further development
of CE-1037 without a collaborative partner. Although Cortech is currently
seeking to secure such a partner or purchaser of Cortech's related technology
rights, there can be no assurance that Cortech will be able to establish such a
collaboration or effect any transaction involving a sale of technology rights on
favorable terms, if at all.
HNE Inhibitors for Oral Administration. HNE has been implicated in a number
of chronic diseases of the respiratory tract including chronic obstructive
pulmonary disease and emphysema. Optimally, these conditions would require a
compound that could be administered orally for a prolonged period of time. Thus,
Cortech's research and development in the area of elastase inhibition was
expanded to include compounds suitable for oral administration.
In March 1995, Cortech signed a three year research agreement with Ono
Pharmaceutical Co. Ltd., ("Ono") of Osaka, Japan to develop an orally active HNE
inhibitor using technology developed by Cortech prior to initiation of the
collaboration. Under the terms of the agreement, Ono substantially funded
Cortech's research on oral, HNE inhibitors ultimately providing a total of
approximately $10.0 million in funding from 1995-1997. The agreement also
granted Ono an exclusive, royalty-free license to make, use and sell a resulting
product in Japan, Korea, Taiwan and China (the "Ono Territory"), with Cortech
retaining all rights outside of the Ono Territory.
In November 1996, Cortech reallocated some of its scientists to the oral
elastase project in light of the progress made over the preceding 18 months. In
return, Ono accelerated certain payments due under its agreement with Cortech.
In late 1996, disappointments from Cortech's collaborations with HMRI on CE-1037
and SmithKline Beecham on Bradycor(TM) (see "-- Cortech's Work with Protease
Inhibitors -- CE-1037 -- HNE Inhibitor for Parenteral Administration" and
"-- Cortech's Work with Bradykinin Antagonists") increased the pressure on
Cortech to conserve cash. Subsequently, in April 1997, Cortech and Ono amended
their agreement to transfer all responsibilities for research activities to Ono
during the final six months of the collaborative project (from September 15,
1997 through March 14, 1998). During the third quarter of 1997, Cortech's
remaining research staff focused their efforts primarily on elastase inhibition
in order to fulfill Cortech's responsibilities under its agreement with Ono. On
October 1, 1997, after fulfilling
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<PAGE> 90
these responsibilities, Cortech began to implement a further, corporate
downsizing (to a staff of less than 15 full-time persons). Although Cortech
retains rights outside of the Ono Territory to any compounds developed pursuant
to the agreement with Ono, including those that might result from Ono's efforts
during the final six months of the collaborative project, there can be no
assurance that any research and development efforts with respect to HNE
inhibitors (including the efforts of Ono) will prove successful, that any
potential product would be proven safe and efficacious in clinical trials, that
the regulatory approvals necessary for the commercialization of any product (if
any product is ever advanced to this stage) would be obtained or that any
product could be manufactured at acceptable costs and with appropriate quantity.
Cortech does not intend to undertake further development of HNE inhibitors
without a collaborative partner. Although Cortech is currently seeking to secure
such a partner or a purchaser of Cortech's related technology rights, there can
be no assurance that Cortech will be able to establish such a collaboration or
effect any transaction involving a sale of technology rights on favorable terms,
if at all.
Other Protease Targets. As part of its protease inhibitor research efforts,
Cortech scientists synthesized and tested a number of compounds. Certain of
these compounds have been shown to have activity against other serine elastases,
such as proteinase-3 and endogenous vascular elastase. Serine elastases have
been shown to play an important role in vascular injury, and Cortech believes
that its portfolio of compounds may potentially provide useful therapeutic
interventions for certain acute and chronic vascular, skin and respiratory
diseases. A small, focused effort continues in this area through contractual
arrangements with selected experts at academic medical centers. Cortech has also
developed a proprietary technology which has the potential to be applied to the
discovery and synthesis of inhibitors of a broader range of therapeutically
interesting serine and cysteine proteases such as mast cell tryptase and picorna
virus proteases, interleuken-1 beta converting enzyme, other caspases involved
in apoptosis and cell death and cathepsins B, K, L and S.
Notwithstanding these initial findings, there can be no assurance that any
of these compounds will be proven safe and efficacious in clinical trials, that
the regulatory approvals necessary for their commercialization (if any such
compounds are ever advanced to this stage) would be obtained or that it could be
manufactured at acceptable costs and with appropriate quantity. Furthermore,
Cortech does not intend to undertake further development of any of these
compounds without a collaborative partner. Although Cortech is currently seeking
to secure such a partner or purchaser of Cortech's related technology rights,
there can be no assurance that Cortech will be able to establish such a
collaboration or effect any transaction involving a sale of technology rights on
favorable terms, if at all.
CORTECH'S WORK WITH BRADYKININ ANTAGONISTS
Background. Inflammation is the body's response to injury of any kind,
including injury caused by infections, immune responses or physical trauma.
Controlled inflammation is beneficial because it facilitates the clearance of
pathogens (disease-causing agents) and the repair of damaged tissue. However,
because inflammation is a comprehensive response involving numerous pathologic
mediators, the strength of the response often converts normal, controlled
inflammation into an abnormal, destructive process. When this occurs,
inflammation can cause acute or chronic disease, often accompanied by pain,
edema (swelling) or tissue destruction leading to organ failure and death in
severe cases.
Bradykinin is generated immediately following tissue injury or infection.
It is a pivotal inflammatory mediator, and its diverse effects include pain,
edema, vascular leak, and hypotension or low blood pressure that can lead to
shock, organ dysfunction and death. The body normally inactivates bradykinin
within seconds of its generation. However, in instances of severe injury,
bradykinin production outstrips the body's capacity to inactivate it, thereby
generating sustained inflammation, pain and edema. Preclinical and clinical work
continues to support the role of bradykinin as an important mediator of
inflammation, particularly in brain injury following trauma or acute ischemia.
Cortech's efforts in connection with bradykinin antagonists have led to the
discovery and synthesis of bradykinin antagonist monomers, dimers and
heterodimers. The latter compounds link a bradykinin antagonist with an opioid
agonist to encompass the spectrum of pain and inflammation without central
nervous system penetration and its accompanying side effects. These heterodimers
may have therapeutic potential in the
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management of perioperative pain. In the last two years, however, Cortech's
efforts have focused on the development of two of its bradykinin antagonists,
Bradycor, a peptide dimer, and CP-0597, a peptide monomer.
Bradycor(TM) (Deltibant or CP-0127). Bradycor is Cortech's lead,
first-generation bradykinin antagonist which may potentially have therapeutic
application in the management of traumatic brain injury ("TBI"). The rationale
for its use in TBI is based on the important contribution of inflammatory
processes to the full expression of the injury. A number of these inflammatory
processes are mediated by bradykinin receptor mechanisms, including neutrophil
activation and migration, stimulation of vascular endothelial cells and
interactions with neuronal and non-neuronal cell populations found within the
brain parenchyma. Following brain injury, these processes result in the
production of inflammatory cytokines, endothelial retraction, blood brain
barrier disruption and neuronal death. Thus, compounds such as Bradycor which
can block these bradykinin mediated effects may potentially be efficacious in
ameliorating the inflammatory aspects of TBI.
Until mid-1995, Cortech's work on Bradycor concentrated primarily on the
treatment of sepsis, but two Phase II clinical trials, completed in 1994 and
1995, failed to provide sufficient evidence of efficacy to warrant additional
development in that indication. Concurrent with the sepsis studies, Cortech also
undertook a small, pilot Phase II study in patients with large focal cerebral
contusions (a type of injury that represents a subset of the spectrum of TBI).
In that study, Bradycor had significant beneficial effects, compared with
placebo, on intracranial pressure, neurological status and the need for surgical
intervention. In addition, Bradycor was well tolerated and showed no clinically
significant adverse effects in these patients.
In November 1995, Cortech entered into a worldwide product development and
license agreement with SmithKline Beecham ("SB") for the development of Bradycor
for the treatment of TBI and possibly stroke. Under the terms of this agreement,
SB undertook a multicenter, placebo-controlled, Phase II clinical trial of
Bradycor in patients with severe TBI (the "TBI Study"). Results of the TBI
Study, which became available in March 1997, failed to demonstrate a
statistically significant benefit of Bradycor on intracranial pressure, the
primary endpoint of the TBI Study. Based on these results, SB and Cortech agreed
to discontinue the planned development of Bradycor. Moreover, SB, after
providing Cortech with $4.0 million in funding for the development of Bradycor,
terminated its agreement with Cortech.
Notwithstanding the initial results of the TBI Study, an analysis of
long-term functional outcome by the American Brain Injury Consortium, which was
completed during the third quarter of 1997, showed positive trends in functional
outcome for patients treated with Bradycor which were statistically significant
in the most severely injured patients. In addition, patients treated with
Bradycor in the TBI Study showed modest (but not statistically significant)
positive trends in intracranial pressure and the requirement for other
interventions to control intracranial pressure.
During the term of the agreement between SB and Cortech, SB also conducted
a number of preclinical and other early phase clinical studies to broaden the
profile of Bradycor. One of SB's preclinical studies in rats yielded adverse
findings which were inconsistent with the findings of Cortech's toxicology
program and not supported by the safety profile observed in the clinic. These
adverse findings led to the premature suspension of the TBI Study with 133
patients available for analysis rather than the 160 patients planned. However,
repeat rat studies failed to duplicate the initially observed mortality or to
provide an explanation for the adverse findings. Furthermore, these results when
considered in the context of the entire body of preclinical and clinical data
available on the compound remain anomalous.
In the event that development efforts with respect to Bradycor are
continued, there can be no assurance that Bradycor would be proven safe and
efficacious in clinical trials, that the regulatory approvals necessary for its
commercialization (if Bradycor is ever advanced to this stage) would be obtained
or that it could be manufactured at acceptable costs and with appropriate
quantity. Cortech does not intend to undertake further development of Bradycor
without a collaborative partner. Although Cortech is currently seeking to secure
such a partner or a purchaser of Cortech's related technology rights, there can
be no assurance that Cortech will be able to establish such a collaboration or
effect any transaction involving a sale of technology rights on favorable terms,
if at all.
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In February 1992, Cortech entered into a series of agreements with CP-0127
Development Corporation ("CDC") that govern the development of products
utilizing Bradycor. See "-- CP-0127 Development Corporation".
Second Generation Bradykinin Antagonist Research. Cortech has also
developed a series of peptide bradykinin antagonists that are 100 to 1,000 times
more potent than Bradycor. Compared to Bradycor, these compounds have longer
durations of action in vivo and are expected to be less costly to manufacture.
Cortech has identified a lead compound, CP-0597, which has been targeted for the
treatment of acute ischemic stroke where inflammatory consequences of the injury
are felt to be similar to those following traumatic injury. Acute ischemic
stroke is the term applied when blood supply to the brain is acutely compromised
by the obstruction of an artery. This obstruction leads to ischemia
(insufficient blood flow and loss of oxygen) of the brain tissue. As a result of
the ischemia, there is neuronal death, neurological impairment and death of
brain tissue. The microvasculature in the brain is acutely sensitive to ischemia
and reacts with endothelial swelling and changes in microvascular tone which
further compromise blood supply. There is blood brain barrier disruption in the
ischemic territory and an inflammatory response both at the vascular and
neuronal levels.
Results from preclinical experiments demonstrating the neuroprotective
effects of CP-0597 were reported in the July 1997 issue of Stroke. These results
indicate that CP-0597 may have significant therapeutic potential in the
treatment of stroke. Accordingly, Cortech has continued a small highly focused
research effort with that compound through contractual arrangements with
academic institutions. Cortech does not, however, intend to undertake further
development of CP-0597 without a collaborative partner. Although Cortech is
currently seeking to secure such a partner to advance CP-0597 through remaining
preclinical and clinical development and to help commercialize any drug(s) which
may result or, alternatively, to sell Cortech's related technology rights, there
can be no assurance that Cortech will be able to establish such a partnership or
effect any transaction involving a sale of technology rights on favorable terms,
if at all. Furthermore, there can be no assurance that CP-0597 would be proven
safe and efficacious in clinical trials, that the regulatory approvals necessary
for its commercialization (if it is ever advanced to this stage) would be
obtained or that it could be manufactured at acceptable costs and with
appropriate quantity.
PRODUCT DEVELOPMENT RISKS
Cortech's compounds are in an early stage of research and development. All
of the compounds in Cortech's portfolio would require extensive additional
research and development prior to submission of any regulatory application for
commercial use. Cortech is seeking collaborative arrangements to support any
further work on its research portfolio or, alternatively, to sell Cortech's
technology rights. There can be no assurance that Cortech will be able to
establish such collaborative arrangements or to effect a transaction involving a
sale of technology rights on acceptable terms, if at all. Even if Cortech enters
into collaborative arrangements and/or receives funds for research and
development, there can be no assurance that research or product development
efforts would be successfully completed, that the compounds in Cortech's
portfolio would be proven to be safe and efficacious in clinical trials, that
required regulatory approvals for commercialization (if products are ever
advanced to this stage) could be obtained, that products could be manufactured
at acceptable cost and with appropriate quality or that any approved products
could be successfully marketed or would be accepted by patients, health care
providers and third-party payors.
PATENTS, TRADE SECRETS AND LICENSES
Cortech believes that patents and other proprietary rights are crucial to
its intellectual property portfolio. It is Cortech's policy to seek appropriate
patent protection of proprietary technologies and compounds important to the
development of its business. In addition to patents, Cortech relies upon trade
secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position. The value of
Cortech's intellectual property will depend in part on its ability to obtain
patents, maintain trade secrets and operate without infringing on the
proprietary rights of others in the United States and in other countries.
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<PAGE> 93
Cortech has patent protection related to the following: protease
inhibitors, bradykinin antagonists and immunology (vaccines and treatments).
Cortech holds seven United States patents and currently has fourteen United
States patent applications pending which concern protease inhibitors. Cortech
holds five United States patents, has three United States patent applications
pending and has one patent application which has been allowed which concern
bradykinin antagonists. In addition, Cortech holds 26 foreign patents and has 40
foreign patents pending concerning protease inhibitors and bradykinin
antagonists.
The patent positions of pharmaceutical and biopharmaceutical firms,
including Cortech, are uncertain and involve complex factual questions. In
addition, the coverage claimed in a patent application can be significantly
reduced before or after the patent is issued. Consequently, there can be no
assurance that any of Cortech's pending applications will result in the issuance
of patents or, if any patents are issued, whether they will provide significant
proprietary protection or will be circumvented or invalidated. Since patent
applications in the United States are maintained in secrecy until patents issue
and since publication of discoveries in the scientific or patent literature
often lag behind actual discoveries, there can be no assurance that Cortech or
any licensor was the first creator of inventions covered by pending patent
applications or that Cortech or such licensor was the first to file patent
applications for such inventions. Cortech is aware of a patent that has issued
that contains claims which may, if valid, block Cortech from selling one or more
compounds in the immunology area. There can be no assurance that Cortech's
patents, if issued, would be held valid and infringed by a court of competent
jurisdiction. An adverse outcome with regard to a third party claim could
subject Cortech to significant liabilities to third parties, require disputed
rights to be licensed from third parties or require Cortech to cease using such
technology.
A number of pharmaceutical and biopharmaceutical companies and research and
academic institutions have filed patent applications or received patents in
Cortech's fields. Some of these applications or patents may be competitive with
Cortech's applications or may conflict in certain respects with claims made
under Cortech's applications. Such conflict could result in a significant
reduction of the coverage of Cortech's patents, if issued. In addition, if
patents are issued to other companies that contain competitive or conflicting
claims and such claims are ultimately determined to be valid, there can be no
assurance that Cortech would be able to obtain licenses to these patents at a
reasonable cost or be able to develop or obtain alternative technology.
Cortech also seeks to protect unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation. It is Cortech's
policy to require its employees, consultants, members of the Board of Directors,
outside scientific collaborators and sponsored researchers and other advisors to
execute confidentiality agreements upon the commencement of employment or
consulting relationships with Cortech. These agreements provide that all
confidential information developed or made known to the individual during the
course of the individual's relationship with Cortech is to be kept confidential
and not disclosed to third parties except in specific circumstances. In the case
of employees, the agreements provide that all inventions conceived by the
individual shall be the exclusive property of Cortech. There can be no
assurance, however, that these agreements will not be breached or will provide
meaningful protection or adequate remedies in the event of unauthorized use of
Cortech's trade secrets or disclosure of such information. Cortech also has
taken appropriate physical security measures to protect its intellectual
property. There can be no assurance, however, that such security measures will
be adequate.
CP-0127 DEVELOPMENT CORPORATION
In February 1992, Cortech entered into a series of agreements with CDC that
govern the development of products utilizing Bradycor. The agreements grant CDC
the right to utilize Bradycor in the United States, Canada and Europe for
certain indications, while Cortech retained rights to Bradycor in other parts of
the world. Cortech has the right to market, sell and license the technology
licensed to CDC or to sell products derived therefrom and is subject to a
royalty obligation in favor of CDC. Although Cortech has continued efforts to
secure a corporate partner in connection with Bradycor, Cortech is not currently
engaged in active development of any compounds covered by the agreements with
CDC. Kenneth R. Lynn, Chairman of the Cortech Board and Chief Executive Officer
of Cortech, and Bert Fingerhut, a member of the Cortech Board, serve as two of
the three members of the Board of Directors of CDC.
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MARKETING STRATEGY
Cortech's compounds are in the early stages of research and development. In
the event that any of Cortech's compounds were to be approved for marketing,
this would be accomplished primarily through arrangements with other
pharmaceutical or biotechnology companies. Comprehensive sales and technical
support services would be necessary to market Cortech's products, and Cortech
does not anticipate establishing significant capabilities in these areas in the
foreseeable future. To the extent Cortech enters into co-marketing, co-promotion
or similar arrangements, any revenues received by Cortech will be dependent on
the efforts of third parties, and there can be no assurance that such efforts
will be successful. Sales of any products for which Cortech obtains regulatory
approval will be dependent in part on the availability of reimbursements to the
consumer from third-party payors, such as government and private insurance
programs.
MANUFACTURING
The manufacture of sufficient quantities of new drugs can be an expensive,
time-consuming and complex process and may require the use of materials with
limited availability or require dependence on sole-source suppliers. In the
event that any of Cortech's compounds reach the stage of development involving
manufacturing, Cortech will be reliant upon third parties or its corporate
partners for the manufacture of compounds. There can be no assurance that such
third-party arrangements can be established on a timely or commercially
reasonable basis, if at all. Where such arrangements are established, Cortech
will depend on such third parties to perform their obligations effectively and
on a timely basis. There can be no assurance that such parties will perform
acceptably and any failures by third parties may delay clinical trial
development or the submission of products for regulatory approval, impair
Cortech's ability to deliver products on a timely basis, or otherwise impair
Cortech's competitive position, which could have a material adverse effect on
Cortech's business, financial condition and results of operations. If Cortech
does not find a suitable manufacturing partner or contractor, it may be required
to incur substantial financial obligations to construct or acquire manufacturing
facilities.
COMPETITION
The pharmaceutical and biopharmaceutical industries are engaged in intense
competition involving multiple technologies and strategies for compound
identification and development. Many companies are focused on research in the
same areas as Cortech. Cortech's most significant competitors are fully
integrated pharmaceutical companies and more-established biotechnology
companies. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical
companies. In addition, Cortech faces competition from academic institutions,
governmental agencies, and other public and private research organizations that
conduct research, seek patent protection, and establish collaborative
arrangements for product and clinical development and marketing. Furthermore,
these companies and institutions compete with Cortech in recruiting and
retaining highly qualified scientific and management personnel.
Many of Cortech's competitors have substantially greater financial,
technical and human resources than Cortech and have significant products
approved or in development. In addition, many of these competitors have
significantly greater experience than Cortech in undertaking preclinical testing
and human clinical trials of new pharmaceutical products and obtaining FDA
approval for products. Furthermore, if Cortech is permitted to commence
commercial sales of products, it will also be competing with respect to
manufacturing efficiency and marketing capabilities.
Any of Cortech's products that successfully gain regulatory approval must
then compete for market acceptance and market share. For certain of Cortech's
potential products, an important competitive factor will be the timing of market
introduction. Accordingly, Cortech expects that important competitive factors
will be the relative speed with which companies can develop products, complete
the clinical testing and approval processes and supply commercial quantities of
the product to the market. With respect to clinical testing, competition may
delay progress by limiting the number of clinical investigators and patients
available to test Cortech's potential products.
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HNE inhibitors have been the target of research and development efforts by
a number of large pharmaceutical companies. While no company has succeeded in
developing a small molecular weight HNE inhibitor to the point of filing an
application for marketing approval, there can be no assurance that any of these
programs will not achieve success in the future. In addition, alternative
approaches to the use of HNE inhibitors are being developed.
At least four other companies have developed bradykinin antagonists and may
be engaged in product development activities. Numerous companies are developing
alternative strategies to treat inflammation. A number of these are in
preclinical and clinical development. Any of these approaches could compete with
Cortech's HNE inhibitor programs.
GOVERNMENT REGULATION
The FDA is the primary agency regulating the research, development,
manufacture, sale and marketing of drugs in the United States From the time at
which a promising compound is identified, regulations dictate its development,
approval, marketing and sale. Product development and approval within this
regulatory framework takes a number of years and involves the expenditure of
substantial resources. Many products that initially appear promising are never
approved because they do not meet the safety and efficacy requirements of the
FDA. Regulatory requirements may change at any stage of Cortech's product
development and may affect approval, delay an application, or require additional
expenditures by Cortech. If approval is obtained, failure to comply with ongoing
regulatory requirements, or new information that negatively impacts the safety
or effectiveness of the approved drug, could cause the FDA to withdraw approval
to market the product.
The time period between when a promising new compound is identified and
when human testing is initiated is generally referred to as the preclinical
development period. A series of pharmacologic studies are also performed during
preclinical development to identify the essential characteristics of the
compound's behavior. In addition, both in vitro and in vivo animal toxicity
studies are required to characterize the toxicity profile of the compound.
Preclinical studies are regulated by the FDA under a series of regulations
called GLP regulations. Violations of these regulations can, in some cases, lead
to invalidation of the studies, requiring those studies to be repeated. During
this time, a manufacturing process which is capable of producing the compound in
an adequately pure and well characterized form for human use is developed.
Production of compounds for use in humans is governed by a series of FDA
regulations known as GMP regulations, which regulate all aspects of the
manufacturing process.
The entire body of preclinical development work is summarized in a
submission to the FDA called a Notice of Claimed Exemption for an IND. FDA
regulations allow human clinical trials to begin 30 days following the
submission of the IND, unless the FDA requests additional information,
clarification or additional time to review the IND. There is no assurance that
the submission of an IND will allow a company to commence clinical trials. Once
trials have started, the company or the FDA may decide to stop the trials
because of concerns about the safety of the product or the adequacy of the trial
design. Such action can substantially delay individual trials, as well as the
entire development program for that compound and, in some cases, may require
abandonment of a product.
Clinical testing of new compounds in humans is designed to establish both
safety and efficacy in treating a specific disease or condition. These studies
are usually conducted in three phases of testing. In Phase I, a small number of
healthy subjects or patients with the specific condition being targeted are
given the new compound to determine the pharmacokinetic and pharmacologic
actions of the drug in humans, the side effects associated with increasing doses
and if possible, to gain early evidence of effectiveness. In Phase II, small
numbers of patients with the targeted disease are given the compound to test its
efficacy in treating the targeted disease, to determine the common short term
side effects and risks associated with the drug, and to establish effective dose
levels. Phase III studies are larger studies designed to confirm the compound's
efficacy and safety for the targeted disease and to provide an adequate basis
for physician labeling.
When a drug is being developed for a condition that is life- or
organ-threatening, or for which there is no alternative therapy, the FDA may, in
certain cases, grant an accelerated approval process. However, there is no
assurance any of Cortech's products would be eligible for this accelerated
approval process.
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Once adequate data have been obtained in clinical testing to demonstrate
that the compound is both safe and effective for the intended use, all of the
data available is submitted to the FDA in an NDA. The FDA reviews this
application and, once it decides that adequate data are available which show
that the new compound is both safe and effective, approves the drug for
marketing. The approval process may take several years and is a function of a
number of variables including the quality of the submission and data presented,
the potential contribution that the compound will make in improving the
treatment of the disease in question, and the extent of agreement between the
sponsor and the FDA on the product labeling. There can be no assurance that any
new drug will successfully proceed through this approval process or that it will
be approved in any specific period of time.
The FDA may, during its review of an NDA, ask for additional data, and may
also require postmarketing testing, including potentially expensive Phase IV
studies. In addition, postmarketing surveillance to monitor the safety and
effectiveness of the drug must be done by the sponsor. The FDA may in some
circumstances impose additional restrictions on the use and or promotion of the
drug that may be difficult and expensive to administer.
Before marketing approval is granted, the facility in which the drug
product is manufactured must be inspected by the FDA and deemed to be adequate
for the manufacture, holding and distribution of drugs in compliance with GMPs.
Manufacturers must continue to expend time, money and effort in the area of
production, and quality control, labeling, advertising and promotion of drug
product to ensure full compliance with GMP requirements. Failure to comply with
applicable requirements can lead to FDA demands that production and shipment
cease, that products be recalled, or to enforcement actions that can include
seizures, injunctions, or criminal prosecution. Such failures or new information
that negatively impact the safety and effectiveness of the drug that becomes
available after approval may lead to FDA withdrawal of approval to market the
product.
To market its products abroad, Cortech also must satisfy regulatory
requirements implemented by foreign regulatory authorities. The foreign
regulatory approval process includes all of the risks associated with FDA
approval set forth above, and may introduce additional requirements or risks.
There is no assurance that a foreign regulatory body will accept the data
developed by Cortech for any of its products. Approval by the FDA does not
ensure approval in other countries, nor does approval by any other country
ensure approval decisions by FDA.
In Europe, human pharmaceutical products are subject to extensive
regulation of the testing, manufacture, safety, efficacy, labeling, storage,
record keeping, advertising and promotion of human pharmaceutical products.
Effective in January 1995, the European Union enacted new regulations providing
for a centralized licensing procedure, which is mandatory for certain kinds of
products, and a decentralized (country by country) procedure for all other
products. A license granted under the centralized procedure authorizes marketing
of the product in all of the member states of the European Union. Under the
decentralized procedure, a license granted in one member state can be extended
to additional member states pursuant to a simplified application process. The
assessment of products filed under the centralized procedure is coordinated by
the EMEA.
In addition to regulations enforced by the FDA, Cortech is also subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act, regulations promulgated by the United States Department of
Agriculture, and other related federal, state or local regulations. Cortech's
research and development involves the controlled use of hazardous materials,
chemicals, viruses and various radioactive compounds. Although Cortech believes
that its safety procedures for handling and disposing of such materials comply
with the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, Cortech could be held liable for
any damages that result and any such liability could exceed the resources of
Cortech.
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THIRD-PARTY REIMBURSEMENT
The business and financial condition of pharmaceutical and biotechnology
companies will continue to be affected by the efforts of government and
third-party payors to contain or reduce the cost of health care through various
means. For example, in certain foreign markets pricing or profitability of
prescription pharmaceuticals is subject to government control. In particular,
individual pricing negotiations are often required in each country of the
European Union, even if approval to market the drug under the EMEA's centralized
procedure is obtained. In the United States, there have been, and Cortech
expects that there will continue to be, a number of federal and state proposals
to implement similar government control. In addition, an increasing emphasis on
managed care in the United States has increased and will likely continue to
increase the pressure on pharmaceutical pricing. While Cortech cannot predict
whether any such legislative or regulatory proposals will be adopted or the
effect such proposals or managed care efforts may have on its business, the
announcement or adoption of such proposals or efforts could have a material
adverse effect on Cortech's business, financial condition and results of
operations. Further, to the extent that such proposals or efforts have a
material adverse effect on other pharmaceutical companies that are prospective
corporate partners for Cortech, Cortech's ability to establish and maintain
strategic alliances may be adversely affected. In addition, in both the United
States and elsewhere, sales of prescription pharmaceuticals are dependent in
part on the availability of reimbursement to the consumer from third-party
payors, such as government and private insurance plans that mandate
predetermined discounts from list prices. In addition, third-party payors are
increasingly challenging the prices charged for medical products and services.
If Cortech succeeds in bringing one or more products to the market, there can be
no assurance that these products will be considered cost effective and
reimbursement to the consumer will be available or will be sufficient to allow
Cortech to sell its products on a competitive basis.
HUMAN RESOURCES
At its peak in July 1994, Cortech employed 206 full-time, regular
employees. Over the past three-and-one-half years, Cortech has implemented a
series of reductions in force which reduced the number of full-time, regular
employees to 13 as of February 1, 1998. These employees are primarily engaged in
management, business development and administrative efforts including the
archiving of records, decommissioning of laboratories and liquidation of
non-cash tangible assets.
PROPERTIES
As of February 1, 1998, Cortech occupied approximately 50,000 square feet
of leased laboratory, warehouse and administrative space in Denver, Colorado.
These leases expire on these facilities over the period from May 1998 to May
1999 and are renewable for up to an additional two years. Cortech is currently
in discussions with several parties regarding the sale of its leasehold
improvements and is seeking to vacate the premises. In addition, BioStar may
have an interest in occupying some of the space leased by Cortech.
LEGAL PROCEEDINGS
Cortech is not a party to any material litigation or legal proceedings.
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CORTECH MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Cortech's Financial Statements and Notes thereto included elsewhere in this
Joint Proxy Statement/Prospectus. When used in this discussion, the word
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. Such risks and
uncertainties include, but are not limited to, the risks discussed below, the
risks discussed in the sections of this Joint Proxy Statement/Prospectus
entitled "Risk Factors" and "Cortech Business" and the risks discussed elsewhere
in this Joint Proxy Statement/Prospectus. The following discussion should be
read in conjunction with the Cortech Financial Statements, including the notes
thereto, included elsewhere in this Joint Proxy Statement/Prospectus.
GENERAL
Cortech is a biopharmaceutical company whose primary focus has been the
discovery and development of novel therapeutics for the treatment of
inflammatory disorders. Specifically, Cortech has directed its research and
development efforts principally toward protease inhibitors and bradykinin
antagonists. These efforts have produced certain intellectual property rights.
See "Cortech Business -- Cortech's Work with Protease Inhibitors" and
"-- Cortech's Work with Bradykinin Antagonists."
In response to disappointing test results and its loss of collaborative
partner support, Cortech has (i) implemented a series of reductions in force
over the past three-and-one-half years (which has reduced the number of full
time, regular employees from more than 200 to fewer than 15) and (ii)
effectively discontinued all internal efforts to advance its research and
development activities. In addition, Cortech is currently decommissioning its
laboratories, has sold most of its scientific and technical equipment and,
unless the Merger is implemented and BioStar opts to retain such assets, plans
to sell most of its office furniture and equipment and, where possible, its
leasehold improvements.
As a result of these actions, Cortech no longer has the staff or operative
facilities required to recommence internal research and development activities.
Cortech has retained a core group of professionals who, among other things, are
actively engaged in ongoing efforts to realize appropriate value from Cortech's
tangible and intangible assets. It is uncertain, however, whether Cortech will
be able to retain employees with sufficient knowledge and experience to realize
appropriate value from Cortech's intangible assets. In light of the above,
Cortech's management has focused on evaluating various strategic alternatives.
As a result, Cortech entered into the Reorganization Agreement with BioStar on
December 22, 1997.
RESULTS OF OPERATIONS
Years ended December 31, 1997 and 1996:
Revenues: Revenues from sponsored research and development decreased from
$7.4 million in 1996 to $3.5 million in 1997. The decrease in revenues for 1997
resulted primarily from the termination of Cortech's collaborative agreements.
Cortech received $1.5 million from Ono Pharmaceutical Co. Ltd. ("Ono") for
work performed in 1997 under a contract to develop an oral elastase inhibitor
(the "Ono Agreement"). Pursuant to the Ono Agreement, Cortech had received an
additional $1.3 million in 1996 which was recorded as revenue in 1997 (as a
result of work performed in 1997 by Cortech). Under the terms of the Ono
Agreement, as amended in 1997, Ono has assumed all responsibilities for research
activities being conducted during the final six months of the collaborative
project (terminating on March 14, 1998). As a result, Ono is not required to pay
Cortech the last scheduled $1.5 million in research funding previously provided
for under the Ono Agreement to offset certain costs that Cortech would otherwise
have incurred. Cortech expects no further payments from Ono under the Ono
Agreement.
Research and Development: Research and development expenses decreased from
$11.3 million in 1996 to $7.6 million in 1997. The decrease is due primarily to
reductions in force implemented in 1997 (which
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included restructuring charges recorded of $1.4 million), and the winding down,
and substantial discontinuation in late 1997, of Cortech's research and
development activities.
General and Administrative: General and administrative expenses were $3.6
million in 1996 and 1997. Cortech's general and administrative expenses in 1997
included $349,000 of restructuring charges and $340,000 of professional fees
related to the Merger. Substantially all of Cortech's remaining employees'
payroll costs are classified as general and administrative expenses.
Net Loss: Cortech's net loss for 1997 increased to $6.8 million from $6.3
million in 1996. The increase was due principally to decreased revenues and the
restructuring charges noted above.
Years ended December 31, 1996 and 1995:
Revenues: Revenues from sponsored research and development increased from
$5.1 million in 1995 to $7.4 million in 1996. The increase in revenues for 1996
resulted primarily from milestone payments made by SmithKline Beecham ("SB"), of
which $2.6 million was recorded as revenue, and a $1.5 million payment received
from Ono under the Ono Agreement, of which $750,000 was recorded as revenue.
From 1987 until December 1996, Hoechst Marion Roussel, Inc. ("HMRI") funded
Cortech's development of CE-1037. During 1996, Cortech received payments of $1.1
million from HMRI. However, HMRI terminated its arrangements with Cortech in
December 1996.
Research and Development: Expenses for research and development decreased
from $18.6 million in 1995 to $11.3 million in 1996. This decrease was due
primarily to reductions in force initiated in 1995.
General and Administrative: General and administrative expenses decreased
from $4.7 million in 1995 to $3.6 million in 1996. This decline resulted from
decreases in staffing, office space and business activity.
Net Loss: The net loss for 1996 decreased to $6.3 million from $16.4
million in 1995. This decrease was due principally to decreased expenses and
increased revenues noted above.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, Cortech had cash, cash equivalents and short-term
investments totaling $15.4 million compared to $21.0 million at December 31,
1996. Cortech's net cash used in operating activities (including purchases of
property, plant and equipment) totaled $6.5 million, $3.1 million and $13.3
million in 1997, 1996 and 1995, respectively. The increase in net cash used from
1996 to 1997 reflects the reduction in, and eventual complete loss of, Cortech's
funded research and development collaborations as well as the payment of costs
relating to reductions in force which were accrued in 1997. Cortech's
expenditures, net of depreciation and non-cash charges, decreased from $13.1
million in 1996 to $9.6 million in 1997. This decrease reflects the winding
down, and substantial discontinuation in late 1997, of Cortech's research and
development activities as well as other effects of the reductions in force
implemented in 1997.
In November 1997, Cortech sold most of its scientific and technical
equipment for approximately $800,000. In January 1998, Cortech sold certain
leasehold improvements for $150,000 in cash and a note receivable of $125,000
payable in July 1998. There can be no assurances that any of Cortech's remaining
assets can be sold for book value, if at all.
In the absence of the Merger, Cortech presently expects to receive no
revenues from sponsored research and development arrangements in 1998 (or future
years).
From its inception through December 31, 1997, Cortech raised cash totaling
$97.1 million from the sale of equity securities, including $33.6 million in net
proceeds from its November 1992 initial public offering and $37.7 million in net
proceeds from its October 1993 follow-on public offering.
Cortech has experienced net losses and negative cash flows from operations
each year since inception and has incurred an accumulated deficit of $84.6
million through December 31, 1997.
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Were Cortech to maintain current levels of staffing (and in the absence of
a strategic transaction such as the Merger), during 1998 Cortech estimates that
it would incur approximately $3.2 million in general and administrative
expenses, research and development salaries and overhead. Cortech expects to
incur costs in 1998 relating to the proposed Merger of approximately $500,000.
In addition, costs relating to the proposed Merger of $240,000 and reduction in
force costs of $184,000 will be paid in 1998 but were accrued in 1997. Although
reductions in staff from current levels would decrease ordinary salary expenses
in 1998 from current levels, such reductions would result in additional
severance benefits (aggregating to approximately $1.3 million assuming full
payment of severance benefits to all current officers and employees). During
1998, Cortech expects to receive approximately $1.0 million from interest income
and the sale of assets. However, there can be no assurances that Cortech will
receive such amounts. There can also be no assurances that Cortech will not be
required to incur additional expenses.
OTHER MATTERS
Net Operating Loss Carry Forwards and Tax Credits: As of December 31, 1997,
Cortech had approximately $77.2 million of net operating loss carry forwards for
income tax purposes, $74.3 million of which expire from 2005 through 2012. In
addition, Cortech has approximately $2.9 million of research and development tax
credits available to offset future federal income tax, subject to limitations
for alternative minimum tax, $2.7 million of which expire from 2005 to 2012.
Cortech's use of operating loss carry forwards and tax credits is subject to
limitations imposed by the Internal Revenue Code. Due to such limitations
(particularly insofar as they relate to events such as the Merger), Cortech
believes that the Merger, if implemented, may result in further, material
limitations on Cortech's use of its operating loss carry forwards and tax
credits.
Impact of Year 2000: The year 2000 will impact computer programs written
using two digits rather than four to define the applicable year. Any programs
with time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operation, including a temporary
inability to process transactions, send invoices or engage in other ordinary
activities. This problem largely affects software programs written years ago,
before the issue came to prominence. Insofar as Cortech has effectively
discontinued all internal efforts to advance its research and development
activities, Cortech does not believe that it has significant risk associated
with the year 2000 problem.
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CORTECH MANAGEMENT AND EXECUTIVE COMPENSATION
Kenneth R. Lynn, an executive officer and director of Cortech, and Bert
Fingerhut, a director of Cortech, will serve as directors of the combined
company following the Merger. Set forth below is information regarding Messrs.
Lynn and Fingerhut as of December 31, 1997.
<TABLE>
<CAPTION>
NAME POSITION WITH CORTECH
---- ---------------------
<S> <C>
Kenneth R. Lynn.............................. President, Chief Executive Officer and
Chairman Director
Bert Fingerhut............................... Director
</TABLE>
Kenneth R. Lynn, 44, has been a director of the Company and its President
and Chief Executive Officer since February 1995 and has served as Chairman of
the Board since April 1997. He is a member of the Executive, Nominating and
Equity Committees. Prior to becoming the Company's Chief Executive Officer, he
was the Company's Vice President, Business Development and General Counsel from
February 1993 until November 1994, when he was promoted to Senior Vice
President, Corporate Development and General Counsel. He served as Secretary of
the Company from March 1993 through March 1995. From August 1991 to January
1993, he served as Vice President, General Counsel and Corporate Secretary at
U.S. Bioscience, Inc., a pharmaceutical company. From 1984 to July 1991, he
served in various legal positions at Marion Merrell Dow Inc. (now Hoechst Marion
Roussel), most recently as Corporate Counsel. Mr. Lynn received his J.D. from
the University of Kansas in 1981 and his M.B.A. from Rockhurst College in 1990.
Mr. Fingerhut, 54, has been a director of the Company since 1988 and served
as Chairman of the Board from June 1991 to April 1997. He is a member of the
Executive, Audit and Compensation Committees. Mr. Fingerhut presently pursues
private business and conservation interests. From 1984 to 1985, he was Special
Limited Partner and Senior Vice President of Odyssey Partners, a private
investment partnership. From 1965 to 1983, he was General Partner, Managing
Director, Executive Vice President and Director of Research of Oppenheimer &
Company, Inc., an investment banking firm. Mr. Fingerhut is Chairman of the
Board of Directors of Toxics Targeting, a private company based in Ithaca, N.Y.
that tracks and provides information on toxic waste sites. He is currently a
member of the Executive Committee of the Governing Council of the Wilderness
Society, the Vice-Chairman of the Board of Directors of the Southern Utah
Wilderness Alliance, a director of the Grand Canyon Trust and Trustee of the
Alaska Conservation Foundation.
COMPENSATION OF DIRECTORS
Each non-employee director has received options to purchase Common Stock of
Cortech under the 1992 Amended and Restated Non-Employee Directors' Stock Option
Plan (the "1992 Directors' Plan") as compensation for his or her services as a
director and receives additional options under such plans for service on certain
committees of the Board. Options were also granted to non-employee directors
outside of such Plan. Outside directors receive $1,000 per Board meeting
attended and $1,000 per committee meeting attended if held on a non-Board
meeting occasion and an additional $6,000 annually. The 1992 Directors' Plan
expired by its terms on December 31, 1997. No plan has replaced the 1992
Director's Plan.
Options granted under the 1992 Directors' Plan were automatic and
non-discretionary. Each person who was a non-employee director of Cortech as of
the adoption date of the 1992 Directors' Plan was granted options generally
covering 25,000 shares of Common Stock, with adjustments to equalize the
directors' overall options in light of options previously granted to them. Such
options generally became exercisable ("vest") in year-end installments of 5,000
shares. Each member of the Compensation and Audit Committees received options
covering an additional 500 shares for each committee on which he served. In
addition, (i) each person subsequently elected for the first time as a
non-employee director was granted an option on the date of his or her initial
election as a director to purchase a pro rata portion of 25,000 shares,
depending upon when he or she was elected, which options generally vest in
year-end installments of 5,000 shares; (ii) each person subsequently elected for
the first time to the Audit or Compensation Committee was granted an option to
purchase 500 shares if elected before July 1, or a portion thereof, prorated on
a quarterly basis, if elected after
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such date, vesting in full on December 31; (iii) each non-employee director
received an annual option to purchase an additional number of shares, determined
by multiplying 5,000 by a fraction, the numerator of which was $20 and the
denominator of which was the fair market value per share of Cortech Common Stock
on the grant date, subject to minimum and maximum limits of 2,500 and 5,000
shares, respectively, vesting quarterly over five years; and (iv) each
non-employee director who was a member of Cortech's Audit or Compensation
Committee received an annual option to purchase 500 shares, vesting in full on
December 31. Vesting of all options was subject to continued service as a
non-employee director or employee of Cortech during the vesting period and, in
the case of options granted for service on a committee, to continued service on
the applicable committee. As of December 31, 1997, 1,650 options had been
exercised under the 1992 Directors' Plan. Mr. Fingerhut received options
covering 6,000 shares at $1.47 per share during the fiscal year ended December
31, 1997.
All non-employee directors are reimbursed for their expenses incurred in
attending Board of Directors meetings.
Directors who are employees of Cortech do not receive separate compensation
for their services as directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31, 1997,
1996 and 1995 compensation awarded or paid to or earned by Kenneth R. Lynn:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS-
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS COMPENSATION(1)
- --------------------------- ---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth R. Lynn............ 1997 $265,513 $65,000 -- -- $1,141
President, Chief 1996 265,006 65,000 -- 75,000 1,174
Executive Officer and 1995 230,499 75,000 -- 275,000 1,099
Chairman of the Board
</TABLE>
- ---------------
(1) Includes matching payments by Cortech under its 401(k) Plan and premiums
paid by Cortech for group term life insurance.
STOCK OPTION GRANTS AND EXERCISES
Cortech grants options to its executive officers under its 1993 Equity
Incentive Plan (the "1993 Plan"). As of December 31, 1997, options to purchase a
total of 1,098,265 shares were outstanding under the 1993 Equity Incentive Plan.
Although 370,845 shares were available for grant under the 1993 Plan as of
December 19, 1997, on such date the Cortech Board effectively suspended further
grants of options under the 1993 Plan to the extent that any such grant would
increase the shares subject to outstanding grants above the figure as of such
date. Such suspension shall remain in effect pending the proposed Merger and
other actions to be considered for approval by Cortech's stockholders in
connection with such Merger.
During the fiscal year ended December 31, 1997, there were no options
granted to Kenneth R. Lynn.
The following table shows for the fiscal year ended December 31, 1997
certain information regarding options exercised and held at year end by Kenneth
R. Lynn:
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED
IN-THE-MONEY
OPTIONS AT 12/31/97(#)
OPTIONS AT 12/31/94($)(1)
------------------------------------------
SHARES ACQUIRED VALUE(1) EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- --------------- -------- ------------------ ----------------
<S> <C> <C> <C> <C>
Kenneth R. Lynn......... -- -- 275,009/174,991 $0/$0
</TABLE>
- ---------------
(1) Based on the closing price of Cortech's Common Stock on December 31, 1997
($0.594) minus the exercise price of the options.
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<PAGE> 104
CORTECH PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of Cortech's Common Stock as of January 30, 1998 by: (i) each director and
nominee for director; (ii) Cortech's chief executive officer as well as
Cortech's four most highly compensated executive officers other than Mr. Lynn;
(iii) all executive officers and directors of Cortech as a group; and (iv) all
those known by Cortech to be beneficial owners of more than five percent of its
Common Stock.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF PERCENT OF
CORTECH COMMON CORTECH STOCK CORTECH STOCK
BENEFICIALLY OUTSTANDING OUTSTANDING
BENEFICIAL OWNER OWNED(1) PRIOR TO THE MERGER AFTER THE MERGER
---------------- -------------- ------------------- ----------------
<S> <C> <C> <C>
Asset Value Fund Limited Partnership(2)..... 2,770,000 14.95% 6.21%
376 Main Street
P.O. Box 74
Bedminster, NJ 07921
BVF Partners L.P.(3)........................ 1,225,252 6.61 2.75
333 West Wacker Drive
Suite 1600
Chicago, IL 60606
Bert Fingerhut(4)........................... 561,480 3.01 1.25
Kenneth R. Lynn(5).......................... 304,849 1.62 *
Diarmuid Boran(6)........................... 90,043 * *
Donald Kennedy(7)........................... 38,800 * *
Allen Misher(8)............................. 32,500 * *
Charles Cohen(9)............................ 16,000 * *
All executive officers and directors as a
group (7 persons)(10)..................... 1,043,672 6.68 2.33%
</TABLE>
- ---------------
* Less than one percent.
(1) This table is based upon information supplied by officers and directors and
Schedules 13D filed with the Commission. Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, Cortech believes that each of the stockholders named in this
table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
18,523,918 shares outstanding on January 30, 1998, adjusted as required by
rules promulgated by the Commission and 44,620,868 shares of Cortech Common
Stock following the Merger.
(2) The sole general partner of Asset Value Fund Limited Partnership ("AVF") is
Asset Value Management, Inc., a Delaware corporation and a wholly owned
subsidiary of Kent Financial Services, Inc., a Delaware corporation.
Pursuant to a Schedule 13D/A filed February 10, 1998, Mark W. Jaindl and
Frederick J. Jaindl acquired from AVF on February 10, 1998 250,000 shares
and 520,000 shares of Cortech Common Stock, respectively, in a privately
negotiated transaction.
(3) Includes 657,796 shares held by Biotechnology Value Fund, L.P. ("BVF").
Mark N. Lampert is the sole shareholder, director and president of BVF
Inc., which is the general partner of BVF Partners L.P. ("Partners"), which
is the general partner of BVF.
(4) Includes options to purchase 151,285 shares, which are exercisable within
60 days of the date of this table. Also includes 3,000 shares held by Mr.
Fingerhut's wife and 17,000 shares by Mr. Fingerhut's minor daughter.
(5) Includes options to purchase 301,416 shares, which are exercisable within
60 days of the date of this table.
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<PAGE> 105
(6) Includes options to purchase 88,534 shares, which are exercisable within 60
days of the date of this table.
(7) Consists of options to purchase 38,800 shares, which are exercisable within
60 days of the date of this table.
(8) Includes options to purchase 27,500 shares, which are exercisable within 60
days of the date of this table.
(9) Consists of options to purchase 16,000 shares, which are exercisable within
60 days of this table.
(10) Includes options to purchase a total of 623,535 shares, which are
exercisable within 60 days of the date of this table by executive officers
and directors.
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<PAGE> 106
BIOSTAR BUSINESS
OVERVIEW
BioStar develops, manufactures and markets point-of-care diagnostic tests
using its proprietary, highly-sensitive, thin film technologies. BioStar's
current products employ its proprietary Optical ImmunoAssay (OIA(R)) technology,
a thin film, platform technology developed for the rapid detection of a variety
of medical conditions. BioStar's OIA tests help caregivers, in a cost-effective
and efficient manner, to identify causes of illness and select appropriate
patient therapy by providing information during the initial patient encounter.
Internally and through collaborative arrangements, BioStar is developing
additional thin film technologies which are intended to broaden the range of
applications for its existing products and to enable the introduction of new
products.
BioStar currently sells immunodiagnostic tests for group A streptococcus
(GAS), the cause of strep throat; group B streptococcus (GBS), the leading cause
of neonatal septicemia; and chlamydia, the most commonly reported sexually
transmitted disease in the United States and a leading cause of female
infertility. BioStar's OIA tests are generally considered to be the most
sensitive, non-instrumented rapid tests available today for point-of-care
testing for GAS, GBS and chlamydia. BioStar is currently developing tests,
primarily through arrangements with corporate partners, for the rapid detection
and diagnosis of influenza, pneumonia, clostridium difficile, gonorrhea and
chlamydia (using urine specimens), as well as certain non-infectious medical
conditions. Drawing upon the speed and sensitivity of BioStar's current,
single-target, visually measured tests, BioStar and a corporate partner are
developing an instrumented, multitarget test based on BioStar's "new concept
ellipsometer" technology. BioStar believes that instrumentation may allow the
development of easy-to-use, quantitative tests in point-of-care or automated
delivery formats. BioStar believes this development will be significant since
quantitative tests would provide numeric results (as opposed to merely a
positive or negative result), thereby broadening the potential application of
BioStar's thin film technologies.
BioStar's current products use the ability of the human eye to detect
changes of thickness on the mirror-like surface of a silicon chip, which are
seen as a change in surface color. BioStar's OIA tests currently being sold, and
certain tests under development, are performed by placing patient specimens on
the reflective surface of a chip coated with appropriate reagents. If targeted
organisms are present in the specimen, even at low levels, the surface of the
chip changes thickness in minutes. Targets can be detected in a wide variety of
samples, including throat and nasal swabs, urine and whole blood.
BioStar's GAS, GBS and chlamydia tests are sold by BioStar's dedicated
marketing and sales organization, which targets the United States outpatient
markets, including physician offices, clinics and student and public health
centers; and BioStar's domestic and international distributor network, which
targets hospital and reference laboratory accounts in major markets worldwide.
Since 1992, BioStar's sales force and distribution partners have sold over nine
million OIA-based tests worldwide. In addition to selling OIA-based tests,
BioStar's dedicated, nationwide sales force also sells products to the
outpatient market which are licensed from an outside supplier.
An integral part of BioStar's strategy is to work with corporate partners
to develop market opportunities and access important resources. In this regard,
BioStar has established strategic relationships with a number of companies,
including Biota Scientific Management Pty Ltd ("Biota"), an Australian
pharmaceutical company, Asahi Chemical Industry Co., Ltd. ("Asahi"), one of
Japan's largest chemical manufacturers, and Murex Diagnostics, Inc. ("Murex"),
the United States subsidiary of a publicly-traded Canadian company. BioStar
believes that its relationships with these and other potential partners will
enable BioStar to enhance its menu of diagnostic products and accelerate its
ability to penetrate the worldwide point-of-care markets for both manual and
instrumented testing sites. In addition, BioStar is pursuing collaborations with
strategic partners to apply its versatile thin film technologies to develop
screening and monitoring products for applications in industries such as food,
beverage and environmental testing and life sciences research.
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<PAGE> 107
INDUSTRY OVERVIEW
In vitro diagnostic testing is the process of analyzing the constituents of
a wide variety of body fluids to identify the presence of markers for diseases
or other human health conditions. The worldwide human health in vitro
diagnostics market consists of reference laboratory and hospital testing, clinic
and physician office markets.
Traditionally, diagnostic testing has been performed in large, high-volume
commercial or hospital-based laboratories using instruments operated by skilled
technicians involving multi-step protocols and lengthy reaction times. These
testing methods are often inefficient and can negatively impact the cost and
quality of patient care because the amount of sample handling increases
operating costs and the delay in providing test results reduces the ability of
health care workers to manage patient care effectively and efficiently. For
example, many traditional infectious disease diagnosis methods use culture-based
assays such as agar culture. These assays are complicated, must be performed by
laboratories and can take up to several days to provide a result.
One of the largest categories of in vitro diagnostic tests performed today
is immunodiagnostic testing. Immunodiagnostic tests involve complex biological
reactions and test for molecules that are found in very low concentrations.
Immunodiagnostic tests cover a wide variety of medical conditions, including
diagnosing infectious diseases, measuring hormones in the endocrine system,
monitoring therapeutic drug levels, testing for drug abuse, determining the
overall immune status, measuring sensitivity to allergens and measuring various
markers associated with cancers. Recent technological advances in
immunodiagnostic testing have focused on shortening test reaction times,
providing higher sensitivity and specificity, lengthening the shelf-life and
increasing the accuracy of tests. These technological advances have allowed the
development of new, point-of-care immunodiagnostic tests.
One of the fastest growing segments of the human health in vitro
diagnostics market is the market for highly accurate tests that can be used
close to the point of patient care (such as clinics, physician offices, homes,
patient bedsides and emergency rooms) as well as in laboratories. It has been
estimated that the total worldwide market for point-of-care tests (primarily in
physician office and hospital facilities) was $1.3 billion in annual sales in
1997 and will grow over 10% annually through the year 2000. The growth in the
point-of-care market is primarily due to pressure on health care providers to
reduce the overall cost of health care as well as the availability of technology
that enables health care providers to process tests on-site, rather than sending
them to remotely located laboratories.
Point-of-care testing helps to reduce overall health care delivery costs
and can improve patient outcomes by enabling the primary caregiver to determine
a diagnosis of the medical condition during the patient's initial visit,
minimizing the time to medical intervention and reducing the need for additional
patient follow-up. Point-of-care diagnosis and treatment of infectious diseases
can permit earlier prescription of appropriate medications (including
antibiotics), shortening the duration of illness. In addition, rapid
point-of-care tests for infectious diseases allow the caregiver to begin to
address the critical issue of antibiotic overuse. A major recent study has shown
that over one-half of the antibiotics prescribed in the United States for
ambulatory, episodic respiratory disease are for patients who will not benefit
from the drug as their condition is likely viral in nature. The availability of
rapid, accurate results can allow physicians to make informed treatment
decisions regarding antibiotic use and, through appropriate dosing, help control
the emergence of drug-resistant organisms. In emergency situations, caregivers
can have the timely and accurate information necessary to ensure appropriate
diagnosis and treatment and to potentially reduce unnecessary use of costly
inpatient care. The availability of a larger number of rapid, point-of-care
tests will enable the adoption of "test and treat" strategies by caregivers for
appropriate selection of therapeutic interventions for medical conditions.
Commercializing products in the point-of-care diagnostics market initially
requires the dedication of substantial resources to training caregivers to use
tests and incorporate them into the caregiver's medical practice. In addition,
diagnostic tests may require substantial ongoing customer support to assist
caregivers with use of the products, regulatory compliance and product
reimbursement. The human diagnostic testing industry has undergone major
consolidation over the last few years. As a result, the industry is dominated by
a small number of large companies or divisions of large companies that
manufacture and sell numerous
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diagnostic products incorporating a variety of technologies. In addition, there
are many small diagnostic companies which generally have limited resources to
commercialize new products. As a result of technological fragmentation and
customer support requirements, BioStar believes that there may be a substantial
competitive advantage for companies with differentiated technologies that can be
used to generate a broad menu of diagnostic products and that have developed
successful customer support systems.
STRATEGY
BioStar's primary objective is to apply its proprietary technologies to the
development and commercialization of products for use in a variety of markets.
BioStar's strategies for achieving this objective include the following:
Exploit Proprietary Thin Film Technologies to Broaden Potential Market
Applications. BioStar has focused its resources on developing highly accurate,
rapid, manual OIA tests. BioStar believes that it can also develop new
applications for its platform thin film technologies by creating alternative
test formats (such as instrumented or automated tests) and developing new
surface platforms (such as flow-through surfaces or flexible solid surfaces).
Target Large Indication Human Health Care Opportunities. BioStar has
focused its product development and sales efforts on the human infectious
disease diagnostic market (which has an estimated $1 billion in annual sales) to
obtain commercial validation of the OIA technology and help generate a portion
of the resources to fund expansion of BioStar's product offerings. BioStar
intends to target other large indication human health applications (such as
cancer, respiratory and critical care diagnostic tests) through both expanded
internal research and development efforts and collaborations with strategic
partners.
Leverage Sales and Marketing Resources. BioStar has a dedicated, nationwide
marketing and sales organization which is experienced in selling diagnostic
tests into the highly-competitive outpatient market. BioStar plans to leverage
its sales force by expanding BioStar's product menu with more high value,
quality products through internal development and the acquisition or additional
in-licensing of complementary products and technologies.
Use Strategic Alliances to Leverage Company Resources. BioStar is using and
plans to continue to use strategic alliances to access complementary resources
(such as proprietary markers, funding, marketing expertise and research and
development assistance), to leverage its thin film technologies, expand its
product menu and maximize the use of its sales force. For example, BioStar is
currently developing with different partners an influenza test, a sexually
transmitted disease panel test, a chlamydia (urine specimen) test and a
gonorrhea test. BioStar has also in-licensed complementary products from Wyntek
Diagnostics, Inc. ("Wyntek") for distribution by BioStar's sales organization
and has entered into distribution partnerships for its OIA tests in major
markets worldwide.
Pursue Strategic Acquisitions. BioStar intends proactively to evaluate
strategic acquisitions of companies, technologies and product lines where
BioStar identifies a strategic opportunity to grow its core business or to
increase revenues and profitability.
Use Thin Film Technologies to Expand Beyond Human Health
Diagnostics. BioStar seeks to expand its product portfolio beyond human health
and point-of-care diagnostics to take advantage of opportunities in other
industries. BioStar is pursuing collaborations with strategic partners to apply
its versatile thin film technologies to develop screening and monitoring
products for applications in industries such as food, beverage and environmental
testing and life sciences research.
THIN FILM TECHNOLOGIES
OIA Technology. BioStar's OIA technology uses the interaction of light with
thin films on an optical surface to create highly sensitive and specific
immunodiagnostic "assays" or tests. BioStar's OIA technology uses the ability of
the human eye to detect angstrom-level (one ten-billionth of a meter) thickness
changes on the mirror-like surface of a silicon chip. This change in thickness
is seen by the human eye as a change in surface color. OIA tests are performed
by placing patient specimens and reagents on the reflective surface of a
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<PAGE> 109
silicon chip. If target organisms are present in the specimen, even at low
levels, the surface of the chip changes thickness in minutes.
BioStar's OIA tests typically comprise a test device, reagents, a swab and
an extraction tube. The test device includes a reactive surface comprised of a
solid substrate (for ease of test delivery), an optical layer of a reflective
surface (to make the reaction visible to the human eye), an attachment layer (to
link the biological to the reflective surface) and an active biological capture
layer (to create a surface thickening). Once a specimen is applied to the
surface, the capture layer specifically reacts with targets in the specimen.
This results in the binding of the target to the surface. The reaction sequence
includes addition of an enzyme conjugate and substrate to the reactive surface
to amplify each binding event by depositing a thin layer of mass around each
target molecule that has been bound to the surface. This mass enhancement step
amplifies the signal and creates the thin film. The human eye sees this
thickening as a color change, due to the destruction of certain wavelengths of
light as layers on the surface thicken. The color change is similar to the
colors produced in a soap bubble as light passes through different thicknesses
of the surface film on the perimeter of the bubble.
[GRAPHIC DEPICTION OF THE REACTION OF LIGHT AS IT PASSES THROUGH THE OPTICAL
LAYERS OF AN UNREACTED AND A REACTED SURFACE. THE DEPICTION SHOWS A CLEAR COLOR
DIFFERENTIATION.]
BioStar's OIA technology has the following attributes which, when combined,
help differentiate BioStar's OIA tests from competitive products:
Accurate. Tests using BioStar's OIA technology have been demonstrated by
independent laboratory testing to perform at levels of sensitivity and
specificity superior to other commercially available rapid tests and equivalent
to many other commercially available laboratory reference tests using
alternative technologies. This accuracy is a functional characteristic of
BioStar's thin film technology. Unlike other detection technologies, thin films
use reflective surfaces that are exceptionally smooth, and which virtually
eliminate the problem of non-specific binding of targets to the surface. In
addition, thin film technology does not rely on the use of chromophores, which
are commonly used in diagnostic tests to generate the color signals that
indicate the presence or absence of the target organism. Chromophore-based
technologies are not as efficient as BioStar's OIA technology in generating
color signals and, therefore, they are less sensitive.
Clinical Validation of the OIA Technology. The clinical performance of
BioStar's OIA tests has validated the OIA technology. For example, BioStar's
Strep A OIA test has been reported in peer reviewed medical literature to be
more sensitive than tests using agar culture, the Food and Drug Administration's
("FDA's") laboratory "gold standard" for detecting strep throat. In addition,
independent laboratory testing
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has demonstrated that BioStar's Chlamydia OIA test is as sensitive as culture
and the most commonly used laboratory DNA probe method. The Strep B OIA test is
the only rapid assay commercially available today in the United States for
testing pregnant women for GBS because other less sensitive products were
voluntarily removed from the market.
Rapid. Another characteristic of BioStar's thin film OIA technology is the
speed with which it binds the target to the surface. By way of comparison,
current OIA test results are available in five-to-24 minutes while laboratory
methods for the same tests take from hours to days to obtain a result. This
relative speed is due to the fact that the kinetics of thin film technologies
are nearly instantaneous.
Easy-to-Use. BioStar developed its OIA technology to minimize the number of
operator steps to simplify operation, provide for flexible timing intervals and
generate permanent results. BioStar's customers report that its OIA tests are
easy-to-use relative to many other commercially available tests.
Flexible Platform Technology with Multiple Formats. BioStar's OIA
technology provides a flexible platform that is used for single assays (as with
all current OIA tests) and multiple test panels which are currently under
development. BioStar is currently focusing its research and development efforts
on its OIA technology on improving operator ease-of-use and assay speed. In the
third quarter of 1997, BioStar introduced OIA MAX(TM), its improved OIA test for
GAS. OIA MAX was designed to increase speed and offer improved ease-of-use.
BioStar is currently applying new surface manufacturing technologies, such as
ion beam deposition, which enable BioStar to construct OIA tests using
silicon-coated porous membrane materials. Such tests further reduce the number
of operator steps as a result of reagents flowing through the surface.
Potentially Applicable to Wide Variety of Markets. BioStar believes that
the characteristics of the optical surface and attachment layer of its OIA
technology may enable BioStar to develop a broad OIA product menu. The optical
surface is versatile because it can be used with a wide variety of sample types
(e.g., whole blood, serum, urine, feces, and swab extracts from vaginal,
cervical, nasal, throat, and ocular sites) without a significant level of
interference. Additionally, the attachment layer allows for the use of a wide
variety of capture molecule types, including antibodies, antigens, nucleotides,
and polymers.
Feasibility studies have shown that using BioStar's OIA technology,
multi-day laboratory methods for the following common human diseases may be
converted to rapid point-of-care tests: pneumonia, influenza A/B (the most
common pathogenic forms of the influenza virus), clostridium difficile (a
leading cause of diarrhea), and gonorrhea (a common sexually transmitted
disease). BioStar is in various stages of development with respect to these
tests.
NEW CONCEPT ELLIPSOMETER TECHNOLOGY. BioStar has developed and patented
instrumented measurement technology, the "new concept ellipsometer", which uses
ellipsometry in combination with BioStar's OIA technology. BioStar has produced
several prototypes but has not yet completed development of products which
incorporate the new concept ellipsometer. Ellipsometer technology was originally
developed for the computer microprocessor manufacturing industry to measure
angstrom-level thickness changes in silicon wafers for microprocessor
manufacturing quality control. BioStar has adapted this measuring technique to
its OIA technology to create products that make quantitative measurements. New
concept ellipsometry measures the change in response of a polarized beam of
light as it passes through a thin film. Ellipsometric reading of thin films
increases the sensitivity of tests by an order of magnitude over visual methods
which rely on the human eye. BioStar believes that the levels of sensitivity and
accuracy that it may be able to achieve with new concept ellipsometry products
may allow BioStar to develop tests for new markets. For example, instrumented
tests would be useful for running multiple tests on patient specimens
simultaneously or for running high volume tests for multiple patient specimens.
This technology is not yet commercially available.
PRODUCTS AND MARKETS
BioStar and its distribution partners are currently selling OIA tests in
major markets worldwide for GAS, GBS and chlamydia. To date, BioStar's sales
force and distribution partners have sold over nine million OIA tests since
BioStar first received product marketing clearance from the FDA for the original
GAS test in 1992. Over 20 peer reviewed medical publications, abstracts and
symposia have been presented on the favorable
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technical differentiation of BioStar's OIA tests over competitive products. The
OIA sensitivity differentiation is recognized by organizations such as the
American Academy of Pediatrics which has stated that BioStar's OIA test for GAS
"is as sensitive as standard throat cultures on sheep blood agar and more
sensitive than other rapid tests for GAS".
To extend the product offering for the rapid, point-of-care segment, and to
complement its premium-priced, high quality assays, BioStar recently introduced
three new "CLIA-waived" assays, ACCEAVA Strep A, ACCEAVA hCG Urine and ACCEAVA
hCG Basic, and one moderately complex assay, ACCEAVA Mono, all of which BioStar
sells under license from Wyntek. See "-- Strategic Relationships". For a
discussion of the classification of products for Clinical Laboratory
Improvements Amendments of 1988 (CLIA) compliance see "-- Regulation".
CLIA-waived products are designed for the less demanding user and generally are
not as accurate as moderately complex tests.
BioStar's current point-of-care product menu includes the following:
<TABLE>
<CAPTION>
OIA PRODUCTS ACCEAVA PRODUCTS***
------------ -------------------
<S> <C>
Strep A OIA Max ACCEAVA Strep A (CLIA-waived)
Strep A OIA ACCEAVA hCG Urine (CLIA-waived)
Strep B OIA Maternal ACCEAVA hCG Basic (CLIA-waived)
Strep B OIA Infant Urine* ACCEAVA Mono (Moderately complex)
Chlamydia OIA
Chlamyfast**
Chlamydia OIA Urethral*
</TABLE>
- ---------------
* Sold internationally only
** Sold in France only
*** In-licensed from Wyntek
GROUP A STREPTOCOCCUS. Group A streptococcus (GAS), the bacteria that
causes strep throat, is the most frequent bacterial cause of pharyngitis in
children and adolescents. Pharyngitis is characterized by painful throat and
fever and is a major cause of pediatric visits. Rapid and accurate diagnosis of
GAS is essential for several reasons: (i) the disease is sensitive to antibiotic
therapy, (ii) it helps caregivers avoid the unnecessary use of antibiotics if
the disease is not present, (iii) untreated GAS can deteriorate into
life-threatening complications such as rheumatic fever, and (iv) early treatment
may reduce the risk of transmission to others and lessen the economic impact on
sufferers by allowing them to quickly return to their usual activities. In 1997,
the United States market for GAS tests was estimated to be $100 million, and
BioStar estimates that the worldwide market for GAS tests was $120 million in
annual sales. The United States market for moderately complex GAS tests (such as
BioStar's OIA tests) was estimated to be $70 million and the market for
CLIA-waived tests was estimated to be $16 million. The remainder of the United
States market is composed of sales of agar culture materials and reagents.
BioStar's sales of all GAS products in 1997 represented over 83% of BioStar's
total product sales.
Strep A OIA MAX. BioStar's flagship product, Strep A OIA MAX (OIA MAX), the
second generation of BioStar's rapid OIA test for GAS, detects more true
positives than agar culture tests and is the most sensitive commercially
available rapid test in the United States and management believes, worldwide.
OIA MAX is sold in major markets worldwide to physician offices as well as
hospitals and reference laboratories. OIA MAX results are available in five
minutes. The procedure for use of OIA MAX begins with the collection of a
patient sample using a standard throat swab. The patient specimen is then
chemically extracted, mixed with an enzyme conjugate and placed on the OIA
surface. If GAS is present, a purple color appears. OIA MAX represents an
improvement over BioStar's original GAS product, Strep A OIA. OIA MAX is 38%
faster, requires less handling and, because it has one less reagent step, is
easier to use than Strep A OIA. OIA MAX was cleared for sale by the FDA in July
1997.
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Strep A OIA. Strep A OIA is BioStar's original Strep A test and is sold in
major markets worldwide to physician offices as well as hospitals and reference
laboratories. Some OIA users prefer the original test format or may not yet have
been trained on the OIA MAX test. BioStar expects the majority of Strep A OIA
users to have converted to the OIA MAX test by the end of 1998.
BioStar's Strep A OIA test represents a breakthrough technology for Strep A
detection since it is the only product of its kind the FDA has allowed the claim
"more sensitive than routine culture". Agar culture is one of the traditional
methods for detecting GAS. Agar culture tests are performed by culturing a
specimen from a patient's throat swab on bacterial media. This method requires
18-48 hours to generate results. BioStar's Strep A OIA procedure can be
completed in eight minutes and has demonstrated up to a 37% greater sensitivity
over routine agar culture (the basic comparison for rapid GAS tests). Moreover,
BioStar's Strep A OIA test also compares favorably against enhanced broth
culture (which is a more exacting standard than agar culture). The diagram below
represents comparative sensitivity performance results of Strep A OIA vs.
resolved enhanced broth from a series of studies performed over the last few
years.
SENSITIVITY PERFORMANCE COMPARISON VS. ENHANCED BROTH (DISCREPANT ANALYSIS)*
[BAR CHART WHICH DEPICTS SENSITIVITY OF STREP A OIA (AT 97% SENSITIVITY) AS
COMPARED WITH AGAR CULTURE (AT 80% SENSITIVITY) AND THE LEADING COMPETITIVE
RAPID TEST (AT 72% SENSITIVITY)]
- ---------------
* Derived from the results of internal and independent studies published in a
number of peer-reviewed professional medical journals.
Research conducted by independent physicians and clinicians has shown that
Strep A OIA consistently demonstrates greater sensitivity than any other rapid
streptococcal antigen test currently available. Targeting the United States GAS
market, BioStar began selling the Strep A OIA product nationally in April 1993.
By the end of 1997, BioStar estimates that it had achieved a 10.5% dollar market
share of the United States market for rapid GAS tests.
ACCEAVA Strep A Test. ACCEAVA Strep A completes the GAS product line,
complementing BioStar's OIA tests by being the first "CLIA-waived" test sold by
BioStar's sales force. BioStar sells ACCEAVA Strep A under license from Wyntek.
ACCEAVA Strep A is the most sensitive, CLIA-waived rapid antigen test available.
Although it is not as sensitive as OIA MAX, it is sold for use in clinics and
physician offices that are not CLIA moderate complexity compliant. The procedure
for use of ACCEAVA Strep A begins with the collection of a patient sample using
a standard throat swab. The patient specimen is then extracted. The test strip
is added to the sample. If GAS is present, a blue signal line will appear.
ACCEAVA Strep A was cleared for sale by the FDA in 1996 and was introduced in
July 1997 by BioStar. ACCEAVA Strep A is also sold by a large diagnostic company
through its distribution channel under a different trade name.
GROUP B STREPTOCOCCUS. Group B streptococcus ("GBS") is the primary cause
of life-threatening neonatal sepsis and meningitis in the United States. Up to
30% of all expectant mothers can be carriers of GBS. There are approximately
8,000 cases of GBS-related neonatal infections each year which result in
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hundreds of deaths and approximately 1,500 children with neurological damage
annually. Historically, there has been no timely and effective method to test
for GBS in the crucial final hours before delivery when the newborn is most
vulnerable. Other rapid tests have not been sufficiently sensitive and the
culture method takes 24-48 hours to complete.
Recently, the Centers for Disease Control and Prevention has recommended
broth culture on vaginal-rectal samples at 36 weeks of gestation for women with
GBS risk factors. GBS culture methods are sensitive and specific, but detection
of GBS by culture requires viable organisms and several days to provide a
result. In contrast, immunological detection methods, such as BioStar's OIA,
identify the presence of GBS antigen in minutes regardless of whether the
bacteria are alive. A standardized approach to GBS testing utilizing a rapid
method, however, has not been implemented due to the insufficient sensitivity of
previously available rapid tests for detecting GBS antigen. The use of rapid,
point-of-care tests in the detection of GBS infection is being studied in
laboratories worldwide. BioStar's OIA GBS tests are currently indicated as an
adjunct to diagnosis. BioStar believes that the market for GBS will continue to
grow as awareness of the role of GBS in infant diseases continues to grow. In
1997, the United States market for rapid GBS tests was estimated to be
approximately $3 million in annual sales. In 1997, BioStar's revenues from sales
of GBS products constituted approximately 11.5% of its total product sales.
Strep B OIA Maternal. Strep B OIA provides agar culture-level sensitivity
for the rapid detection of GBS in pregnant women. The procedure for use of Strep
B OIA begins with the collection of a patient sample using a standard vaginal
swab technique. The patient specimen is extracted and conjugated, then applied
to the device. If GBS is present, a purple color appears within 30 minutes.
Strep B OIA was cleared for sale by the FDA in 1994.
Strep B OIA Infant Urine. Outside the United States, BioStar sells a GBS
test for infants using urine as a sample source. This test is generally used
when infants display symptoms of sepsis in the first 72 hours of life. A
positive GBS urine result provides information to the neonatologist regarding
the cause of neonatal symptoms. The urine protocol is slightly faster than Strep
B OIA Maternal because the specimen does not require extraction. BioStar does
not intend to sell this product in the United States.
CHLAMYDIA. Chlamydia is the most commonly reported sexually transmitted
disease in the United States and is also highly prevalent outside of the United
States. According to the Centers for Disease Control and Prevention,
approximately four million new cases of chlamydia infection occur in the United
States each year. Up to two-thirds of infected women may be asymptomatic and up
to 40% of women with untreated chlamydia will develop pelvic inflammatory
disease, a leading cause of infertility. According to research published by the
Journal of the American Medical Association (JAMA) in September 1994, the median
time between testing and treatment is 14 days and nearly 25% of patients testing
positive with chlamydia never return for treatment. Other studies published by
the American Journal of Obstetrics and Gynecology in May 1993 reveal that
treatment delays of as little as three days from the onset of symptoms
contribute to infertility or ectopic pregnancies. A 1996 New England Journal of
Medicine study showed that screening of young women for chlamydia can reduce the
costly long-term complications of pelvic inflammatory diseases caused by
chlamydia infections. In 1997, the United States market for chlamydia tests was
estimated to be over $60 million, and BioStar estimates that the worldwide
market was $100 million. BioStar's sales of chlamydia products represented 6% of
its total sales in 1997.
Chlamydia OIA. BioStar's Chlamydia OIA test is the only rapid test for
chlamydia that provides 100% specificity (95% confidence interval 99.3%-100%)
and 100% positive predictive value. In addition, Chlamydia OIA has demonstrated
comparable diagnostic efficiency to single pass culture available in the United
States (the basic comparison for chlamydia tests). The procedure for use of
Chlamydia OIA begins with the collection of a patient sample using a standard
endocervical swab. The patient specimen is extracted and then applied to the
test device surface. A conjugate and substrate are added. If chlamydia is
present, a purple color appears within 24 minutes. Chlamydia OIA was cleared for
sale by the FDA in 1995.
Chlamyfast. Chlamyfast is a version of Chlamydia OIA which BioStar
developed for sale in France with International Microbio, a privately-held
French company. Chlamyfast was customized to meet the unique French regulatory
requirements. BioStar does not intend to market this product in the United
States.
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Chlamydia OIA Urethral. Chlamydia OIA Urethral is a version of Chlamydia
OIA which BioStar sells outside the United States for testing males for
chlamydia, using a urethral swab sample collection. BioStar does not intend to
market this product in the United States (due to painful sampling procedures
currently required). See "-- Strategic Relationships".
PREGNANCY. In 1997, the market for pregnancy tests used in the physician
office market in the United States was estimated to be over $100 million.
BioStar sells ACCEAVA hCG Urine under license from Wyntek. BioStar's sales of
Wyntek's ACCEAVA hCG Urine test kits constituted only a very small percentage of
BioStar's total 1997 product sales. To date, BioStar has marketed this product
solely to its existing customers.
ACCEAVA hCG Urine. Wyntek's ACCEAVA hCG Urine test is an accurate, rapid
test for the detection of human chorionic gonadotropin in urine for early
detection of pregnancy. In clinical trials, ACCEAVA hCG Urine was demonstrated
to be 100% sensitive and specific. The procedure for use of ACCEAVA hCG Urine
includes the ability to perform midstream or cup specimen collection. Midstream
specimen collection avoids the handling and pipetting of patient specimens and
reduces office staff time. If hCG is present in the specimen, a blue line
appears within minutes.
ACCEAVA hCG Basic. In 1998, BioStar introduced Wyntek's ACCEAVA hCG Basic,
a CLIA-waived "dipstick" test for early detection of pregnancy. ACCEAVA hCG
Basic is based on the same technology as the ACCEAVA hCG Urine test but it is
lower in cost and directed at high volume, cost-sensitive customers.
INFECTIOUS MONONUCLEOSIS. Infectious mononucleosis ("Mono") is a viral
disease caused by the Epstein-Barr virus. While it may infect people of any age,
it is most prevalent in late adolescents and young adults (15-24 years of age).
In theory, any activity involving salivary exchange can spread the disease as it
is mildly contagious. The symptoms (sore throat, fever, swollen lymph nodes) and
epidemiology of Mono are similar to GAS. As a result, Mono is managed in the
same primary care environment as GAS. In 1997, the United States market for
mononucleosis tests was estimated to be $13 million. Recent approvals for
CLIA-waived status of Mono tests and pending submissions for waived status, if
granted, may increase the point-of-care market for Mono diagnostic tests.
BioStar did not sell any mononucleosis products in 1997.
ACCEAVA Mono. Wyntek's ACCEAVA Mono test, which BioStar sells under license
from Wyntek, is a rapid, moderately complex test for Mono which uses whole
blood, plasma or serum samples. The procedure for use of ACCEAVA Mono begins
with the collection of a patient sample using a standard finger-prick technique.
The patient specimen is then diluted after which the test device is placed into
the specimen solution. If Mono is present, results appear in minutes. BioStar
began selling the ACCEAVA Mono test in February 1998. Wyntek has applied for
CLIA-waived status on the ACCEAVA Mono test. If Wyntek is successful in
obtaining CLIA-waived status, then BioStar will add the CLIA-waived version to
its product menu.
PRODUCTS AND TECHNOLOGY IN DEVELOPMENT. BioStar intends to expand its
product menu through internal development, development in collaboration with
strategic partners and acquisition of new products and technologies. BioStar is
currently working with partners to develop OIA tests for influenza A/B,
gonorrhea and pneumonia. BioStar has licensed the materials and completed
feasibility studies to develop a clostridium difficile assay. BioStar is
currently working with Asahi to develop a cartridge-based, multiple target
instrumented test based on its new concept ellipsometry technology. This
instrumented system is intended to expand the application of thin film
technologies by enabling caregivers to run multiple assays on patient specimens
at the same time. This is particularly important with medical conditions that
may be caused by a variety of infectious agents, each of which requires a
specific therapeutic intervention.
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The following table shows BioStar's current product and technology
development programs:
<TABLE>
<CAPTION>
PRODUCT PARTNER STATUS
------- ------- ------
<S> <C> <C>
Influenza A/B....................................... Biota Human clinical trials
Chlamydia Urine..................................... NIH In development
C Difficile......................................... None Ready for clinical trials
Pneumonia........................................... * Feasibility studies
Gonorrhea........................................... NIH Feasibility studies
Point-of-Care Instrumentation....................... Asahi In development
Multi-Target Panel Tests............................ Asahi In development
</TABLE>
- ---------------
* Confidential
BioStar believes that its new concept ellipsometry technology will expand
the point-of-care market opportunity for its OIA tests by enabling the
quantitative detection of targets in a variety of specimens at an extremely high
level of sensitivity (the sub-nanogram level). This level of sensitivity is
particularly important for drug and disease marker monitoring for cancer, brain
trauma, allergies and thyroid function. BioStar has developed successful
prototype assays utilizing blood or serum specimens for thyroid, allergy and
cancer monitoring and is seeking strategic partners to pursue additional product
development work. This technology is not yet commercially available and there
can be no assurances that BioStar will be able to develop commercially viable
products.
In addition, BioStar believes that its thin film technologies may enable
the development of new products in industrial applications beyond infectious
diseases and human health care where detection of specific targets is critical,
such as in identifying potential toxins in foods and beverages and contaminants
in air and water, and performing life sciences research. BioStar intends to seek
partners to co-fund development of appropriate testing systems and to market
collaboratively any resulting products.
Notwithstanding the foregoing, there can be no assurances that BioStar's
current product and technology development programs will result in the
development and commercialization of new products or technologies.
SALES AND MARKETING
BioStar markets and sells its products to the outpatient primary care
market and the traditional microbiology laboratory market. There are over 80,000
testing sites in the United States in the outpatient primary care market, which
includes: pediatric, obstetrics/gynecology, family practice and general practice
physician offices; student and public health centers; and walk-in clinics. There
are more than 5,000 United States laboratories in the diagnostic microbiology
laboratory market, which includes hospital laboratories and private reference
laboratories.
BioStar's products are typically higher-priced than competitive products
and are marketed on the basis of superior sensitivity, specificity and customer
service. BioStar sells its products through its "flex" representative sales
force and worldwide distribution partners. BioStar believes that its flex
representatives, with their exclusive focus on BioStar products, provide broad
support to the outpatient point-of-care markets. Each flex representative is
focused on developing and maintaining a highly satisfied user base which will
provide superior references to build the flex representative's account base.
BioStar's flex representatives work a minimum of 20 hours per week in their
territory on a "flex basis". The flex basis permits the flex representatives to
choose the hours they work based on their customer's needs and their lifestyle
demands. The flex representatives' compensation is incentive-based, with a base
salary and a significant sales bonus structure.
In 1995, BioStar announced a strategic relationship with Murex, a leading
distributor of microbiological diagnostic products in the United States. Murex's
30-person sales organization represents BioStar's OIA tests in the United States
hospital laboratory and reference laboratory markets. In addition, Murex sells
BioStar's OIA tests through national purchasing agreements with large health
care providers. As a result of Murex's national account efforts, BioStar's
products are included in their contracts with AmeriNet and VHA, Inc. ("VHA"),
two of the largest hospital group purchasing organizations. See "-- Strategic
Relationships".
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To service the international market, BioStar has initiated a 21-country
distribution network comprised of 16 international distribution partners which
covers critical markets in Western Europe and Asia. BioStar's agreements with
its international distribution partners provide for three year terms which are
generally terminable by BioStar if the distributor fails to achieve certain
sales targets.
MANUFACTURING
BioStar's manufacturing process for its OIA tests combines high-volume
processes from the semi-conductor industry with more traditional bioprocesses.
BioStar currently utilizes two semi-automated production lines for the
manufacturing, assembly and packaging of its OIA tests. BioStar's production
capacity is 20,000 tests per day with a single ten-hour shift. Since 1992,
BioStar's manufacturing group has successfully produced over ten million test
devices in its Boulder, Colorado facility. BioStar expects that its
manufacturing facilities will be sufficient to meet expected customer demand for
the foreseeable future.
BioStar employs performance-based, quality control methods in its
manufacturing facility and uses a lot-controlled approach for production.
BioStar is able to achieve volume-related, economy-of-scale production for its
OIA tests because the components of all OIA tests are substantially the same
even though they are for different disease targets. In addition, BioStar expects
that per-unit test production costs will decline as more OIA tests are added to
the BioStar product menu in the future, permitting BioStar to achieve greater
economies of scale at higher volume. BioStar has registered its facility with
the FDA and with appropriate state agencies and operates in compliance with the
FDA promulgated cGMP regulatory requirements for its products.
BioStar's OIA test kits typically comprise test devices, reagents, swabs
and extraction tubes. The test device includes a reactive surface comprised of a
solid substrate (for ease of test delivery), an optical layer of a reflective
surface (to make the reaction visible to the human eye), an attachment layer (to
link the biological to the reactive surface) and an active biological captive
layer (to create a surface thickening). The manufacturing process starts with
the construction of test chips. The solid substrate is manufactured in an
automated process in which "raw" silicon wafers are batch coated with silicon
nitride and the capture layer in quantities sufficient for up to 90,000 tests
per lot. Once coated, the wafers are cut into individual test chips before being
assembled into devices. Additional reagents are formulated, bottled and labeled
for their respective test kits prior to final assembly. The final step in the
manufacturing process includes kit assembly, where test devices, reagents and
other test materials are packaged into finished product.
The components of BioStar's OIA tests are chemical and packaging supplies
that are generally available from several suppliers, except certain antibodies
and absorbent paper which BioStar purchases from single suppliers. BioStar
mitigates the risk of a loss of supply by maintaining a sufficient supply of
such antibodies and absorbent paper to ensure an uninterrupted supply for at
least six months. BioStar also believes that it can substitute a new supplier
with regard to any of these components in a timely manner. There can be no
assurances that BioStar will be able to substitute a new supplier in a timely
manner and failure to do so could have a material adverse effect on BioStar's
business, financial condition and results of operations.
BioStar purchases components for the ACCEAVA Strep A test from Wyntek and
performs final assembly and shipping at its Boulder facility. BioStar purchases
the final, assembled ACCEAVA hCG Urine, ACCEAVA hCG Basic and ACCEAVA Mono tests
from Wyntek and warehouses the tests until they are shipped to customers.
STRATEGIC RELATIONSHIPS
An integral part of BioStar's strategy has been and will continue to be
entering into strategic alliances as a means of accessing resources or
developing specific markets. The primary aspects of BioStar's corporate
partnering strategy include seeking partners that (i) are interested in
developing diagnostic tests to be sold in conjunction with new therapeutics;
(ii) have complementary "marker" technology that when combined with the unique
capabilities of BioStar's thin film technologies will allow the development of
new point-of-care applications for specific proprietary markers or formats;
(iii) have complementary technology whose performance can be upgraded because of
BioStar's thin film technologies; (iv) have complementary products
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which can be sold by BioStar's sales and marketing organization; or (v) have
access to distribution channels that supplement BioStar's existing distribution
channels.
To date, BioStar has established strategic relationships with the following
companies:
Biota Scientific Management Pty Ltd. Biota is an Australian pharmaceutical
company focused principally on the discovery of new human pharmaceuticals for
the treatment of viral respiratory diseases and cancer. BioStar is collaborating
with Biota on the development of the first rapid, point-of-care immunodiagnostic
assay for the simultaneous detection of both influenza A and B. BioStar
estimates that more than 350 million cases of influenza occur worldwide each
year. The lack of accurate and timely diagnosis of influenza is estimated to be
the leading cause of influenza complications, such as pneumonia, especially in
the elderly and in people who are immunocompromised (such as cancer patients).
In the United States, influenza and pneumonia, a common complication of
influenza, are jointly the sixth leading cause of death. Other influenza
diagnostic methods, such as enzyme immunoassay or viral culture, detect only
influenza A or take hours or days to provide results. BioStar began clinical
trials of the influenza OIA test in the United States in January 1998. If the
trials are successful, BioStar anticipates filing for FDA clearance in the
second quarter of 1998. BioStar and Biota intend that the diagnostic test will
be available for sale initially in international markets when Biota's influenza
therapeutic product candidate zanamivir, or GG167, for which Glaxo Wellcome plc
holds the exclusive distribution rights, is launched. Pursuant to the terms of
its arrangement with BioStar, Biota funded the development of the influenza OIA
test in exchange for which Biota secured the exclusive right to distribute the
test outside of the United States. BioStar retains worldwide manufacturing
rights and will be the exclusive distributor in the United States (with Biota
receiving a percentage of the profits from those sales). The exclusivity of
BioStar's position is subject to BioStar's ability to maintain sales minimums.
There can be no assurances that the clinical trials will be successful, and if
successful, that the influenza diagnostic product will achieve broad market
acceptance.
Asahi Chemical Industry Co., Ltd. Asahi is one of Japan's largest chemical
manufacturers and a worldwide leader in thin film technologies. Asahi's
operations range from petrochemicals, plastics, synthetic rubber and synthetic
fibers to construction materials, housing, computer chips, electronics-related
products, liquors, foods and health care. BioStar and Asahi have entered into a
multi-year contract to develop a point-of-care diagnostic system which combines
BioStar's OIA and ellipsometry technologies in a rapid testing system for highly
sensitive detection of multiple targets from a single specimen. The
point-of-care instrument is being designed to be both qualitative and
quantitative, opening up additional testing opportunities using the same system.
Pursuant to the terms of its arrangement, Asahi is funding the development of
the instrumented system and the reagents by BioStar in exchange for which Asahi
has the royalty-bearing exclusive right to manufacture and distribute the test
in Asia. BioStar retains manufacturing and distribution rights for the rest of
the world. There can be no assurances that the product development program will
be successful, and if successful, that the instrumented test will achieve broad
market acceptance.
Wyntek Diagnostics, Inc. Wyntek is a privately-held company located in San
Diego, California, which has developed CLIA-waived tests for the detection of
GAS and pregnancy, as well as a moderately complex test for mononucleosis. In
July 1997, BioStar became a non-exclusive distributor of Wyntek's tests in the
United States and distributes them through BioStar's flex representative sales
force under the brand names ACCEAVA Strep A, ACCEAVA hCG Urine, ACCEAVA hCG
Basic and, beginning in February 1998, ACCEAVA Mono. In November 1997, Wyntek
authorized BioStar to distribute its products worldwide on a non-exclusive
basis. The initial term of the distribution arrangement with Wyntek will expire
in June 2000 and it may be renewed at BioStar's election for additional
successive one-year terms. Wyntek also sells these tests under the trade name
OSOM through a small network of regional distributors and has licensed the GAS
test to Abbott Diagnostics, which is selling the test under the trade name
"Signify".
National Institutes of Health. BioStar is collaborating with the National
Institutes of Health (NIH) on two major programs in the field of
sexually-transmitted diseases. The initial program is focused on developing the
first highly sensitive, rapid OIA test to diagnose chlamydia in males using a
urine specimen. Although chlamydia is one of the most prevalent sexually
transmitted diseases in males, it is rarely tested for or monitored in males due
to the painful sampling procedures currently required. BioStar believes that a
rapid
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chlamydia test using a male urine specimen would allow better detection and
medical management of the disease. To date, the NIH has committed over
$1,500,000 toward the development of the chlamydia assay. The second NIH program
is focused on the development of a rapid, point-of-care OIA assay for gonorrhea
which uses female endocervical or male urethral swab specimens. BioStar received
notification in early September 1997 that an additional grant of up to $850,000
would be awarded to fund development of the gonorrhea assay pending the
achievement of certain milestones. BioStar may exploit the commercial rights to
any tests developed through these programs.
Murex Diagnostics, Inc. Murex is a leading distributor of microbiological
diagnostic products in the United States. Murex's 30-person sales organization
represents BioStar's OIA MAX and Strep B OIA tests (subject to performance
levels) in the United States hospital laboratory and reference laboratory. Murex
distributes BioStar's Chlamydia OIA test on a non-exclusive basis. In addition,
as a result of Murex's national account efforts, BioStar's products are included
in its contracts with AmeriNet and VHA, two of the largest hospital group
purchasing organizations. BioStar's distribution agreement with Murex, which
began in 1995, is in its first one-year renewal period which expires in January
1999 and may be renewed for two additional one-year periods in succession upon
delivery of notice of intent to renew by Murex to BioStar.
RESEARCH AND DEVELOPMENT
BioStar is directing its research and development efforts towards
continuously improving its platform OIA technology and new concept ellipsometry
technology to address operator ease-of-use and reaction speed, creating new
products and technologies which complement BioStar's existing products and
technologies and optimizing the manufacturing process to reduce manufacturing
costs. In that regard, BioStar has organized its research and development
department into four major areas: (i) feasibility/new methods, (ii) methods
development, (iii) system development, and (iv) program management.
The feasibility/new methods group is responsible for performing internal
studies or working with potential corporate partners to evaluate the performance
of delivery technology, novel antibodies, antigens or capture reagents on
different surfaces and new applications or sample types. The feasibility/new
methods group includes individuals skilled in molecular biology, protein
chemistry, biochemistry and basic sciences. This group creates working prototype
assays of new methods or potential products. Additionally, the feasibility/new
methods group technically validates all externally-sourced products.
The methods development group is responsible for taking the candidate
reagents identified by the feasibility/new methods group and developing thin
film products for commercialization. This process includes producing a validated
clinical method which can be consistently manufactured. The methods development
group is further divided into groups which direct their efforts towards
development of different assays. The methods development group includes
individuals skilled in immunology, microbiology, virology, protein chemistry and
assay development. The methods development group works closely with
manufacturing, regulatory and clinical affairs groups to satisfy regulatory
requirements.
The system development group is responsible for the development of the
instrumented system combining BioStar's OIA technology and new concept
ellipsometry technology on which BioStar is collaborating with Asahi. See
"-- Strategic Partners". The system development group is directing hardware
suppliers for the development of the instrument and test cartridges, integrating
assays with the test cartridge and instrument, leading the design group for
creating the user interface and validating the performance of the instrumented
test system. The system development group includes individuals skilled in
optics, electronics, software, reagent integration and validation methods.
The program management group is responsible for tracking, coordinating and
reporting the status of BioStar's development projects, including maintaining
appropriate documentation for obtaining intellectual property protection and
supporting regulatory clearance. The program management group includes
individuals skilled in planning, clinical laboratory testing and project
management.
BioStar maintains facilities to support its development efforts,
microbiology and virology laboratories and product development laboratories in
Boulder, Colorado. In addition, BioStar has two technical advisory boards
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which assist BioStar with product menu, product development and technology
related topics. See "-- Technical and Business Advisors".
BioStar's research and development expenses for the years ended 1995, 1996
and 1997 were $1.4 million, $2.3 million and $3.3 million, respectively.
COMPETITION
Competition in the human medical diagnostics industry is, and is expected
to remain, intense. The competitors range from development stage diagnostics
companies to major domestic and international pharmaceutical companies. Many of
these companies have financial, technical, marketing, sales, manufacturing,
distribution and other resources significantly greater than those of BioStar. In
addition, many of these companies have name recognition, established positions
in the market and long standing relationships with customers and distributors.
Moreover, the diagnostics industry has recently experienced a period of
consolidation during which many of the large domestic and international
pharmaceutical companies have been acquiring mid-sized diagnostics companies,
further increasing the concentration of resources. There can be no assurance
that new, more sensitive or rapid technologies will not be introduced that could
be directly competitive with or superior to BioStar's thin film technologies.
BioStar's primary competitors for rapid, point-of-care immunodiagnostic
tests and the markets in which they compete with BioStar are as follows: Abbott
Laboratories (GAS and chlamydia), Carter-Wallace (GAS and chlamydia), SmithKline
Beckman (GAS), Becton Dickinson (GAS) and Quidel (GAS and chlamydia). These
companies are larger than BioStar and have substantial resources and market
presence. BioStar competes against these companies on the basis of product
performance and customer service. BioStar's OIA tests have been demonstrated to
be more sensitive and/or specific than any of the rapid, point-of-care
immunodiagnostic tests for GAS and chlamydia currently sold by these
competitors. Additionally, BioStar believes that its sales organization is
capable of providing more comprehensive customer support than competitors who
use third party distributors.
BioStar's primary laboratory-based competitor for highly sensitive
immunodiagnostic tests is Gen-Probe. Gen-Probe has GAS and chlamydia tests which
are instrumented and used in high-volume laboratories. Gen-Probe is a subsidiary
of a Japanese company which has substantial resources. BioStar competes against
Gen-Probe on the basis of cost-effective outcomes, speed, ease-of-use and
customer service. BioStar's products are as sensitive as Gen-Probe's tests and
are more specific. Gen-Probe's tests require several hours reaction time and are
not point-of-care tests. Therefore, in populations where initial visit follow-up
rates are low, BioStar's tests offer the potential of improved treatment
outcomes.
BioStar's OIA tests also compete against traditional agar culture tests for
GAS, GBS and chlamydia. Agar culture tests consist of commodity-based supply
materials. As a result, a variety of diagnostics companies market agar culture
tests. Agar culture tests historically have been considered the standard against
which diagnostic tests for GAS and GBS have been measured. BioStar competes
against agar culture tests on the basis of ease-of-use, reaction speed and
sensitivity.
The market for the diagnostic tests that BioStar has under development as
well as those which BioStar has targeted for development is highly competitive
and subject to rapid technological change. Other companies are devoting
significant resources to developing new tests and dominating distribution
channels. BioStar believes that for all of its immunodiagnostic assay products,
it competes on the basis of how quickly companies can (i) develop products and
demonstrate clinical feasibility, (ii) complete clinical testing, (iii) obtain
regulatory approval, (iv) obtain favorable reimbursement policies, and (v)
supply commercial quantities of the product to the market at a competitive
price. BioStar's inability to compete favorably with respect to any of these
factors could have a material adverse effect on its business, financial
condition and results of operations.
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PATENTS, TRADE SECRETS AND TRADEMARKS
BioStar has built a strong patent and intellectual property position around
its OIA technology platform covering composition, targets, assays, extraction
methods and delivery systems. BioStar holds 15 United States patents which
expire beginning in 1999 and ending in 2014, as well as 44 international patents
covering a number of inventions which comprise the OIA technology, including the
base OIA technology, optical surfaces for a variety of assays, manufacturing
methods and new instruments. An additional five United States and 15
international patents are now pending. Patent applications in the United States
are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries, BioStar cannot be certain that it was the first creator of
inventions covered by pending patent applications or the first to file patent
applications on such inventions. There can be no assurance that BioStar's
pending patent applications will result in issued patents or that any of its
issued patents will afford meaningful protection against a competitor. In
addition, patent applications filed in foreign countries are subject to laws,
rules and procedures which differ from those of the United States, and thus
there can be no assurance that foreign patent applications related to United
States patents will issue. Furthermore, if these patent applications issue, some
foreign countries provide significantly less patent protection than the United
States.
The status of patents involves complex legal and factual questions and the
breadth of claims issued is uncertain. Accordingly, there can be no assurance
that patent applications filed by BioStar will result in patents being issued or
that its patents, and any patents that may be issued to it in the future, will
afford protection against competitors with similar technology. In addition, no
assurances can be given that patents issued to BioStar will not be infringed
upon or designed around by others or that others will not obtain patents that
BioStar would need to license or design around. If existing or future patents
containing broad claims are upheld by the courts, the holders of such patents
could require companies to obtain licenses. If BioStar is found to be infringing
third party patents, there can be no assurance that licenses that might be
required for BioStar's products would be available on reasonable terms, if at
all.
BioStar could incur substantial costs in defending itself or its licensees
in litigation brought by others or prosecuting infringement claims against third
parties. If the outcome of any such litigation is unfavorable to BioStar,
BioStar's business could be adversely affected. To determine the priority of
inventions, BioStar may have to participate in interference proceedings declared
by the United States Patent Office, which could result in substantial cost to
BioStar and may result in an adverse decision as to the priority of BioStar's
inventions.
In addition to patent protection, BioStar relies on the law of unfair
competition and trade secrets to protect its proprietary rights. BioStar
considers several elements of its manufacturing process and selling techniques
to be trade secrets. BioStar attempts to protect trade secrets and other
proprietary information through agreements with customers and suppliers,
proprietary information agreements with employees and consultants and other
security measures. Although BioStar intends to protect its rights vigorously,
there can be no assurance that these measures will be successful. See "Risk
Factors -- Patents and Proprietary Rights".
BioStar has registered its trademarks OIA(R), BioStar(R) and Better Results
Mean Better Medicine(R) as trademarks on the principal federal trademark
register and with the trademark registries in many countries of the world.
BioStar has registrations pending for Sagax(TM), ACCEAVA(TM), and Strep A OIA
MAX(TM).
REGULATION
The testing, manufacturing and sale of BioStar's products are subject to
regulation by numerous governmental authorities, principally the FDA and
corresponding state and foreign regulatory agencies. Pursuant to the Federal
Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, the
FDA regulates the preclinical and clinical testing, manufacture, labeling,
distribution and promotion of medical devices. BioStar will not be able to
commence marketing or commercial sales in the United States of new products
under development until it receives clearance from the FDA. In addition, various
foreign countries in which BioStar's products are or may be sold impose local
regulatory requirements. The testing for, preparation of and subsequent FDA and
foreign regulatory review of required filings can be a lengthy, expensive and
uncertain process. Noncompliance with applicable requirements can result in,
among other things, fines,
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injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, failure of the government to grant premarket clearance
or premarket approval for devices, withdrawal of marketing clearances or
approvals and criminal prosecution. The FDA also has the authority to request
recall, repair, replacement or refund of the cost of any device manufactured or
distributed by BioStar.
In the United States, medical devices are classified into one of three
classes (i.e., Class I, II or III) on the basis of the controls deemed necessary
by the FDA to ensure their safety and effectiveness in a reasonable manner.
Class I devices are subject to general controls (e.g., labeling, premarket
notification and adherence to cGMP) and Class II devices are subject to general
and special controls (e.g., performance standards, post-market surveillance,
patient registries and FDA guidelines), Generally, Class III devices are those
that must receive premarket approval by the FDA to ensure their safety and
effectiveness (e.g., life-sustaining, life-supporting and implantable devices or
new devices that have been found not to be substantially equivalent to legally
marketed devices). The majority of BioStar's products and products under
development are, and the combined company's products are expected to be,
classified as Class I or Class II devices.
Before a new device can be introduced in the market, the manufacturer must
generally obtain FDA clearance or approval through either clearance of a 510(k)
premarket notification or approval of a product marketing approval ("PMA")
application. A PMA application must be filed if a proposed device is a new
device not substantially equivalent to a legally marketed Class I or Class II
device, or if it is a pre-amendment Class III device for which the FDA has
called for PMAs. A PMA application must be supported by valid scientific
evidence to demonstrate the safety and effectiveness of the device, typically
including the results of clinical investigations, bench tests, laboratory and,
where applicable, animal studies. The PMA application must also contain a
complete description of the device and its components and a detailed description
of the methods, facilities and controls used to manufacture the device. In
addition, the submission must include the proposed labeling, advertising
literature and any training materials. The PMA approval process can be
expensive, uncertain and lengthy, and a number of devices for which FDA approval
has been sought by other companies have never been approved for marketing.
A 510(k) clearance will be granted if the submitted information establishes
that the proposed device is "substantially equivalent" to a legally marketed
Class I or Class II medical device or a preamendment Class III medical device
for which the FDA has not called for PMAs. The FDA recently has been requiring
more rigorous demonstration of substantial equivalence than in the past,
including in some cases requiring submission of clinical data. It generally
takes from four to 12 months from submission to obtain 510(k) premarket
clearance but may take longer. The FDA may determine that a proposed device is
not substantially equivalent to a legally marketed device or that additional
information is needed before a substantial equivalence determination can be
made. A "not substantially equivalent" determination, or a request for
additional information, could prevent or delay the market introduction of new
products that fall into this category. For any devices that are cleared through
the 510(k) process, modifications or enhancements that could significantly
affect safety or effectiveness, or constitute a major change in the intended use
of the device, will require new 510(k) submissions.
There can be no assurance that BioStar will be able to obtain necessary
regulatory approvals or clearances for its products on a timely basis, if at
all, and delays in receipt of or failure to receive such approvals or
clearances, the loss of previously received approvals or clearances, limitations
on intended use imposed as a condition of such approvals or clearances, or
failure to comply with existing or future regulatory requirements could have a
material adverse effect on BioStar's business, financial condition and results
of operations.
Before the manufacturer of a device can submit the device for FDA approval
or clearance, it generally must conduct a clinical investigation of the device.
Although clinical investigations of most devices are subject to the
investigational device exemption ("IDE") requirements, clinical investigations
of in vitro diagnostic tests, such as all of BioStar's products and products
currently under development, are exempt from the IDE requirements, including the
need to obtain the FDA's prior approval, provided the testing is noninvasive,
does not require an invasive sampling procedure that presents a significant
risk, does not intentionally introduce energy into the subject, and is not used
as a diagnostic procedure without confirmation by another medically established
test or procedure. In addition, patient informed consents and approvals from the
Internal Review
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Board of the clinic sites must be obtained, as appropriate. The in vitro
diagnostic test must be labeled "for research use only" ("RUO") or "for
investigative use only" ("IUO"), and distribution controls must be established
to assure that in vitro diagnostic tests distributed for research or clinical
investigation are used only for those purposes.
BioStar intends to conduct clinical investigations of its products under
development, which will entail distributing them in the United States on an IUO
basis. There can be no assurance that the FDA would agree that BioStar's IUO
distribution of its in vitro diagnostic products under development will meet the
requirements for IDE exemption. Furthermore, failure by BioStar or the
recipients of its products under development to maintain compliance with the IDE
exemption requirements could result in enforcement action by the FDA, including,
among other things, the loss of the IDE exemption or the imposition of other
restrictions on BioStar's distribution of its products under development, which
would adversely affect BioStar's ability to conduct the clinical investigations
necessary to support marketing clearance or approval.
Any devices manufactured or distributed by BioStar pursuant to FDA
clearance are subject to pervasive and continuing regulation by the FDA and
certain state agencies. Manufacturers of medical devices for marketing in the
United States are required to adhere to applicable regulations setting forth
detailed cGMP requirements, which include testing control and documentation
requirements. Manufacturers must also comply with MDR requirements that a
manufacturer report to the FDA any incident in which its product may have caused
or contributed to a death or serious injury, or in which its product
malfunctioned and, if the malfunction were to recur, it would be likely to cause
or contribute to a death or serious injury. Labeling and promotional activities
are subject to scrutiny by the FDA and, in certain circumstances, by the Federal
Trade Commission. Current FDA enforcement policy prohibits the marketing of
approved medical devices for unapproved uses.
BioStar is subject to routine inspection by the FDA and certain state
agencies for compliance with cGMP requirements, MDR requirements and other
applicable regulations. The FDA has recently finalized changes to the cGMP
requirements, including the addition of design controls that will likely
increase the cost of compliance. Changes in existing requirements or adoption of
new requirements could have a material adverse effect on BioStar's business,
financial condition and results of operations. There can be no assurance that
BioStar will not incur significant costs to comply with laws and regulations in
the future, or that laws and regulation will not have a material adverse effect
upon BioStar's business, financial condition and results of operations.
Distribution of BioStar's products outside the United States is subject to
extensive government regulation. These regulations, including the requirements
for approvals or clearance to market, the time required for regulatory review
and the sanctions imposed for violations, vary from country to country. There
can be no assurance that BioStar will obtain regulatory approvals in such
countries or that it will not be required to incur significant costs in
obtaining or maintaining its foreign regulatory approvals. In addition, the
export by BioStar of certain of its products which have not yet been cleared for
domestic commercial distribution may be subject to FDA export restrictions.
Failure to obtain necessary regulatory approvals; the restriction, suspension or
revocation of existing approvals or any other failure to comply with regulatory
requirements would have a material adverse effect on BioStar's business,
financial condition and results of operations.
BioStar's customers using diagnostic tests for clinical purposes in the
United States are also regulated under CLIA. CLIA is intended to ensure the
quality and reliability of all medical testing in laboratories in the United
States by requiring that any health care facility in which testing is performed
meets specified standards in the areas of personnel qualification,
administration, participation in proficiency testing, patient test management,
quality control, quality assurance and inspections. The regulations have
established three levels of regulatory control based on test
complexity -- "waived", "moderately complex" and "highly complex". BioStar's
current OIA tests and ACCEAVA Mono tests are categorized as a "moderately
complex" tests for clinical use in the United States. Under the CLIA
regulations, all laboratories performing high or moderately complex tests are
required to obtain either a registration certificate or certification of
accreditation from the HCFA. As a result of the CLIA requirements, physician
office laboratories and small volume test sites may be
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dissuaded from initiating, continuing or expanding patient testing, particularly
if the tests are classified as moderately or highly complex tests. There can be
no assurance that the CLIA regulations and future administrative interpretations
of CLIA will not have an adverse impact on the potential market for BioStar's
products. BioStar's ACCEAVA hCG and ACCEAVA Strep A products are categorized as
CLIA "waived". Laboratories performing CLIA "waived" tests face less stringent
registration and certification requirements.
BioStar also is subject to numerous federal, state and local laws relating
to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that BioStar will
not incur significant costs to comply with laws and regulations in the future or
that such laws or regulations will not have a material adverse effect upon
BioStar's business, financial condition and results of operations.
REIMBURSEMENT
BioStar's largest market segment is the outpatient market. Payment for
testing in this segment is largely based on third party payor reimbursement. The
site which performs the test will submit an invoice to the patient's insurance
provider (or the patient if not covered by a program). Each diagnostic procedure
(and in some instances, specific technologies) is assigned a CPT code by HCFA.
Third party insurance payors typically establish a specific fee to be paid for
each code submitted. Third party payor reimbursement policies are generally
determined with reference to the reimbursement for CPT codes for Medicare
patients which themselves are determined on a national basis by HCFA. Third
party payors can indirectly affect the pricing or the relative attractiveness of
BioStar's products by regulating the maximum amount of reimbursement they will
provide for BioStar's CPT codes. For example, the reimbursement of fees for CPT
codes for diagnostic tests for Medicare patients in hospitals are included under
Medicare's prospective payment system, diagnosis-related group regulations. If
the reimbursement amounts for the CPT codes for diagnostic tests are decreased
in the future, such a change likely would decrease the amount that caregivers
are able to charge Medicare patients for such services and consequently the
price BioStar can charge caregivers for its products. BioStar cannot predict the
reimbursement of fees for the CPT codes for its products for Medicare patients,
or any other types of patients. Any decreases in reimbursement fees could have a
material adverse effect on BioStar's business, financial condition and results
of operations.
TECHNICAL AND BUSINESS ADVISORS
BioStar periodically draws on the expertise of several advisors and
consultants in fields related to BioStar's technology and business. In addition,
BioStar has a Managed Care Advisory Board and a Pediatric Medical Advisory
Board, which meet with BioStar periodically.
Managed Care Advisory Board. The Managed Care Advisory Board was formed to
assist BioStar with charting trends in managed care and developing business
strategies for addressing those trends. As of January 1, 1998, the Managed Care
Advisory Board was comprised of the following individuals:
Kenneth Webb, M.D., MPH, has served as an advisor to BioStar since 1995.
Dr. Webb joined BioStar on a full-time basis as its Medical Director in January
1998.
Nancy Grove, M.D., MBA, has served as an advisor to BioStar since January
1, 1998. Dr. Grove is currently Vice President, Systems Laboratory Operations of
Sutter Health Care as well as Medical Director of the Palo Alto Medical
Foundation and has extensive experience in clinical and laboratory operations.
Christopher Stanley, M.D. has served as an advisor to BioStar since January
1, 1998. Dr. Stanley is the Medical Director of Focus Health Services and Focus
IPA (divisions of PhyCor) and is a Board-Certified Pediatrician.
Elizabeth Dichter, M.P.H. has served as an advisor to BioStar since January
1, 1998. Ms. Dichter is Executive Vice President, Strategic Marketing with PCS
Health Systems, Inc. (Eli Lilly and Co.). Ms. Dichter has extensive experience
in public health, managed healthcare, health economics, outcomes management and
pharmaceuticals.
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Pediatric Medical Advisory Board. The Pediatric Medical Advisory Board
meets at least quarterly to discuss with and advise BioStar on trends in the
medical management of pediatric medical conditions and standards of care. As of
December 31, 1997, the Pediatric Advisory Board was comprised of the following
individuals:
Stephen Fries, M.D. has served as an advisor to BioStar since 1993. Dr.
Fries is a pediatrician and is the President of the Board of Directors at the
Boulder Medical Center.
Harley A. Rotbart, M.D. has served as an advisor to BioStar since 1995. Dr.
Rotbart is Vice Chairman for Academic Affairs and a Professor in the Departments
of Pediatrics and Microbiology at the University of Colorado School of Medicine
and a Co-Director of the Children's Clinical Studies Office.
Gregory Storch, M.D. has served as an advisor to BioStar since 1995. Dr.
Storch is a Professor of Pediatrics and Medicine and Associate Professor of
Molecular Microbiology at Washington University School of Medicine and a member
of the staff at St. Louis Children's Hospital, Barnes Hospital and Shriner
Hospital for Crippled Children.
Kenneth Webb, M.D. has served as an advisor to BioStar since 1995. Dr. Webb
joined BioStar on a full-time basis as its Medical Director in January 1998.
HUMAN RESOURCES
As of December 31, 1997, BioStar employed 174 individuals, 110 of whom were
full time and 64 of whom were flex-time. Of these, 14 hold Ph.D.s and 11 hold
other advanced degrees. None of BioStar's employees is covered by a collective
bargaining agreement. BioStar believes that it maintains good relations with its
employees.
FACILITIES
BioStar currently leases approximately 37,000 square feet of space in one
building in Boulder, Colorado which is used for its administrative offices,
research and development facilities and manufacturing operations. The lease
expires in August 1998 with renewal options through 2008. BioStar also leases
approximately 10,000 square feet of warehouse space in Longmont, Colorado under
a lease which expires in August 1998. BioStar is investigating alternative
locations which may be more able to meet future requirements. BioStar believes
that suitable additional or alternative space will be available on commercially
reasonable terms as needed.
LEGAL PROCEEDINGS
BioStar is not a party to any material litigation or legal proceedings.
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BIOSTAR MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. BioStar's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the section entitled "Risk
Factors" and "BioStar Business" as well as those discussed in this section and
elsewhere in this Joint Proxy Statement/Prospectus. The following discussion
should be read in conjunction with the BioStar Financial Statements, including
the notes thereto, included elsewhere in this Joint Proxy Statement/Prospectus.
GENERAL
Since BioStar's inception in 1992, BioStar has been primarily involved in
the research, development, manufacturing and marketing of point-of-care
diagnostic tests. BioStar began commercial sales of its first diagnostic test
based on its proprietary OIA technology in 1992 and currently markets tests for
GAS, GBS and chlamydia. Its tests are sold by BioStar's dedicated, nationwide
marketing and sales organization, which targets the outpatient market, and its
domestic and international distributor network, which targets hospital and
reference laboratory accounts.
BioStar manufactures products for inventory based upon expected sales
demand, ships products to customers within 24 hours of receipt of orders and
anticipates that it will continue to do so in the future. Accordingly, BioStar
does not operate with a backlog and does not anticipate it will develop a
backlog in the future.
BioStar has experienced significant revenue growth since its inception,
primarily from sales of products and recently from contract revenues from
strategic partners. In order to support these activities, BioStar has incurred
significant levels of sales and marketing expenses. BioStar has entered into
licensing and research and development agreements with strategic partners from
which it derived a significant percentage of its revenues in 1997. Contract
revenues consist of milestone payments, grant revenues, funding for feasibility
testing, funding for product development and licensing fees. BioStar has also
increased its revenues through the sales of four diagnostic products which it
in-licenses from Wyntek. BioStar may seek to expand its relationship with Wyntek
to include additional products. In addition, BioStar's growth strategy includes
potential sales of other externally-sourced products. Although BioStar has
experienced steady growth in revenues, there can be no assurance that, in the
future, BioStar will sustain revenue growth or achieve profitability.
BioStar's results of operations may fluctuate significantly from
period-to-period as the result of several factors, including: (i) whether and
when new products are successfully developed and introduced, (ii) market
acceptance of current or new products, (iii) seasonal customer demand, (iv)
whether and when BioStar receives milestone payments and license fees from
strategic partners, (v) changes in reimbursement policies for the products which
BioStar sells, (vi) competitive pressures on average selling prices for the
products which BioStar sells, and (vii) changes in the mix of products BioStar
sells. For example, in 1997, BioStar's sales of its tests for GAS represented
approximately 83% of its total sales with most of the sales occurring during the
first and fourth quarters, concurrent with the time of the year in which
respiratory infections are prevalent. In addition, two of BioStar's products in
development are also directed at respiratory infections (pneumonia and
influenza). Consequently, BioStar's revenues are, and BioStar expects that they
will continue to be, concentrated in the first and fourth quarters of each
fiscal year. Due to the foregoing factors, BioStar believes that
period-to-period comparisons of its operating results cannot be relied upon as
indicators of future financial performance.
RESULTS OF OPERATIONS
Years Ended December 31, 1997 and 1996:
Total revenue: Total revenue increased 28% to $15.9 million for the year
ended December 31, 1997 from $12.4 million in 1996. The increase is primarily
due to an increase in contract revenues (from $778,000 in
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1996 to $5.0 million in 1997) which resulted from three new research contracts
and continued funding from two previous contracts. A component of total
revenues, product sales, decreased 7% to $10.8 million in 1997 from $11.6
million in 1996. The decrease was due to lower unit sales which resulted from:
(a) reduced orders from BioStar's largest distributor caused by their
overstocking product in late 1996; (b) the introduction of a competitor's
product for GAS in mid-1996; and (c) discontinued sales of a urinary tract
infection product. Additionally, the average selling price of GAS products
decreased 10% due to the introduction of the ACCEAVA GAS test, which has an
average selling price approximately 30% lower than BioStar's OIA-based GAS
products.
Cost of sales: Cost of sales includes material, labor and overhead costs
associated with manufacturing products. Cost of sales decreased 3% to $4.9
million in 1997 from $5.1 million in 1996, due primarily to a decrease in total
units sold. The decrease in cost of sales was less than the decrease in product
sales due to fixed costs which do not vary with production volume.
Research and development: Research and development expenses increased 38%
to $3.2 million in 1997 from $2.3 million in 1996 primarily due to hiring
additional scientific staff, consulting fees and other costs related to research
performed under three new research contracts in 1997.
Sales and marketing: Sales and marketing expenses consist of the costs
associated with maintaining, compensating, training and supporting BioStar's
sales and marketing organization. Sales and marketing expenses were unchanged at
$6.2 million for both 1997 and 1996.
General and administrative: General and administrative expenses increased
41% to $2.7 million in 1997 from $1.9 million in 1996, due in part to legal,
accounting and other costs relating to strategic partnering activities,
financing activities and slightly higher staffing levels.
Other income (expense): Other income (expense) includes interest expense,
including interest paid or accrued on debt and capital leases, as well as
interest, royalty and other miscellaneous income. Other income (expense)
increased 21% to $(790,000) in 1997 from $(651,000) in 1996 due primarily to
higher interest expense resulting from higher interest rates in 1997 over 1996,
and higher debt levels throughout 1997.
Years Ended December 31, 1996 and 1995:
Total revenue: Total revenue increased 29% to $12.4 million for the year
ended December 31, 1996 from $9.6 million in 1995, primarily due to an increase
in sales of GAS and GBS products. Product sales increased 22% to $11.6 million
in 1996 from $9.5 million in 1995. Contract revenues increased to $778,000 in
1996 from $61,000 in 1995 from one new research contract and the continuation of
a contract.
Cost of sales: Cost of sales increased 36% to $5.1 million in 1996 from
$3.7 million in 1995, due primarily to an increase in total units sold and an
increase in production costs per unit sold.
Research and development: Research and development expenses increased 65%
to $2.3 million in 1996 from $1.4 million in 1995 representing an increase in
staffing and related expenses needed to support BioStar's increased product and
technology development efforts.
Sales and marketing: Sales and marketing expenses decreased 19% to $6.2
million in 1996 from $7.7 million in 1995 primarily due to lower expenses in
1996 for the costs associated with building the infrastructure of the sales and
marketing organization which was initiated in 1995.
General and administrative: General and administrative expenses increased
40% to $1.9 million in 1996 from $1.3 million in 1995, primarily due to
increased staffing levels and costs associated with recruiting and relocating
employees.
Other income (expense): Other income (expense) increased 264% to $(651,000)
in 1996 from $(179,000) in 1995 primarily due to higher levels of debt. Interest
income decreased 52% to $29,000 in 1996 from $61,000 in 1995 mainly due to lower
cash balances, while interest expense increased 113% to $(731,000) in 1996 from
$(344,000) in 1995 due to higher levels of debt.
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LIQUIDITY AND CAPITAL RESOURCES
Since inception, BioStar has financed its operations primarily through
private placements of preferred stock and debt securities, raising net proceeds
of $24,719,000 million from sales of these securities. BioStar has also received
financing for operations from sales of diagnostic products, contract revenues
received under arrangements with strategic partners and, to a lesser extent,
through equipment financing. Through December 31, 1997, BioStar had invested
$3.8 million in leasehold improvements, laboratory and computer equipment and
office furnishings and equipment to support its development and administrative
activities. BioStar had financed $1.8 million of these capital additions through
capital lease lines. In addition, BioStar leases its laboratory and office
facilities under operating leases.
BioStar's principal sources of liquidity are available lines of credit and
bridge financing with a bank, of which $1.5 million remained available as of
February 12, 1998. BioStar anticipates that its current level of cash and
borrowing capacity would allow it to operate for approximately six months before
requiring additional sources of funding if it were to remain independent.
Thereafter, in the absence of the Merger, BioStar would need to raise
substantial additional funds in order to continue its planned growth, and
BioStar would attempt to acquire such funding through public or private
financings or through agreements with suitable strategic partners. The Company
has obtained commitments from the holders of its subordinated promissory notes
aggregating $1,510,092, that should the Merger not be consummated, they will
extend the due dates to March 31, 1999. In addition, certain preferred
stockholders who are also subordinated debt holders have committed to actively
support and assist the Company in obtaining operating funds through March 31,
1999 and to participate in a private placement, if required, to provide adequate
working capital.
The Merger, anticipated to be consummated in the second quarter of 1998,
would change BioStar's financial position significantly, due to Cortech's cash
resources, and, in the absence of significant acquisitions or other significant
changes in BioStar activities, would eliminate the need for BioStar to obtain
additional funding for at least 24 months following the Effective Time. In
connection with the Merger, (i) holders of $4.5 million of convertible
subordinated notes have agreed to convert those notes and related accrued
interest into equity, and (ii) holders of at least $1,541,535 of subordinated
promissory notes have agreed to convert those notes and related accrued interest
into equity.
OTHER MATTERS
Impact of Year 2000:
The Year 2000 will impact computer programs written using two digits rather
than four to define the applicable year. Any programs with time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operation, including a temporary inability to process
transactions, send invoices or engage in other ordinary activities. This problem
largely affects software programs written years ago, before the issue came to
prominence.
BioStar recently reviewed all of its software for exposure to Year 2000
issues, including network and workstation software, and does not believe that it
has significant risk associated with the problem. BioStar primarily uses
third-party software programs written and updated by outside firms, each of whom
has stated that its software is Year 2000 compliant. To assure that all software
programs can successfully work in conjunction with each other after the year
1999, BioStar plans to test all of its software during the first quarter of 1998
using a combination of past and future dates. Although no problems are expected
from this test, any problems will be corrected before the end of the 1998
calendar year. The cost of modifying or replacing software to bring BioStar into
compliance, if necessary, is not expected to be material.
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BIOSTAR MANAGEMENT AND EXECUTIVE COMPENSATION
The following table sets forth information as of February 12, 1998
regarding the directors and executive officers of BioStar who will become
directors or executive officers of Cortech upon consummation of the Merger.
<TABLE>
<CAPTION>
NAME POSITION WITH BIOSTAR
---- ---------------------
<S> <C>
Alexander E. Barkas(1)................ Chairman of the Board of Directors
Teresa W. Ayers(1)(2)................. President, Chief Executive Officer and Director
Noel T. Doheny........................ Executive Vice President, Commercial
Development
Lyndal K. Hesterberg.................. Executive Vice President, Scientific Affairs
Kim L. Stebbings...................... Vice President, National Sales and Marketing
Edward C. Pritchard................... Vice President, Finance and Manufacturing and
Chief Financial Officer
Thomas A. Bologna..................... Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee of BioStar.
(2) Member of the Audit Committee of BioStar.
The members of the Board of Directors are elected each year at the annual
meeting of BioStar's stockholders.
Dr. Alexander E. Barkas, 50, was elected Chairman of the Board of Directors
of BioStar in February 1997. Dr. Barkas has been a managing member of the
general partner of Prospect Venture Partners, L.P., a venture capital investment
firm, since June 1997. Prior to assuming this position, Dr. Barkas was a partner
of the general partner of Kleiner Perkins Caufield & Byers, a venture capital
investment firm, from 1991 to June 1997. Dr. Barkas is Chairman of the Board of
Geron Corporation, a biopharmaceutical company, and is a member of the Board of
Directors of Connetics Corp., a biopharmaceutical company. Dr. Barkas received a
Ph.D. in Biology from New York University in 1986 and a B.A. in Biology from
Brandeis University.
Teresa W. Ayers, 44, was elected Chief Executive Officer of BioStar in
February 1997 and President, Chief Operating Officer and Director of BioStar in
December 1995. From August 1992 to December 1995, she served as BioStar's Vice
President of Finance, Treasurer and Secretary. From 1989 to August 1992, Ms.
Ayers served as Vice President of Finance, Treasurer and Secretary of
Plasti-Line, Inc., a manufacturer of internally illuminated signage. From 1986
to 1989, Ms. Ayers served as Vice President of Finance of CytRx Corporation, a
public biotechnology company, and CytRx Biopool, a public in vitro diagnostic
company. Ms. Ayers received her B.B.A. in Business from the University of
Georgia in 1976 and is a Certified Public Accountant.
Noel T. Doheny, 43, has served as Executive Vice President, Commercial
Development of BioStar, since July 1995. Previously, Mr. Doheny served as Vice
President of New Business Development of BioStar from March 1995 to July 1995
and as Vice President of Sales of BioStar from March 1994 to March 1995. Prior
to joining BioStar, Mr. Doheny served as General Sales Manager-Near Patient
Testing of Ciba Corning Diagnostics (now Chiron Diagnostics) ("Ciba Corning").
From 1977 to 1993 he held a variety of business roles, including sales,
worldwide marketing management, business development and general management with
Ciba Corning. Mr. Doheny received his B.A. in Biology and B.A. in Chemistry from
West Virginia University in 1976. Mr. Doheny completed graduate work and a
teaching fellowship in Biochemistry at Georgetown University from 1976 - 1977.
Dr. Lyndal K. Hesterberg, 43, has served as Vice President, Scientific
Affairs of BioStar since January 1992 and was elected Executive Vice President,
Scientific Affairs of BioStar in February 1997. Prior to joining BioStar, Dr.
Hesterberg served as Manager, Diagnostic Product Development of Amgen, Inc. from
1986 to 1989 and Director of Product Development and Regulatory Affairs at
Syrgene Products and Research, Inc. from 1982 to 1986. Dr. Hesterberg received
his Ph.D. in Biochemistry from St. Louis University in 1980
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and his B.S. in Biochemistry from the University of Illinois in 1976. Dr.
Hesterberg was a Postdoctoral Fellow at Max Planck Institute for Biophysical
Chemistry in Goettingen, West Germany from 1981 - 1982.
Kim L. Stebbings, 42, has served as Vice President, National Sales and
Marketing of BioStar since September 1996. Prior to joining BioStar, Ms.
Stebbings held various management positions with Boehringer Mannheim Corporation
from February 1983 to September 1996, most recently serving as Western Area
Business Manager -- Diabetes Care Division and National Sales Manager -- Point
of Care Division. Ms. Stebbings received her B.S. in Biology from St. Lawrence
University in 1977.
Edward C. Pritchard, 48, has served as Vice President, Finance and
Manufacturing and Chief Financial Officer of BioStar since May 1977. Prior to
joining BioStar, Mr. Pritchard served as Vice President, Finance and Chief
Financial Officer of Renaissance Entertainment Corporation, a publicly-owned
entertainment firm, from March 1995 to September 1996. From January 1991 to
December 1994, Mr. Pritchard served as Vice President, Financial Planning,
Finance & Administration of Centre Reinsurance, a Bermuda-based reinsurance
company. From January 1988 to December 1990, Mr. Pritchard served as Financial
Officer of GTE Reinsurance, a Bermuda-based captive reinsurance company. Mr.
Pritchard received his M.B.A. in Finance from the University of Connecticut in
1997 and his B.A. in English from Trinity University in 1996.
Thomas A. Bologna, 49, has served as a director of BioStar since May 1997.
In July 1997, Mr. Bologna became President and Chief Executive Officer and a
member of the Board of Directors of Ostex International, Inc., a publicly-held
biotechnology company that develops, manufactures and markets products for the
management of osteoporosis and other collagen-related diseases. Mr. Bologna
formed Healthcare Venture Associates, a strategic consulting firm, in January
1996. From January 1994 to January 1996, Mr. Bologna was the President and Chief
Executive Officer of Scriptgen Pharmaceuticals, Inc., a pharmaceutical company.
Mr. Bologna served as President and co-Chief Executive Officer of Gen-Probe
Incorporated, a medical diagnostics company ("Gen-Probe"), from July 1987 to
January 1994, as Chief Executive Officer of Gen-Probe from March 1988 to January
1994 and as Chairman of the Board of Directors of Gen-Probe from July 1992 to
January 1994. From February 1991 to September 1994, Mr. Bologna also served as
acting Chief Executive Officer of Camino Laboratories, Inc., a neurosurgical
products company. Mr. Bologna received a B.S. in Engineering and Science from
New York University in 1970 and an M.B.A. from the Stern School of Management in
1972.
COMPENSATION OF DIRECTORS
It is BioStar's practice to grant, upon election to BioStar's Board of
Directors, to each person who is not an officer of BioStar and does not,
directly or through a primary business affiliation, own 5% or more of the
outstanding BioStar Capital Stock (an "Outside Director") an option to purchase
100,000 shares of BioStar common stock under the 1995 Equity Incentive Plan as
compensation for services as a director. Such options generally become
exercisable ("vest") in annual installments over a four-year period. Vesting of
all options is subject to continued service as a director of BioStar during the
vesting period. During the fiscal year ended December 31, 1997, outside
directors received options pursuant to the 1995 Equity Incentive Plan as
follows: Mr. Bologna received an option to purchase 100,000 shares of BioStar
common stock at an exercise price of $.23 per share and Dr. Barkas received an
option to purchase 100,000 shares of BioStar common stock at an exercise price
of $.23 per share. In addition, Dr. Barkas received an option to purchase an
additional 100,000 shares at an exercise price of $.23 per share as compensation
for his service as Chairman of the Board. The vesting of the options granted to
Mr. Bologna and Dr. Barkas will accelerate in connection with the Merger
aggregating 50,000 shares for Mr. Bologna and 125,000 shares for Dr. Barkas.
BioStar reimburses its directors for reasonable and necessary costs associated
with attending BioStar Board meetings.
Mr. Bologna and BioStar entered into a consulting agreement for the period
of May 1, 1997 through December 31, 1998, during which period Mr. Bologna will
be paid $1,500 per full business day of services rendered by Mr. Bologna
pursuant to such consulting agreement. In 1997, Mr. Bologna received $54,448 in
cash for his consulting services. In addition, in consideration for Mr. Bologna
entering into such consulting agreement, Mr. Bologna received an option to
purchase 53,335 shares of BioStar common stock at an exercise price of $.23 per
share. Subsequently, pursuant to an amendment of Mr. Bologna's consulting
agreement,
115
<PAGE> 130
Mr. Bologna and BioStar agreed to terminate Mr. Bologna's option with respect to
26,667 shares. Dr. Barkas and BioStar entered into a consulting agreement for
the period of October 1, 1997 through December 31, 1998 during which period Dr.
Barkas will be paid $1,500 per full business day of services rendered by Dr.
Barkas pursuant to such consulting agreement. Dr. Barkas did not receive any
cash compensation during 1997 for his consulting services.
Directors who are not Outside Directors do not receive separate
compensation for their services as directors, other than reimbursement for
reasonable and necessary costs associated with attending BioStar Board meetings.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31, 1997,
1996 and 1995, compensation awarded or paid to, or earned by, each person who
served as Chief Executive Officer or one of the four next most highly
compensated executive officers (the "Named Executive Officers") of BioStar and
who will serve as an executive officer of Cortech upon consummation of the
Merger:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
------------------------------------- COMPENSATION
OTHER AWARDS
ANNUAL SECURITIES ALL OTHER
NAME AND SALARY BONUS COMPEN- UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR ($) ($) SATION($) OPTIONS SATION(1)
------------------ ---- -------- ------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Teresa W. Ayers................... 1997 $175,385 $50,000 $ $ 90
President and Chief 1996 150,000 30,000 84
Executive Officer 1995 101,923 -- 90
Lyndal K. Hesterberg.............. 1997 $146,923 $45,000 $ 90
Executive Vice President, 1996 128,846 28,385 84
Scientific Affairs 1995 100,000 -- 90
Noel T. Doheny.................... 1997 $132,163 $32,500 $ 90
Executive Vice President, 1996 130,000 18,276 84
Commercial Development 1995 126,287 10,000 90
Kim L. Stebbings(2)............... 1997 $119,904 $25,000 $29,277
Vice President, 1996 35,128 5,500 $8,500 21
National Sales and 1995 -- -- --
Marketing
Edward C. Pritchard(3)............ 1997 $ 31,308 $ 5,000
Vice President, 1996 -- --
Finance and Manufacturing 1995 -- --
and Chief Financial Officer
</TABLE>
- ---------------
(1) Represents premiums paid by BioStar for group term life insurance, except
for Ms. Stebbings' 1997 amount, which represents premiums paid by BioStar
for group term life insurance of $90 and reimbursement for relocation
expenses of $29,187.
(2) Ms. Stebbings received a signing bonus in the amount of $8,500 upon joining
BioStar in 1996. Ms. Stebbings' 1996 salary, on an annualized basis, was
$110,000.
(3) Mr. Pritchard became an executive officer in 1997. Mr. Pritchard received
$24,231 in consulting fees from BioStar prior to his joining BioStar in May
1997. Mr. Pritchard's 1997 salary, on an annualized basis, was $110,000.
116
<PAGE> 131
STOCK OPTION GRANTS AND EXERCISES
BioStar grants options to its executive officers under its 1995 Equity
Incentive Plan. As of February 12, 1998, options to purchase a total of
4,106,647 shares were outstanding under the 1995 Equity Incentive Plan and
options to purchase 828,648 shares remained available for grant thereunder.
The following tables show for the fiscal year ended December 31, 1997,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
OPTIONS POTENTIAL REALIZABLE VALUE
NUMBER OF GRANTED INDIVIDUAL GRANTS AT ASSUMED ANNUAL RATES OF
SECURITIES TO ------------------------------ STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM(4)
OPTIONS IN FISCAL EXERCISE EXPIRATION ---------------------------
NAME GRANTED(1) YEAR PRICE(2) DATE(3) 5%($) 10%($)
---- ---------- ---------- --------- ------------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Teresa W. Ayers...... 300,000 23.9% $.23 June 19, 2006 $43,394 $109,968
Lyndal K.
Hesterberg......... 160,000 12.7 $.23 June 16, 2006 23,143 58,650
Noel T. Doheny....... -0- -- $.23 -0- -- --
Kim L. Stebbings..... 75,000 6.0 $.23 June 19, 2006 10,848 27,492
Edward C.
Pritchard.......... 200,000 15.9 $.23 September 9, 2006 28,929 73,312
</TABLE>
- ---------------
(1) Options vest over four years with 25% vesting on the first anniversary of
the date of grant and the remainder vesting pro rata on a monthly basis. The
Board of Directors has the authority to reprice options.
(2) The exercise price is equal to 100% of the fair market value on the date of
grant as determined by BioStar's Board.
(3) The options have a term of ten years, subject to earlier termination on
certain events.
(4) The potential realizable value is calculated based on the term of the option
at the date of grant (10 years). It is calculated assuming that the fair
market value of BioStar common stock on the date of grant appreciates at the
indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for
the appreciated stock price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT
OPTIONS AT 12/31/97(#) 12/31/97($)(1)
----------------------- -------------------
SHARES ACQUIRED VALUE(1) EXERCISABLE / EXERCISABLE /
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------------------- -------------------
<S> <C> <C> <C> <C>
Teresa W. Ayers.............. -- -- 422,292/385,208 $19,500/$0
Lyndal K. Hesterberg......... -- -- 260,003/194,375 12,594/0
Noel T. Doheny............... -- -- 280,209/119,791 0/0
Kim L. Stebbings............. -- -- 70,312/179,688 0/0
Edward C. Pritchard.......... -- -- 0/200,000 0/0
</TABLE>
- ---------------
(1) Values calculated on the basis of the fair market value of the underlying
securities at the exercise date minus the applicable per share exercise
price.
117
<PAGE> 132
EMPLOYMENT AGREEMENTS
BioStar has entered into employment agreements with each of Teresa W.
Ayers, President and Chief Executive Officer, Lyndal K. Hesterberg, Executive
Vice President, Scientific Affairs, Noel T. Doheny, Executive Vice President,
Commercial Development, Kim L. Stebbings, Vice President, National Sales and
Marketing and Edward C. Pritchard, Vice President, Finance and Manufacturing and
Chief Financial Officer. These agreements provide for severance payments if the
employment of the individual is terminated without cause or is "Constructively
Terminated" (as defined in the respective agreements). In the case of Ms. Ayers
and Mr. Hesterberg, the payments would be 12 months of salary plus an additional
12 months of vesting for all stock options held by the individual at the date of
termination. In the case of Mr. Doheny and Ms. Stebbings, the payments would be
six months of salary plus an additional six months of vesting for all stock
options held by the individual at the date of termination. In the case of Mr.
Pritchard, the payments would be three months of salary plus an additional three
months of vesting for all stock options held by Mr. Pritchard at the date of
termination.
118
<PAGE> 133
BIOSTAR PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of BioStar, common stock as of January 30, 1998 and as
adjusted to give effect to the exchange of all outstanding shares of BioStar
Capital Stock for shares of Cortech Common Stock pursuant to the Merger by (i)
each person known by BioStar to be a beneficial owner of 5% or more of BioStar's
outstanding common stock, (ii) each director, (iii) each executive officer named
in the Summary Compensation Table above, (iv) entities affiliated with certain
directors and (v) all directors and executive officers as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
BIOSTAR CORTECH
COMMON COMMON
SHARES OF BIOSTAR STOCK SHARES OF CORTECH STOCK
COMMON STOCK OUTSTANDING COMMON STOCK OUTSTANDING
BENEFICIALLY PRIOR TO BENEFICIALLY OWNED AFTER THE
BENEFICIAL OWNER OWNED(1) MERGER(1) AFTER THE MERGER(1) MERGER(1)
---------------- ----------------- ------------- -------------------- -------------
<S> <C> <C> <C> <C>
Kleiner Perkins Caufield & Byers VI... 5,948,827(2) 14.32% 4,205,686 8.93%
2750 Sand Hill Road
Menlo Park, California 94205
Mayfield VI........................... 5,916,136(3) 13.99 4,465,553 9.35
2800 Sand Hill Road
Menlo Park, California 94025
Marquette Venture Partners II, L.P.... 4,559,173(4) 11.11 3,280,249 7.03
620 Lake Cook Road, Suite 450
Deerfield, Illinois 60015
Skandigen AB.......................... 4,106,032 9.76 3,376,466 7.10
Norrlandsgatan 15
S-111 43
Stockholm, Sweden
The Hill Partnership.................. 3,979,297(5) 9.74 2,895,006 6.23
885 Arapahoe Avenue
Boulder, Colorado 80303
BMPI Liquidating Trust................ 3,717,143 9.55 2,120,697 4.74
c/o Colorado Venture Management Inc.
4845 Pearl Street, Suite 300
Boulder, Colorado 80301
Teresa W. Ayers....................... 464,781(6) 1.18 256,187(7) *
Alexander E. Barkas, Ph.D............. 125,000(8) * 68,900(9) *
Thomas A. Bologna..................... 76,668(10) * 42,259(11) *
Marvin H. Caruthers................... 628,024(12) 1.60 477,787 1.06
John G. Hill.......................... 3,979,297(5) 9.74 2,895,006 6.23
Wendell G. Van Auken.................. 5,916,136(4) 13.99 4,465,553 9.35
Noel T. Doheny........................ 305,208(13) * 168,231(14) *
Lyndal K. Hesterberg.................. 388,125(15) * 213,935(16) *
Edward C. Pritchard................... -- -- -- --
Kim L. Stebbings...................... 85,937(17) * 47,368(18) *
All current directors and executive
officers as a group (10 persons).... 11,969,176(19) 25.95% 8,635,227(20) 17.03%
</TABLE>
- ---------------
* Less than one percent of the outstanding shares
119
<PAGE> 134
(1) Assumes an Exchange Ratio of 0.5512 and the exercise and conversion of all
convertible promissory notes and warrants. Applicable percentage of
ownership is based on 38,762,961 shares of common stock on an as-converted
basis outstanding as of January 30, 1998 together with applicable options,
convertible promissory notes or warrants for such stockholder and
44,620,868 shares of Cortech Common Stock following the Merger. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities, subject to the community property laws, where
applicable. Shares of common stock subject to options or warrants that are
currently exercisable or exercisable within 60 days of January 30, 1998 are
deemed to be beneficially owned by the person holding such options or
warrants for the purpose of computing the percentage of ownership of such
person. Options exercisable within 60 days of January 30, 1998 are not
treated as outstanding for purposes of computing the percentage ownership
of any person other than the person holding such options.
(2) Includes warrants to purchase 345,948 shares of BioStar common stock and
warrants to purchase 359,961 shares of BioStar Series F Preferred Stock and
promissory notes convertible into 2,064,822 shares of BioStar Series F
Preferred Stock convertible or exercisable within 60 days of the date of
this table.
(3) Consists of 2,010,680 shares of BioStar preferred stock, warrants to
purchase 433,465 shares of BioStar common stock, warrants to purchase
267,968 shares of BioStar Series F Preferred Stock and promissory notes
convertible into 2,252,404 shares of BioStar Series F Preferred Stock
exercisable within 60 days of January 30, 1998 held by Mayfield VI; 95,857
shares of BioStar preferred stock, warrants to purchase 20,665 shares of
BioStar common stock, warrants to purchase 12,708 shares of BioStar Series
F Preferred Stock and promissory notes convertible into 107,259 shares of
BioStar Series F Preferred Stock exercisable within 60 days of January 30,
1998 held by Mayfield Associates; and 289,892 shares of BioStar preferred
stock, warrants to purchase 62,501 shares of BioStar common stock, warrants
to purchase 38,400 shares of BioStar Series F Preferred Stock and
promissory notes convertible into 324,337 shares of BioStar Series F
Preferred Stock exercisable within 60 days of January 30, 1998 held by
Mayfield Medical Partners. Mr. Van Auken, a director of BioStar, is a
general partner of the general partner of each of Mayfield VI, Mayfield
Associates, and Mayfield Medical Partners (collectively, the "Mayfield
Entities"). Mr. Van Auken disclaims beneficial ownership of the shares held
by the Mayfield Entities except to the extent of his pecuniary interest
therein arising from his general partnership in the general partner of each
of the Mayfield Entities.
(4) Consists of 2,218,363 shares of BioStar common and BioStar preferred stock,
warrants to purchase 295,252 shares of BioStar common stock, warrants to
purchase 259,956 shares of BioStar Series F Preferred Stock and promissory
notes convertible into 1,675,814 shares of BioStar Series F Preferred Stock
exercisable within 60 days of January 30, 1998 held by Marquette Venture
Partners II, L.P., and 63,384 shares of BioStar common and BioStar
preferred stock, warrants to purchase 4,687 shares of BioStar common stock,
warrants to purchase 8,011 shares of BioStar Series F Preferred Stock and
promissory notes convertible into 33,706 shares of BioStar Series F
Preferred Stock exercisable within 60 days of January 30, 1998 held by MVP
II Affiliates Fund, L.P.
(5) Consists of 1,905,160 shares of BioStar preferred stock, warrants to
purchase 281,251 shares of BioStar common stock, warrants to purchase
229,568 shares of BioStar Series F Preferred Stock and promissory notes
convertible into 1,563,318 shares of BioStar Series F Preferred Stock
exercisable within 60 days of January 30, 1998. Hill, Carmen Ventures is
the general partner of The Hill Partnership. Mr. Hill, a director of
BioStar, is a general partner of Hill, Carmen Ventures. Mr. Hill disclaims
beneficial ownership of the shares held by The Hill Partnership except to
the extent of his pecuniary interest therein arising from his general
partnership interests in Hill, Carmen Ventures.
(6) Includes 1,865 shares held by Ms. Ayers' spouse and 462,916 shares issuable
pursuant to BioStar options exercisable within 60 days of the date of this
table.
(7) Includes 255,159 shares of Cortech Common Stock issuable pursuant to
options exercisable within 60 days of the date of this table.
(8) Includes 125,000 shares issuable pursuant to BioStar options exercisable
within 60 days of the date of this table.
(9) Includes 68,900 shares of Cortech Common Stock issuable pursuant to options
exercisable within 60 days of the date of this table.
120
<PAGE> 135
(10) Includes 76,668 shares issuable pursuant to BioStar options exercisable
within 60 days of the date of this table.
(11) Includes 42,259 shares of Cortech Common Stock issuable pursuant to options
exercisable within 60 days of the date of this table.
(12) Includes an aggregate of 224,284 shares of BioStar common stock, warrants
to purchase 57,142 shares of BioStar common stock; warrants to purchase
33,326 shares of BioStar Series F Preferred Stock and promissory notes
convertible into 293,272 shares of BioStar Series F Preferred Stock held in
trusts for Dr. Caruthers' two sons (the "Caruthers Entities"). Dr.
Caruthers is a director of BioStar.
(13) Includes 305,208 shares issuable pursuant to BioStar options exercisable
within 60 days of the date of this table.
(14) Includes 168,231 shares of Cortech Common Stock issuable pursuant to
options exercisable within 60 days of the date of this table.
(15) Includes 335,003 shares issuable pursuant to BioStar options exercisable
within 60 days of the date of this table.
(16) Includes 184,654 shares of Cortech Common Stock issuable pursuant to
options exercisable within 60 days of the date of this table.
(17) Includes 85,937 shares issuable pursuant to BioStar options exercisable
within 60 days of the date of this table.
(18) Includes 47,368 shares of Cortech Common Stock issuable pursuant to options
exercisable within 60 days of the date of this table.
(19) Includes shares included pursuant to notes 3, 5, 6, 8, 10, 12, 13, 15, and
17.
(20) Includes shares included pursuant to notes 3, 5, 7, 9, 11, 14, 16, and 18.
121
<PAGE> 136
CERTAIN TRANSACTIONS
During March 1996 and April 1996, BioStar issued Convertible Subordinated
Promissory Notes in the aggregate amount of $4,500,000.50 (the "1996 Notes") and
warrants to purchase up to 2,571,426 shares of BioStar common stock pursuant a
certain Note and Warrant Purchase Agreement, dated March 20, 1996, as amended
(the "Note and Warrant Purchase Agreement"). In February 1998, the 1996 Notes
were amended to provide that two days prior to the Effective Time (the
"Conversion Date"), the 1996 Notes will convert automatically into shares of
BioStar Series F Preferred Stock at a price per share (the "Conversion Price")
equal to the lesser of (i) $0.88 or (ii) the price per share determined by
multiplying the Cortech Stock Price (as defined in such amendment) by the
Exchange Ratio, less 20%. On the Conversion Date, the aggregate principal and
interest due on the 1996 Notes will automatically be converted into an aggregate
of 18,967,212 shares of BioStar's Series F Preferred Stock and, pursuant to the
Merger, converted into an aggregate of 10,454,727 shares of Cortech Common Stock
assuming an Exchange Ratio of 0.5512 (based upon BioStar's capitalization as of
the date of this Joint Proxy Statement/Prospectus and assuming a per share
market price for Cortech Common Stock of $0.656 (the per share market price of
the Cortech Common Stock as of the Reorganization Agreement) immediately prior
to the Effective Time). The 1996 Notes and related warrants to purchase shares
of BioStar common stock (the "1996 Warrants") were issued to the following
persons or entities, who are directors, executive officers or holders of more
than five percent of the outstanding shares of one of BioStar's classes of
voting securities, in such amounts as set forth opposite their names. The 1996
Warrants will expire unless exercised prior to the consummation of the Merger.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
CONVERTIBLE SUBORDINATED WARRANTS TO PURCHASE SHARES
NAME OF NOTEHOLDER PROMISSORY NOTES OF BIOSTAR COMMON STOCK
------------------ ------------------------ ---------------------------
<S> <C> <C>
Mayfield Entities........................ $904,105.84 516,631
Skandigen AB............................. 730,944.00 417,683
Kleiner Perkins Caufield & Byers VI,
L.P.................................... 605,411.32 345,948
Marquette Entities....................... 524,892.36 299,939
Hill Partnership III..................... 492,189.20 281,251
Caruthers Entities....................... 100,000.00 57,142
</TABLE>
In February 1997, BioStar issued an aggregate of $1,000,000 in principal
amount of Subordinated Promissory Notes (the "February 1997 Notes") to the
following persons or entities, who are directors, executive officers or holders
of more than five percent of the outstanding shares of one of BioStar's classes
of voting securities, in such amounts as set forth opposite their names:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF THE
NAME OF NOTEHOLDER SUBORDINATED PROMISSORY NOTE
------------------ ----------------------------
<S> <C>
Kleiner Perkins Caufield & Byers VI......................... $305,940.37
Marquette Entities.......................................... 227,752.99
Mayfield Entities........................................... 271,190.42
Hill Partnership III........................................ 195,116.22
</TABLE>
The February 1997 Notes were terminated in exchange for the issuance of the
June 1997 Notes (as defined below).
On June 20, 1997, BioStar issued Subordinated Promissory Notes in the
aggregate amount of $1,565,049.73 (the "June 1997 Notes") and warrants to
purchase up to 1,778,465 shares BioStar's Series F Preferred Stock (the "June
1997 Warrants") to each of the following persons or entities, who are directors,
122
<PAGE> 137
executive officers or holders of more than five percent of the outstanding
shares of one of BioStar's classes of voting securities, in such amounts as set
forth opposite their names:
<TABLE>
<CAPTION>
PRINCIPAL SUM OF WARRANTS TO PURCHASE SHARES
NAME OF NOTEHOLDER SUBORDINATED PROMISSORY NOTES OF SERIES F PREFERRED STOCK
------------------ ----------------------------- ---------------------------
<S> <C> <C>
Skandigen AB......................... $376,420.00 427,750
Kleiner Perkins Caufield & Byers
VI................................. 316,765.63 359,961
Mayfield Entities.................... 280,786.11 319,076
Marquette Entities................... 235,811.70 267,967
Hill Partnership III................. 202,020.13 229,568
Caruthers Entities................... 29,326.76 33,326
</TABLE>
In February 1998, the June 1997 Notes were amended to provide that upon
election of the noteholder at any time prior to the Conversion Date to convert
such holder's June 1997 Note, such holder will be entitled to receive shares of
BioStar Series F Preferred Stock at a price per share equal to the Conversion
Price. As of February 12, 1998, BioStar has received notices of election to
convert an aggregate of $1,706,869 in principal and interest of the 1997 Notes
into approximately 5,900,613 shares of BioStar Series F Preferred Stock and,
pursuant to the Merger, converted into an aggregate of 3,252,418 shares of
Cortech Common Stock, assuming an Exchange Ratio of 0.5512 (based upon BioStar's
capitalization as of the date of this Joint Proxy Statement/Prospectus and
assuming a per share market price for Cortech Common Stock of $0.656 (the per
share market price of the Cortech Common Stock as of the date of the
Reorganization Agreement) immediately prior to the Effective Time).
In February 1998, the June 1997 Warrants were amended to provide that upon
election of the warrantholder at any time prior to the Conversion Date to
exercise such holder's June 1997 Warrant, such holder will be entitled to
receive shares of BioStar Series F Preferred Stock at a price per share equal to
the Conversion Price; provided that if the holder does not elect to convert its
related June 1997 Note, the exercise price of such holder's June 1997 Warrant
will be $0.88 per share. Assuming exercise of all of such June 1997 Warrants,
1,778,465 shares of BioStar's Series F Preferred Stock will be issued pursuant
to such exercises and, pursuant to the Merger, converted into an aggregate of
980,289 shares of Cortech Common Stock assuming an Exchange Ratio of 0.5512
(based upon BioStar's capitalization as of the date of this Joint Proxy
Statement/Prospectus and assuming a per share market price for Cortech Common
Stock of $0.656 (the per share market price of the Cortech Common Stock as of
the date of the Reorganization Agreement) immediately prior to the Effective
Time).
123
<PAGE> 138
DESCRIPTION OF CORTECH CAPITAL STOCK
The following description of the capital stock of Cortech and certain
provisions of Cortech's Certificate of Incorporation, as amended (the "Cortech
Certificate"), and Bylaws (the "Cortech Bylaws") is a summary and is qualified
in its entirety by the provisions of the Cortech Certificate and the Cortech
Bylaws which are filed as exhibits to the registration statement of which this
Joint Proxy Statement/Prospectus forms a part.
AUTHORIZED CAPITAL STOCK
Cortech's authorized capital stock consists of 50,000,000 shares of Common
Stock, par value $.002 per share (the "Cortech Common Stock"), and 2,000,000
shares of Preferred Stock, par value $.002 per share (the "Cortech Preferred
Stock").
CORTECH COMMON STOCK
The holders of Cortech Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. Subject
to preferences that may be applicable to any then outstanding Preferred Stock,
holders of Cortech Common Stock are entitled to receive ratably such dividends
as may be declared by the Cortech Board out of funds legally available therefor.
Upon the dissolution or liquidation of Cortech, whether voluntary or
involuntary, holders of Cortech Common Stock are entitled to receive ratably all
assets remaining after payment of liabilities and the liquidation preference of
any then outstanding Preferred Stock.
As of January 30, 1998, 18,523,918 shares of Cortech Common Stock were
issued and outstanding and no shares were held in Cortech's treasury. As of the
same date, Cortech had approximately 559 stockholders of record.
CORTECH PREFERRED STOCK
The Cortech Board has the authority, without further vote or action by the
stockholders, to issue up to 1,500,000 shares of Cortech Preferred Stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any additional series of Cortech Preferred Stock or the designation
of such series. The issuance of Cortech Preferred Stock could adversely affect
the voting power of holders of Cortech Common Stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of
Cortech. This could have an adverse impact on Cortech's Common Stock price.
As of January 31, 1998, there were no shares of Cortech Preferred Stock
outstanding. Cortech has no present plans to issue any shares of Cortech
Preferred Stock.
The Cortech Board has designated five hundred thousand (500,000) shares of
Cortech Preferred Stock Series A Junior Participating Preferred Stock, $.002 par
value per share (the "Junior Preferred Stock"). Holders of Junior Preferred
Stock are entitled to (i) certain dividends in preference to holders of Cortech
Common Stock and subject to the rights of holders of any shares or series of
Cortech Preferred Stock, (ii) 100 votes for each share held of record on all
matters submitted to a vote of the stockholders and will vote together with the
holders of Cortech Common Stock and (iii) in the event of a liquidation,
dissolution or winding up of Cortech, $100 per share plus an amount equal to all
accrued and unpaid dividends. Holders of Junior Preferred Stock possess no
redemption rights. See "-- Certain Anti-Takeover Provisions".
As of January 31, 1998, there were no shares of Junior Preferred Stock
outstanding.
CORTECH OPTIONS
As of January 30, 1998, there were options outstanding to purchase an
aggregate of 2,148,261 shares of Cortech Common Stock at exercise prices ranging
from $0.59 to $8.75 per share with a weighted average
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exercise price of $2.16 per share. The options contain provisions for the
adjustment of exercise prices in certain events, including sales of Cortech
Common Stock at less than the exercise price, stock dividends, stock splits,
reorganizations, reclassifications or mergers. See "Cortech Management and
Executive Compensation".
WARRANTS
As of January 30, 1998, there were warrants outstanding to purchase an
aggregate of 354,844 shares of Cortech Common Stock all with an exercise price
of $10.00 per share. The warrants contain provisions for the adjustment of
exercise prices in certain events, including sales of Cortech Common Stock at
less than the exercise price, stock dividends, stock splits, reorganizations,
reclassifications or mergers. These warrant holders are entitled to certain
registration rights with respect to Cortech Common Stock issued upon exercise of
the warrants held by them. See "-- Registration Rights".
CERTAIN ANTI-TAKEOVER PROVISIONS
The Cortech Certificate and the Cortech Bylaws contain certain provisions
which may have an effect of delaying, deferring or preventing a change of
control of Cortech. The Cortech Certificate provides that the Cortech Board
shall consist of three classes of directors, each serving for a three-year term
ending in successive years. Each class consists of three directors. This
provision may make it more difficult to effect a takeover of Cortech because it
would generally take two annual meetings of stockholders for an acquiring party
to elect a majority of the Cortech Board. As a result, a classified board of
directors may discourage proxy contests for the election of directors or
purchases of a substantial block of stock because it could operate to prevent
obtaining control of the Cortech Board in a relatively short period of time. In
addition, Cortech directors may only be removed by stockholders for cause.
The Cortech Certificate provides that actions requiring stockholder
approval may be approved only at a duly convened stockholders' meeting. In
addition, the Cortech Bylaws provide that special meetings of stockholders may
be called only by the president, by the Cortech Board or by the president or
secretary at the written request of stockholders owning a majority of the
outstanding capital stock entitled to vote. Also, the Cortech Bylaws require
that stockholders wishing to present business for consideration at the annual
stockholders' meeting provide the Company with timely prior notice of the
business to be presented.
Cortech is subject to Section 203 of the Delaware General Corporation Law
which imposes restrictions on business combinations (as defined therein) with
interested persons (defined as any person who acquires 15 percent or more of
Cortech's outstanding voting stock). In general Cortech is prohibited from
engaging in business combinations with an interested person for a period of
three years from the date a person becomes an interested person, subject to
certain exceptions. By restricting the ability of Cortech to engage in business
combinations with an interested person, the application of Section 203 to
Cortech may provide a barrier to hostile or unsolicited takeovers.
STOCKHOLDER RIGHTS PLAN
The Cortech Board has adopted a stockholders rights plan (the "Rights
Plan") which provides for the distribution of one preferred share purchase right
as a dividend for each outstanding share of Cortech Common Stock as of June 26,
1995 and the issuance of one such purchase right in connection with issuances of
Cortech Common Stock after June 26, 1995. Each Right entitles its holder to
purchase one one-hundredth of a share of Junior Preferred Stock for $20.00,
subject to adjustment pursuant to the Rights Plan. All purchase rights expire on
June 12, 2005. Generally, a Right may be exercised 10 days after any person or
group of affiliated or associated persons acquire beneficial ownership of 15% or
more of the outstanding shares of Cortech Common Stock or 10 business days after
the commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding shares of
Cortech Common Stock unless such offer or acquisition is made with approval of
the Cortech Board. The Cortech Board has determined that neither the Merger, the
Reorganization Agreement nor the arrangements contemplated thereby will cause
any purchase rights to become exercisable under the Rights Plan. Although such
an event is not anticipated, the Cortech
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Board has not taken any action to prevent any former BioStar stockholder from
triggering the exercisability of such rights through any post-Merger
accumulation of Cortech Common Stock (including, without limitation, shares
issued pursuant to the Merger).
REGISTRATION RIGHTS
In connection with the CDC Offering, each CDC Investor is entitled to
certain piggyback registration rights with respect to the shares of Cortech
Common Stock which such CDC Investor holds or may acquire on exercise of the
warrants received in the CDC Offering or the Cortech Common Stock which may be
used by Cortech to exercise its option to repurchase the CDC shares, subject to
the terms and conditions of the Subscription Agreement. Pursuant to the
Subscription Agreement, whenever Cortech proposes to register any of its
securities under the Securities Act, with certain exceptions, the holders of
shares as to which there are piggyback rights are entitled, subject to certain
restrictions, to include their shares in such registration. Cortech is required
to bear the expenses of the registration of the CDC Investors' registrable
securities; provided, however, that such CDC Investors will bear their pro rata
share of all underwriting discounts and commissions incurred.
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COMPARISON OF STOCKHOLDERS' RIGHTS
In connection with the Merger, the BioStar stockholders will be converting
their shares of BioStar Capital Stock into shares of Cortech Common Stock. Both
Cortech and BioStar are Delaware corporations, but the Cortech Certificate and
the Cortech Bylaws differ from the BioStar Certificate and the BioStar Bylaws in
several significant respects. Because of the differences in the charter
documents of Cortech and BioStar, the rights of a holder of Cortech Common Stock
differ from the rights of a holder of BioStar common stock.
Below is a summary of some of the important differences between the charter
documents of Cortech and BioStar. It is not practical to summarize all of such
differences in this Joint Proxy Statement/Prospectus, but some of the principal
differences which could materially affect the rights of stockholders include the
following:
CLASS VOTES
The DCGL does not require separate class votes of all voting classes in
order to approve charter amendments generally. However, Section 242 of the DCGL
does provide that each class of stock, even a nonvoting class of stock, shall
vote on charter amendments that increase or decrease the aggregate number of
authorized shares of such class, increase or decrease the par value of such
class or adversely affect the rights of holders of shares of such class.
The Cortech Certificate provides for additional class voting for its Series
A Junior Participating Preferred Stock. Cortech may not amend the Cortech
Certificate in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Junior Participating Preferred
Stock so as to affect such shares adversely without the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the Series A Junior
Participating Preferred Stock, voting together as a single class. The Cortech
Certificate does not provide for any additional class voting other than for the
Series A Junior Participating Preferred Stock.
The BioStar Certificate provides that BioStar shall not, without first
obtaining the approval of the holders of at least a majority of the
then-outstanding shares of BioStar's Series A, Series B, Series C, Series D,
Series E and Series F Preferred Stock, voting together as a single class: (i)
sell, convey, or otherwise dispose of or encumber all or substantially all of
its property or business or merge into or consolidate with any other corporation
(other than a wholly owned subsidiary corporation) or effect any transaction or
series of related transactions in which more than 50% of the voting power of
BioStar is disposed of; (ii) alter or change the rights, preferences or
privileges of the shares of Series A, Series B, Series C, Series D, Series E or
Series F Preferred Stock so as to adversely affect the shares; or (iii) create
any new class or series of stock or any other securities convertible into equity
securities of BioStar having a preference over, or being on a parity with, the
Series A, Series B, Series C, Series D, Series E or Series F Preferred Stock
with respect to voting, dividends, or upon liquidation.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one on which a certain number, but not all, of the
directors are elected on a rotating basis each year. The DGCL permits, but does
not require, a classified board of directors, pursuant to which the directors
can be divided into as many as three classes with staggered terms of office,
with only one class of directors standing for election each year. Unlike the
BioStar charter documents which provide that directors shall be elected at each
annual stockholders' meeting for a term of one year, the Cortech charter
documents provide for a classified board of directors, with only one class out
of three being elected each year.
REMOVAL OF DIRECTORS
Under the DGCL, if a corporation has a classified board, the stockholders
may remove a director only for cause, unless the certificate of incorporation
provides otherwise. The Cortech Certificate does not provide otherwise;
therefore, any and all directors may only be removed with cause by a majority
vote of the stockholders entitled to vote. By contrast, the BioStar Certificate
provides that a majority vote of the stockholders entitled to vote may remove a
director with or without cause.
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LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the DGCL allows a corporation to include in its certificate
of incorporation a provision that limits or eliminates the personal liability of
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director. Section 102 of the DGCL does not, however,
permit a corporation to limit or eliminate the personal liability of a director
for (i) any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) intentional or
negligent payment of unlawful dividends or unlawful stock purchases or
redemptions or (iv) any transaction from which the director derived an improper
personal benefit.
Both the Cortech Certificate and the BioStar Certificate provide for
limitations on the personal liability of directors to the extent permitted by
the DGCL.
Cortech and BioStar provide for similar indemnification of directors,
officers and employees. Both companies' bylaws provide that the company shall,
to the maximum extent and in the manner permitted by the law, indemnify each of
its directors, officers and employees against expenses (including attorney's
fees), judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of the fact that
such person is or was an agent of the corporation.
Under Section 145 of the DGCL, other than an action brought by or in the
right of the corporation, such indemnification is available if it is determined
that the proposed indemnitee acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his or her conduct was unlawful. In actions brought
by or in the right of the corporation, such indemnification is limited to
expenses (including attorneys' fees) actually and reasonably incurred and is
permitted only if the indemnitee acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person is adjudged to be liable to the
corporation, unless and only to the extent that the court in which the action
was brought determines that, despite the adjudication of liability but in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses which the court deems proper. To the
extent that the proposed indemnitee has been successful in defense of any
action, suit or proceeding, he must be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
action.
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
Under the DGCL, a corporation's certificate of incorporation can be amended
by the affirmative vote of the board of directors and approved by the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote thereon, unless the certificate of incorporation requires the vote of a
larger portion of the shares. The Cortech Certificate requires approval only by
a majority of the outstanding shares entitled to vote. By contrast, the BioStar
Certificate provides that holders of BioStar preferred stock have a right to a
separate class vote, in addition to the vote of BioStar stockholders as a whole,
with respect to certain amendments to the BioStar Certificate which would affect
the rights and privileges of the holders of BioStar preferred stock.
POWER TO CALL SPECIAL STOCKHOLDERS' MEETING; ACTION BY CONSENT
Under the DGCL, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the
corporation's certificate of incorporation or Bylaws. The Cortech Bylaws provide
that special meetings of stockholders may be called only by the President, the
Secretary, the Cortech Board or, at the written request of stockholders owning a
majority of outstanding shares of Cortech Common Stock. The Cortech Certificate
provides that any action taken by stockholders must be effected at an annual or
special meeting and may not be effected by written consent without a meeting.
The BioStar bylaws provide that special meetings of stockholders may be called
by the President and shall be called by the President or Secretary of BioStar
upon written request of either a majority of the BioStar Board or holders of a
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<PAGE> 143
majority in interest in the BioStar Capital Stock outstanding. The BioStar
bylaws allow stockholders to take action by written consent without a meeting.
INSPECTION OF STOCKHOLDERS' LIST
The DGCL allows any stockholder to inspect the stockholders' list for a
purpose reasonably related to such person's interest as a stockholder.
DIVIDENDS AND REPURCHASES OF SHARES
The DGCL permits a corporation, unless otherwise restricted by its
certificate of incorporation, to declare and pay dividends out of its surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared or for the preceding fiscal year as long as the amount of
capital of the corporation is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. Neither the Cortech Certificate nor
the BioStar Certificate contains any such restrictions on the corporation's
ability to declare and pay dividends. In addition, the DGCL generally provides
that a corporation may redeem or repurchase its shares only if such redemption
or repurchase would not impair the capital of the corporation. The ability of a
Delaware corporation to pay dividends on, or to make repurchases or redemptions
of, its shares is dependent on the financial status of the corporation standing
alone and not on a consolidated basis. In determining the amount of surplus of a
Delaware corporation, the assets of the corporation, including stock of
subsidiaries owned by the corporation, must be valued at their fair market value
as determined by the board of directors, regardless of their historical book
value.
AMENDMENT OF BYLAWS
Section 109 of the DGCL provides that the stockholders entitled to vote
have the power to adopt, amend or repeal bylaws and that a corporation may
confer, in its certificate of incorporation, such powers on the board of
directors. In addition to the stockholders' rights pursuant to Section 109, both
the Cortech Certificate and the BioStar Certificate provide that the
corporation's board of directors may make, alter or repeal its respective
bylaws.
APPROVAL OF CERTAIN CORPORATE TRANSACTIONS
Under the DGCL, any merger, consolidation or sale, lease or exchange of all
or substantially all of the assets (an "Extraordinary Event") must be approved
by the board of directors and by the affirmative vote of a majority of the
outstanding shares entitled to vote. The Cortech Certificate does not provide
for any additional vote that would be required to approve such a transaction.
The BioStar Certificate provides that in addition to an affirmative vote of a
majority of the outstanding shares of capital stock entitled to vote, approval
of a majority of the then outstanding shares of BioStar preferred stock, voting
as a separate class, is required with respect to an Extraordinary Event.
CERTAIN BUSINESS COMBINATIONS
Section 203 of the DGCL prohibits a corporation from engaging in any
business combination with an interested stockholder (defined as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person associated with, affiliated with or
controlling or controlled by such entity or person) for a period of three years
after the time that the stockholder became an interested stockholder unless (i)
prior to that time, the board of directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
pursuant to which the person became an interested stockholder, such stockholder
owned 85% or more of the outstanding voting stock at the time the transaction
commenced (excluding shares owned by directors and officers and shares owned by
employee stock option plans in which the participants cannot determine
confidentially whether or not the shares would be tendered in response to a
tender or an exchange offer) or (iii) at or subsequent to the time of the
transaction, the business
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combination is approved by the corporation's board of directors and by a vote at
a meeting (and not by written consent) of at least two-thirds of the outstanding
voting stock not owned by the interested stockholder.
Section 203 only applies to Delaware corporations that have a class of
voting stock (i) listed on a national securities exchange, (ii) authorized for
quotation by the Nasdaq Stock Market, Inc. or (iii) held of record by more than
2,000 stockholders. A Delaware corporation may elect in its original certificate
of incorporation, or by amending its certificate of incorporation or bylaws, not
to be governed by Section 203. Any such amendment must be approved by the
stockholders and may not be further amended by the board of directors.
Since Cortech is authorized for quotation by the Nasdaq Stock Market, Inc.,
Cortech is subject to the antitakeover provisions of Section 203 of the DGCL.
Section 203 does not currently apply to BioStar since BioStar does not meet any
of the criteria set forth above. Cortech has not elected to be excluded from
being governed by Section 203.
APPRAISAL RIGHTS
Under the DGCL, a stockholder of a corporation participating in certain
major corporate transactions may, under varying circumstances, be entitled to
appraisal rights pursuant to which such stockholder may receive cash in an
amount equal to the "fair value" of the shares held by such stockholder (as
determined by the Delaware Court of Chancery) in lieu of the consideration such
stockholder may otherwise receive in the transaction.
Under the DGCL, appraisal rights are not available to: (i) stockholders
with respect to a merger or consolidation by a corporation, the shares of which
are either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or are held of record by more than 2,000
holders if such stockholders receive only (a) shares of the surviving
corporation or shares of any other corporation which are either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or are held of record by more than 2,000 holders and (b) cash in
lieu of fractional shares; or (ii) stockholders of a corporation surviving a
merger if no vote of the stockholders of the surviving corporation is required
to approve the merger because, among other things, the number of shares to be
issued in the merger does not exceed twenty percent (20%) of the shares of the
surviving corporation outstanding immediately prior to the merger and if certain
other conditions are met.
APPRAISAL RIGHTS ARE AVAILABLE TO STOCKHOLDERS OF BIOSTAR WITH RESPECT TO
THE MERGER. SEE "APPROVAL OF THE MERGER AND RELATED TRANSACTIONS -- RIGHTS OF
DISSENTING STOCKHOLDERS".
DISSOLUTION
Under the DGCL, a dissolution must be initiated by the board of directors
and approved by the affirmative vote of a majority of the outstanding stock of
the corporation entitled to vote thereon.
REGISTRATION RIGHTS
Pursuant to BioStar's Investors' Rights Agreement, holders of BioStar
Registrable Securities currently have registration rights. The Investors' Rights
Agreement provides that the holders of Registrable Securities (as defined
therein) may (i) demand that the combined company effect two registrations
(subject to certain restrictions and limitations, including limitations as to
the number of shares which must request registration); (ii) include their shares
with any registration effected by the combined company (subject to certain
restrictions and limitations); and (iii) request that the combine company effect
an unlimited number of registrations pursuant to a Registration Statement on
Form S-3 (subject to certain restrictions and limitations).
Upon the consummation of the Merger, Cortech will assume BioStar's
obligations under the Investors' Rights Agreement. Pursuant to the terms of the
Reorganization Agreement, the Investors' Rights Agreement
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will be restated to provide that the holders of Registrable Securities may not
request registration until the earlier of (i) ninety (90) days after the
effective date of a registration statement for the first public offering of
securities by the combined company after the Effective Time of the Merger and
(ii) the first anniversary of the Effective Time of the Merger. In addition, the
Investors' Rights Agreement will provide that holders may not include their
Registrable Securities in a company-initiated registration until the earlier of
(i) ninety (90) days after the effective date of a registration statement for
the first public offering of securities of Cortech following the Effective Time
of the Merger and (ii) the first anniversary of the Effective Time of the
Merger.
STOCKHOLDER PROPOSALS
Proposals of stockholders of Cortech which are intended to be presented by
such stockholders at Cortech's 1998 annual meeting of stockholders were to have
been received by the Secretary of Cortech no later than December 17, 1997 in
order to be included in the proxy statement and form of proxy relating to that
meeting.
EXPERTS
The financial statements of Cortech, Inc. in the Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements of BioStar, Inc. as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997, included
in this Joint Proxy Statement/Prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for Cortech by Pillsbury Madison & Sutro LLP, San Diego, California.
Certain legal matters in connection with the Merger will be passed upon for
BioStar by Cooley Godward LLP ("Cooley"), Boulder, Colorado. Cooley owns an
aggregate of approximately 25,343 shares of BioStar Capital Stock and $7,258.36
in principal amount of promissory notes which will be converted into
approximately 16,344 shares of BioStar Series F Preferred Stock two days prior
to Effective Time, based upon the assumptions set forth in the Unaudited Pro
Forma Financial Statements. See "Unaudited Pro Forma Financial Information."
REPRESENTATIVES OF INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Arthur Andersen LLP and Ernst & Young LLP, respectively,
expect to be present at the Cortech Special Meeting and the BioStar Special
Meeting. While such representatives have stated that they do not plan to make a
statement at such meetings, they will be available to respond to appropriate
questions from stockholders in attendance.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CORTECH, INC.
Report of Independent Public Accountants.................... F-2
Balance Sheets as of December 31, 1997 and 1996............. F-3
Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995....................................... F-4
Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-5
Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995....................................... F-6
Notes to Financial Statements............................... F-7
BIOSTAR, INC.
Report of Independent Auditors.............................. F-17
Balance Sheets as of December 31, 1997 and 1996............. F-18
Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995....................................... F-19
Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1996 and 1995.................... F-20
Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995....................................... F-21
Notes to Financial Statements............................... F-23
</TABLE>
F-1
<PAGE> 147
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cortech, Inc.:
We have audited the accompanying balance sheets of CORTECH, INC. (a
Delaware corporation), as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
During the fourth quarter of 1997, the Company terminated its on-site
research and development activities. The Company has retained certain personnel
who are engaged primarily in efforts to realize appropriate value from the
Company's tangible and intangible assets (Note 1).
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cortech, Inc., as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 12, 1998.
F-2
<PAGE> 148
CORTECH, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 2)........................ $ 11,562 $ 7,792
Short-term investments (Note 2)........................... 3,841 13,186
Prepaid expenses and other................................ 308 845
-------- --------
Total current assets.............................. 15,711 21,823
-------- --------
PROPERTY AND EQUIPMENT, at cost (Note 2):
Laboratory and pilot production equipment................. -- 7,101
Leasehold improvements.................................... 8,026 8,026
Office furniture and equipment............................ 2,300 2,483
-------- --------
10,326 17,610
Less -- Accumulated depreciation and amortization......... (9,592) (13,950)
-------- --------
734 3,660
-------- --------
Total Assets...................................... $ 16,445 $ 25,483
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 600 $ 680
Accrued liabilities....................................... 162 206
Accrued vacation and other compensation................... 264 185
Unearned income........................................... -- 1,323
Advances from corporate partner........................... 36 964
-------- --------
Total current liabilities......................... 1,062 3,358
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)
STOCKHOLDERS' EQUITY (Notes 3 and 4):
Preferred stock, $.002 par value, 2,000,000 shares
authorized, none issued................................ -- --
Common stock, $.002 par value, 50,000,000 shares
authorized, 18,523,918 and 18,518,079 shares issued and
outstanding, respectively.............................. 37 37
Warrants.................................................. 1,077 2,330
Additional paid-in capital................................ 98,909 97,659
Deferred compensation..................................... (1) (40)
Accumulated deficit....................................... (84,639) (77,861)
-------- --------
Total stockholders' equity........................ 15,383 22,125
-------- --------
Total Liabilities and Stockholders' Equity........ $ 16,445 $ 25,483
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE> 149
CORTECH, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Sponsored research and development:
Ono............................................... $ 2,798 $ 3,500 $ 2,677
SB................................................ 653 2,550 --
Related parties (Note 3).......................... -- 1,372 1,463
Technology license revenue (Note 3).................. -- -- 1,000
---------- ---------- ----------
Total revenues............................... 3,451 7,422 5,140
---------- ---------- ----------
EXPENSES:
Research and development (Notes 2 and 7)............. 7,552 11,339 18,551
General and administrative........................... 3,616 3,614 4,695
---------- ---------- ----------
Total expenses............................... 11,168 14,953 23,246
---------- ---------- ----------
Operating loss............................... (7,717) (7,531) (18,106)
---------- ---------- ----------
Interest income........................................ 939 1,192 1,685
---------- ---------- ----------
NET LOSS............................................... $ (6,778) $ (6,339) $ (16,421)
========== ========== ==========
Basic net loss per share (Note 2).................... $ (0.37) $ (0.35) $ (0.92)
========== ========== ==========
Weighted average common shares outstanding (Note
2)................................................ 18,521,758 18,224,818 17,753,626
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE> 150
CORTECH, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT WARRANTS CAPITAL COMPENSATION DEFICIT
---------- ------ -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1994.............. 17,725,504 $35 $3,407 $94,925 $(193) $(55,101)
Reversal of deferred compensation in
connection with resignation of two
directors............................ -- -- -- (13) 13 --
Exercise of common stock options for
cash at $1.75 to $2.60 per share..... 41,454 -- -- 74 -- --
Amortization of deferred
compensation......................... -- -- -- -- 83 --
Issuance of common stock to consultant
for services valued at $2.59 per
share................................ 9,638 -- -- 25 -- --
Issuance of common stock at $1.91 to
$2.31 per share pursuant to employee
stock purchase plan.................. 46,860 1 -- 89 -- --
Compensation expense related to common
stock option issuances............... -- -- -- 53 -- --
Net loss............................... -- -- -- -- -- (16,421)
---------- --- ------ ------- ----- --------
BALANCES, December 31, 1995.............. 17,823,456 36 3,407 95,153 (97) (71,522)
Exercise of common stock options for
cash at $1.75 to $2.875 per share.... 474,033 1 -- 828 -- --
Amortization of deferred
compensation......................... -- -- -- -- 57 --
Issuance of common stock at $1.33,
$1.91, $2.55 and $2.18 per share
pursuant to employee stock purchase
plan................................. 20,590 -- -- 37 -- --
Issuance of common stock options in
exchange for termination of royalty
obligation valued at $1.00 per
share................................ -- -- -- 78 -- --
Issuance of common stock in exchange
for termination of right of first
offer valued at $2.44 per share...... 200,000 -- -- 486 -- --
Expiration of certain CDC warrants..... -- -- (1,077) 1,077 -- --
Net loss............................... -- -- -- -- -- (6,339)
---------- --- ------ ------- ----- --------
BALANCES, December 31, 1996.............. 18,518,079 37 2,330 97,659 (40) (77,861)
Reversal of deferred compensation in
connection with resignation of a
director and other................... -- -- -- (7) 3 --
Amortization of deferred
compensation......................... -- -- -- -- 36 --
Issuance of common stock at $0.66 per
share pursuant to employee stock
purchase plan........................ 5,839 -- -- 4 -- --
Contribution of certain warrants....... -- -- (175) 175 -- --
Expiration of certain CDC warrants..... -- -- (1,078) 1,078 -- --
Net loss............................... -- -- -- -- -- (6,778)
---------- --- ------ ------- ----- --------
BALANCES, December 31, 1997.............. 18,523,918 $37 $1,077 $98,909 $ (1) $(84,639)
========== === ====== ======= ===== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE> 151
CORTECH, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (6,778) $ (6,339) $(16,421)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,545 2,093 4,344
Issuance of stock in exchange for termination of right
of first offer....................................... -- 486 --
Issuance of common stock for services.................. -- -- 25
Loss on disposition of equipment....................... 530 14 52
Research and compensation expense related to grant of
options, including amortization of deferred
compensation......................................... 32 137 149
Decrease (increase) in prepaid expenses and other...... 537 (435) (6)
(Increase) decrease in accounts payable................ (80) 75 (1,387)
(Decrease) increase in advances from corporate
partner.............................................. (928) 964 --
Increase (decrease) in accrued liabilities, accrued
vacation and other compensation...................... 35 (97) (13)
(Decrease) increase in unearned income................. (1,323) 750 573
-------- -------- --------
Net cash used in operating activities............. (6,430) (2,352) (12,684)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (39) (690) (601)
Proceeds from sales of property and equipment............. 890 7 --
Purchases of short-term investments....................... (15,505) (18,587) (34,477)
Sales of short-term investments........................... 24,850 22,354 41,465
-------- -------- --------
Net cash provided by investing activities......... 10,196 3,084 6,387
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 4 37 90
Proceeds from exercise of common stock options............ -- 829 74
-------- -------- --------
Net cash provided by financing activities......... 4 866 164
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 3,770 1,598 (6,133)
CASH AND CASH EQUIVALENTS, beginning of period.............. 7,792 6,194 12,327
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 11,562 $ 7,792 $ 6,194
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Contribution of 562,576 warrants to the Company........... $ 175 $ -- $ --
======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE> 152
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION
Cortech, Inc. ("Cortech" or the "Company") is a biopharmaceutical company
whose principal focus has been the discovery and development of novel
therapeutics for the treatment of inflammatory disorders. The Company has
directed its research and development efforts towards protease inhibitors and
bradykinin antagonists. Due to the termination of the Company's collaborative
agreements and the resulting corporate downsizings, the Company no longer has
the scientific staff that would be required to continue its research and
development activities on-site. Such on-site research and development activities
were terminated in late 1997. However, Cortech has retained a core staff of
professionals who are engaged primarily in ongoing efforts to realize
appropriate value out of Cortech's tangible and intangible assets. Cortech is
also decommissioning its laboratories, has sold most of its scientific and
technical equipment and, unless the merger discussed below is implemented and
BioStar, Inc. ("BioStar") elects to retain such assets, plans to sell most of
its office furniture and equipment, and, where possible, its leasehold
improvements.
The Company announced in December 1997, that a definitive merger agreement
was signed with BioStar, Inc. ("BioStar") of Boulder, Colorado. BioStar
develops, manufactures and markets point-of-care diagnostic tests using its
proprietary, highly-sensitive, thin film technologies. BioStar's current
products employ its Optical Immuno Assay (OIA(R)) technology, a thin film,
platform technology developed for the rapid detection of a variety of medical
conditions. Under the agreement, and pursuant to the merger transaction
contemplated thereby (the "Merger"), Cortech would issue up to 28,500,000 shares
of its common stock to BioStar's stockholders in exchange for all of the equity
interests in BioStar and BioStar would become a wholly-owned subsidiary of the
Company. The relative ownership of the merged entity would be held approximately
40% by Cortech shareholders and approximately 60% by BioStar shareholders
(assuming the exercise in full of all options and warrants to be assumed by
Cortech in connection with the Merger). Accordingly, the Merger would be
accounted for as a reverse acquisition. The transaction, which is subject to
approval by the stockholders of both companies as well as other closing
conditions, is anticipated to be completed in the second quarter of 1998.
(2) SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Short-term Investments
For purposes of the statements of cash flows, the Company generally
considers all highly liquid debt instruments with an original maturity of less
than three months to be cash equivalents. Cash equivalents consist of government
obligations or investments collateralized by government obligations. Short-term
investments are carried at cost plus accrued interest, which approximates market
value, and consist entirely of United States government obligations.
Under Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," the Company's short-term
investments are classified as available-for-sale. These securities mature on
various dates through February 1998. At December 31, 1997, these securities had
an amortized cost of $3.8 million, which approximated fair market value.
F-7
<PAGE> 153
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Depreciation of property and equipment is provided on the straight-line
method over estimated useful lives of three to seven years. Amortization of
leasehold improvements is provided on the straight-line method over the expected
lease terms, which currently do not exceed two years.
Betterments, renewals and extraordinary repairs that extend the life of an
asset are capitalized; other repairs and maintenance are expensed. The cost and
accumulated depreciation applicable to assets retired are removed from the
accounts and the gain or loss on disposition recognized in income.
The Company's policy is to depreciate its property and equipment over its
remaining useful life and to evaluate the remaining life and recoverability of
such property and equipment in light of current conditions. During 1997, the
Company recorded a restructuring charge of approximately $1.7 million, which
included a $580,000 permanent impairment of the value of the Company's
scientific and office equipment. The Company sold the majority of its scientific
and office equipment to an unrelated third party during the fourth quarter. The
restructuring charge is included in research and development expense ($1.4
million) and general and administrative expense ($349,000) in the accompanying
statements of operations.
Research and Development Expenses
Costs incurred in connection with research and development activities are
expensed as incurred. These costs consist of direct and indirect costs
associated with specific projects as well as fees paid to various entities that
perform certain research on behalf of the Company. As discussed in Note 1,
on-site research and development activities were terminated by the Company in
the fourth quarter of 1997.
Sponsored Research and Development Revenue
The Company recognizes revenue from sponsored research and development as
research activities are performed or as development milestones are completed
under the terms of the research and development agreements. Costs incurred in
connection with the performance of sponsored research and development are
expensed as incurred and were approximately $2,882,000, $8,258,000, and
$4,140,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Such costs are included in research and development expense in the accompanying
statements of operations.
Basic Net Loss Per Share
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which
the Company is required to adopt for the year ended December 31, 1997. SFAS No.
128 requires restatement of amounts previously reported as net loss per share.
Application of SFAS No. 128 did not have an impact on previously reported net
loss per share amounts.
Income Taxes
The Company follows the provisions of SFAS No. 109 "Accounting for Income
Taxes" which requires the recognition of deferred tax assets and liabilities
related to the expected future tax consequences of events that have been
recognized in the Company's financial statements and tax returns. However, if it
is more likely than not that some portion or all of the net deferred tax assets
will not be realized, a valuation allowance is established and the tax benefit
is not recognized in the statements of operations.
F-8
<PAGE> 154
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SPONSORED RESEARCH AND DEVELOPMENT
Ono Pharmaceutical Co., Ltd. ("Ono")
In March 1995, Cortech entered into a research agreement with Ono to
develop an orally active human neutrophil elastase inhibitor using Cortech's
protease inhibitor research capabilities. Upon entering into the agreement, Ono
paid the Company $500,000 for research previously conducted by the Company.
Under the agreement as amended in 1996, Ono paid $4.3 million in 1996 and an
additional $1.5 million was paid in March 1997 for work that was performed in
the second and third quarters of 1997. Under the terms of the agreement, as
amended in April, 1997, Ono has assumed all responsibilities for research
activities during the final six months of the collaborative project, which will
terminate on March 14, 1998. As a result of this reallocation of
responsibilities, Ono is no longer required to pay the Company the last
scheduled $1.5 million in research funding previously provided for under the
agreement to offset certain costs that the Company would otherwise have incurred
under the agreement. Cortech expects no further payments from Ono under the
agreement.
Under the terms of the agreement, Ono will have an exclusive, royalty-free
license to make, use and sell a resulting product in Japan, Korea, Taiwan and
China. Cortech has retained all other rights.
Hoechst Marion Roussel, Inc.("HMRI")
The Company had an agreement with HMRI whereby HMRI funded certain research
and development being conducted by the Company. In December 1996, HMRI
terminated the agreement and returned all rights to Cortech. No further funding
was provided by HMRI in 1997 and none will be provided in the future.
HMRI accounted for $1,372,000 and $1,463,000 of the Company's sponsored
research and development revenues for the years ended December 31, 1996, and
1995, respectively.
In return for providing this research funding, the Company granted HMRI
warrants to purchase common stock of the Company (Note 4). The Company records
any cash received in connection with the issuance of the warrants as a component
of equity in the accompanying financial statements. In October 1997, HMRI sold
the warrants to an unrelated third party who subsequently contributed them to
the capital of the Company. Also during October 1997, HMRI sold all Cortech
common stock held by HMRI to the same unrelated third party.
In August 1996, the Company issued 200,000 shares of unregistered common
stock to HMRI to purchase the "right of first offer" it had previously granted
to HMRI. The right of first offer, granted as part of a transaction between the
parties entered into in February 1988, had covered all new technologies
developed by the Company.
SmithKline Beecham("SB")
In November 1995, Cortech entered into a worldwide product development and
license agreement with SB for the development of Bradycor. In March 1997, SB and
the Company agreed to terminate their collaboration when a Phase II trial of
Bradycor in patients with traumatic brain injury failed to demonstrate a
statistically significant effect of the compound on intracranial pressure, the
primary endpoint of the trial. SB made a one-time payment to Cortech of $1.0
million for an exclusive license to Bradycor in 1995, and paid Cortech $4.0
million during 1996. No payments were received in 1997 and Cortech expects no
further payments from SB under the agreement.
F-9
<PAGE> 155
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue 2,000,000 shares of $.002 par value
preferred stock which may be issued with various terms in one or more series, as
the Board of Directors may determine.
On June 2, 1995, the Company's Board of Directors approved the adoption of
a Preferred Share Rights plan under which stockholders received one Right to
purchase one one-hundredth of a share of Series A Junior Participating Preferred
Stock ("Junior Preferred Stock") for each outstanding share of Cortech common
stock of record held at the close of business on June 26, 1995. The rights were
distributed as a non-taxable dividend and will expire in June 2005. The rights
would separate from shares of Cortech common stock and become exercisable at
$20.00 each, subject to future adjustment, only if a person or group acquires 15
percent or more of the Cortech common stock. Cortech's Board of Directors may
terminate the plan or redeem the rights, at a nominal redemption price, prior to
the time a person acquires more than 15 percent of the Cortech common stock. The
Company has designated 500,000 shares of its Preferred Stock as Junior Preferred
Stock.
Stock Option Plans
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation." This new standard
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options and other equity instruments based on a
fair-value method of accounting.
Companies that do not choose to adopt the new expense recognition rules of
SFAS No. 123 will continue to apply the existing rules contained in Accounting
Principles Board ("APB") Opinion No. 25, but will be required to provide pro
forma disclosures of the compensation expense determined under the fair-value
provisions of SFAS No. 123, if material. APB No. 25 requires no recognition of
compensation expense for most of the stock-based employee compensation
arrangements provided by the Company, namely, broad-based employee stock option
grants and stock purchase plans where the exercise price is equal to the market
price at the date of grant.
The Company adopted the disclosure provisions of SFAS No. 123 for the years
ended December 31, 1997, 1996 and 1995. The Company will continue to follow the
accounting provisions of APB No. 25 for stock-based compensation and will
furnish the pro forma disclosures required under SFAS No. 123.
At December 31, 1997, the Company has four stock option plans, which are
described below. The Company applies APB No. 25 and related Interpretations in
accounting for its plans. Had compensation cost for the Company's four
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of SFAS No.
123, the Company's net loss and loss per share would have been increased to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Basic net loss -- as reported............ $(6,778) $(6,339) $(16,421)
Basic net loss -- pro forma.............. $(7,577) $(7,005) $(16,887)
Basic loss per share -- as reported...... $ (0.37) $ (0.35) $ (0.92)
Basic loss per share -- pro forma........ $ (0.41) $ (0.38) $ (0.95)
</TABLE>
The Company's 1986 Stock Option Plan ("1986 Plan") authorizes the grant of
stock options to officers and employees of the Company to purchase an aggregate
of 1,500,000 shares of common stock. Although 407,100 shares were available
under the 1986 Plan as of December 19, 1997, on such date the Board of
F-10
<PAGE> 156
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Directors effectively suspended future grants of options under the 1986 Plan to
the extent that any such grant would increase the shares subject to outstanding
grants above the figure as of such date. Such suspension shall remain in effect
pending the proposed Merger and other actions to be considered for approval by
the Company's stockholders in connection with such Merger.
The Company's 1993 Equity Incentive Plan ("1993 Plan"), approved by the
stockholders on May 10, 1994, authorizes the issuance of 1,700,000 shares
through the grant of options to purchase common stock, stock bonuses, and rights
to purchase restricted stock. The options outstanding as of December 31, 1997,
generally become exercisable in varying amounts over a five-year period from the
date of grant. Although 370,845 shares were available under the 1993 Plan as of
December 19, 1997, on such date the Board of Directors effectively suspended
further grants of options under the 1993 Plan to the extent that any such grant
would increase the shares subject to outstanding grants above the figure as of
such date. Such suspension shall remain in effect pending the proposed Merger
and other actions to be considered for approval by the Company's stockholders in
connection with such Merger.
The stock options granted from either plan may be incentive stock options
("ISO") or nonstatutory stock options ("NSO"). The Board of Directors may set
the rate at which the options become exercisable and determine when the options
expire, subject to limitations discussed below. However, no options shall be
exercisable after the tenth anniversary of the date of grant or, in the case of
ISOs, three months following termination of employment, except in cases of death
or disability, for which the time of exercisability is extended. In the event of
a dissolution, liquidation or other corporate reorganization, all stock options
outstanding under the 1986 Plan and the 1993 Plan would become exercisable in
full (the proposed Merger would not effect such an acceleration).
ISOs may not be granted at an exercise price of less than the fair market
value of the common stock at the date of grant. If an ISO is granted to an
employee who owns more than 10% of the Company's total voting stock, such
exercise price shall be at least 110% of fair market value of the common stock,
and the ISO shall not be exercisable until after five years from the date of
grant. The exercise price of each NSO may not be less than 85% of the fair
market value of the common stock at the date of grant. The ISOs outstanding as
of December 31, 1997, generally become exercisable in varying amounts over a
two-to-five year period from the date of grant. NSOs also generally become
exercisable over a two-to-five year period.
Each of these plans also provides for stock appreciation rights, which may
be granted with respect to any stock option. No stock appreciation rights have
been granted as of December 31, 1997.
During 1991, a Nonemployee Directors' Stock Option Plan was approved which
authorized the grant of stock options to purchase up to 150,000 shares of common
stock to the nonemployee directors of the Company. The exercise price of the
options is equal to the fair market value of the shares on the date of grant,
which is generally the later of initiation of the plan or the date of election
to the Board of Directors. In March 1993, the Board of Directors suspended
further grants under this plan. Vesting of the options occurred upon the
participation by a director in a Board meeting. As of December 31, 1997, options
to purchase 108,000 shares of common stock had been granted and were fully
vested. Such options were granted at exercise prices ranging from $1.75 to $2.60
per share. The Company recorded the difference between the fair market value of
the underlying common stock and the exercise price as compensation expense on
the date the options vested.
The Company's 1992 Nonemployee Directors' Stock Option Plan authorizes the
granting of options to purchase up to 400,000 shares of common stock to the
nonemployee directors of the Company. The plan was originally approved by the
stockholders on May 17, 1993, and an amendment to the plan was approved by the
stockholders on May 10, 1994. During 1997, 1996 and 1995, respectively, options
to purchase 27,500, 28,750, and 36,000 shares of common stock were granted to
nonemployee directors. During 1994, in order to effect a repricing of certain of
these options, options to purchase 162,250 shares of common stock were amended
to
F-11
<PAGE> 157
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
become options to purchase 148,535 shares of common stock at an exercise price
of $1.75 per share. The amended options generally become exercisable from one to
two years later than as originally granted. The Company recorded deferred
compensation in 1993 of approximately $114,000 based on the amount that the fair
market value of the Company's common stock exceeded the exercise price on the
date the options were approved by the stockholders. The Company began in July
1993 to amortize such deferred compensation over approximately five years and
has recorded compensation expense of approximately $6,000, $15,000, and $18,000
in 1997, 1996 and 1995, respectively. There are currently options to purchase
190,535 shares of common stock outstanding under the plan at exercise prices
ranging from $1.47 to $8.75 per share. By its terms, the plan terminated on
December 31, 1997 (although such event does not affect outstanding options
granted under the plan).
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
---- ----- -----
<S> <C> <C> <C>
Expected Life (years)....................................... 1.0 8.7 7.0
Interest Rate............................................... 5.54% 6.13% 5.38%
Volatility.................................................. 93.1% 111.1% 117.6%
</TABLE>
A summary of the status of the Company's 1986 plan, 1993 plan and
nonemployee directors' stock option plans as of December 31, 1997, 1996 and 1995
and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ---------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- --------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year............... 2,442,701 $2.08 2,611,602 $2.02 2,270,748 $2.58
Granted............... 46,800 $1.39 489,345 $1.99 813,779 $2.13
Exercised............. -- -- (458,133) $1.74 (41,454) $1.79
Forfeited/Cancelled... (489,992) $2.08 (200,113) $2.05 (431,471) $2.99
--------- --------- ---------
Outstanding at end of
year.................. 1,999,509 $2.06 2,442,701 $2.08 2,611,602 $2.02
========= ========= =========
Options exercisable at
year-end.............. 1,441,568 $2.09 1,278,836 $2.08 1,095,860 $1.92
========= ========= =========
Weighted-average fair
value of options
granted during the
year.................. $ 0.52 $ 1.78 $ 1.92
</TABLE>
The Company has granted other options to certain directors and consultants:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ------- ---------------- ------- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 160,584 $3.92 141,734 $4.16 381,484 $4.13
Granted................... -- -- 38,750 $1.25 -- --
Exercised................. -- -- (15,900) $1.80 -- --
Forfeited/Cancelled....... (15,000) $6.00 (4,000) $2.60 (239,750) $3.99
------- ------- --------
Outstanding at end of
year...................... 145,584 $3.71 160,584 $3.92 141,734 $4.16
======= ======= ========
Options exercisable at
year-end.................. 131,755 $3.86 137,002 $4.27 135,027 $4.44
======= ======= ========
Weighted-average fair value
of options granted during
the year.................. -- $ 2.73 --
</TABLE>
F-12
<PAGE> 158
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ .69 - $1.00............ 24,000 8.41 $0.95 20,000 $1.00
$1.38 - $2.00............ 1,273,654 7.26 $1.73 942,217 $1.75
$2.06 - $3.00............ 772,483 6.95 $2.53 541,150 $2.55
$3.06 - $3.75............ 25,372 6.81 $3.50 20,372 $3.49
$8.00 - $8.75............ 49,584 4.31 $8.06 49,584 $8.06
--------- ---------
2,145,093 1,573,323
========= =========
</TABLE>
During 1992, the Company granted options to purchase 50,000 shares of the
Company's common stock at $2.60 per share to the former president of the
Company. These options began vesting upon the occurrence of certain events. The
Company recorded $170,000 in deferred compensation based on the difference
between the fair value of the underlying common stock on the date the specified
event occurred and the exercise price of $2.60 per share. Deferred compensation
is being amortized over the applicable vesting periods. In connection with these
options, the Company has recorded amortization expense of approximately $20,000
in 1997 and $34,000 in each of 1996 and 1995.
Stock Purchase Plan
In December 1992, the Board of Directors approved an employee stock
purchase plan. Under the terms of the plan, 300,000 shares of the Company's
common stock have been authorized for purchase by eligible employees as
specified by the Board of Directors. Eligible employees shall be granted the
right to purchase shares with a percentage of such employees' earnings at the
lesser of 85% of the fair market value of the common stock on the offering date
or exercise date. Under the plan, employees purchased 5,839 shares of the
Company's common stock in 1997 at $0.66 per share; 20,590 shares in 1996 at
$1.33, $1.91, $2.55 and $2.18 per share and 46,860 shares in 1995 at $1.91,
$2.18 and $2.31 per share. In November 1997, the employee stock purchase plan
was effectively suspended pending further action by the Board of Directors.
For disclosure purposes under SFAS No. 123, compensation cost is recognized
for the fair value of the employees' purchase rights, which was estimated using
the Black-Scholes model with the following assumptions.
<TABLE>
<CAPTION>
1997 1996 1995
---- ----- -----
<S> <C> <C> <C>
Expected Life (years)....................................... 1.0 1.0 1.0
Interest Rate............................................... 5.54% 6.13% 5.38%
Volatility.................................................. 93.1% 111.1% 117.6%
</TABLE>
The weighted-average fair value of those purchase rights granted in 1997,
1996 and 1995 was $0.33, $1.49 and $1.59, respectively.
F-13
<PAGE> 159
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Warrants
Warrants to purchase shares of the Company's common stock, are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------------------
EXERCISE PRICE DIRECTORS
PER SHARE AND OFFICERS OTHERS TOTAL
-------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Outstanding and exercisable at December 31,
1995....................................... $ 4.00-$10.00 20,889 1,736,219 1,757,108
Expired.................................... $ 4.00-$ 6.00 -- (477,344) (477,344)
------- --------- ---------
Outstanding and exercisable at December 31,
1996....................................... $ 4.00-$10.00 20,889 1,258,875 1,279,764
Expired.................................... $ 4.00-$ 8.00 (20,889) (904,031) (924,920)
------- --------- ---------
Outstanding and exercisable at December 31,
1997....................................... $10.00 -- 354,844 354,844
======= ========= =========
</TABLE>
The remaining warrants expire on December 31, 1998 (Note 7).
Registration Rights
Investors in the CP-0127 Development Corporation ("CDC") offering (Note 7)
are entitled to certain piggyback registration rights with respect to shares of
common stock they hold or may acquire on exercise of the warrants received in
the CDC offering or the common stock which may be used by the Company to
exercise its option to repurchase the CDC shares. At December 31, 1997, CDC
investors owned 750 shares of Cortech common stock and owned warrants for the
purchase of 354,844 common shares. Furthermore, 219,689 common shares acquired
through the exercise of warrants carry similar piggyback registration rights.
(5) INCOME TAXES
As of December 31, 1997, the Company has approximately $77.2 million of net
operating loss ("NOL") carry forwards for income tax purposes and approximately
$2.9 million of research and development tax credits available to offset future
federal income tax, subject to limitations for alternative minimum tax. The NOLs
and credit carry forwards are subject to examination by the tax authorities and
expire in various years from 1998 through 2012, with approximately $74.3 million
of the NOL and $2.7 million of the credits expiring from 2005 through 2012.
The components of the net deferred income tax asset at December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
INCREASE
1997 (DECREASE) 1996
------------ ----------- ------------
<S> <C> <C> <C>
Net operating loss carry forwards.......... $ 29,998,000 $ 2,418,000 $ 27,580,000
Research and development credits........... 2,880,000 45,000 2,835,000
Depreciation expense....................... 2,358,000 224,000 2,134,000
Compensated absences....................... 25,000 (45,000) 70,000
Less: Valuation allowance.................. (35,261,000) (2,642,000) (32,619,000)
------------ ----------- ------------
$ -- $ -- $ --
============ =========== ============
</TABLE>
The Company has not yet achieved profitable operations. Accordingly,
management believes the deferred tax assets as of December 31, 1997 and 1996, do
not satisfy the realization criteria set forth in SFAS No. 109 and has recorded
a valuation allowance for the entire net tax asset.
By recording a valuation allowance for the entire amount of future tax
benefits, the Company has not recognized a benefit provision for income taxes in
its statements of operations. The difference between the Company's recorded
income tax benefit and that computed by applying the statutory Federal income
tax rate
F-14
<PAGE> 160
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
to its net loss before income taxes is due primarily to the valuation allowance
established to offset the Company's net deferred tax asset. The valuation
allowance increased $2.6 million in 1997 due primarily to increases in the
Company's net operating losses and research and development credits.
Included in the net operating loss carry forward is approximately $1.7
million related to income tax deductions for the Company's stock option plans.
The tax benefit of such deductions will be recorded as an increase to additional
paid-in capital when realized.
The Tax Reform Act of 1986 contains provisions that may limit the NOL and
credit carry forwards available to be used in any given year upon the occurrence
of certain events, including significant changes in ownership interest. A change
in ownership of a company of greater than 50% within a three-year period results
in an annual limitation on the company's ability to utilize its NOLs and tax
credits from tax periods prior to the ownership change. Due to changes in
ownership that took place in 1993 and changes that would take place upon the
proposed Merger (see Note 1), the Company's use of operating loss and tax credit
carry forwards is subject to such limitations.
(6) COMMITMENTS
The Company has various noncancellable operating leases for its office and
laboratory space. Rent expense for these facilities was approximately $427,000,
$443,000, and $585,000 in 1997, 1996 and 1995, respectively. Future minimum cash
obligations under these leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1998.................................. $201,000
1999.................................. 25,000
-----------
$226,000
===========
</TABLE>
(7) CP-0127 DEVELOPMENT CORPORATION
In February 1992, the Company completed a private placement of 709,687
units (as discussed below) to unrelated third parties representing total
subscriptions of approximately $8,516,000. Under the terms of the subscription
agreements, one third of the total amount subscribed was paid at closing
(approximately $2,839,000); one third was paid April 30, 1992; and the final
installment was paid July 31, 1992. Each unit was comprised of one share of CDC
common stock and three warrants, of which one warrant expired on December 31,
1996 and one warrant expired on December 31, 1997. Each remaining warrant
represents the right to purchase one half of one share of the Company's common
stock for $10.00 per share and expires on December 31, 1998 (Note 4). The net
proceeds received by CDC have been allocated to CDC as consideration for its
common stock and to the Company for the issuance of the warrants in the amounts
of approximately $5,284,000 and $3,232,000, respectively. Such allocation was
based on the relative fair market value of the Company's warrants and the CDC
common stock. In connection with the formation of CDC, the Company granted to
CDC, under the terms of a technology license agreement, an exclusive license to
certain technology for human pharmaceutical use within the United States, Canada
and Europe for $1,000,000. CDC, in turn, granted to Cortech a world-wide
exclusive right and license to the technology that is developed by Cortech.
CDC has 709,687 common shares issued and outstanding at December 31, 1997.
All such stockholders acquired their shares through the purchase of the above
units.
In connection with the technology license agreement referred to above, the
Company entered into a research and development agreement with CDC whereby the
Company performed research and development activities to further develop the
licensed technology and was paid for such services on a cost reimbursement
basis. CDC also paid the Company for its allocable share of certain overhead
costs. The cost to fully develop
F-15
<PAGE> 161
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the licensed technology has exceeded the research and development funding
provided by CDC. Such additional costs have been and would continue to be borne
by the Company and/or its corporate partners. As of December 31, 1997, the
Company was not engaged in active development of any compounds covered by the
license agreement. The Company would be responsible for manufacturing and
marketing of CDC's products, if any, in the United States, Canada and Europe and
would be required to make royalty payments to CDC based on future product
revenues, if any, subject to the purchase option discussed below.
The Company has been granted an option by the purchasers of the CDC common
stock to purchase all, but not less than all, of the 709,687 shares of CDC
common stock outstanding. The purchase option is exercisable at any date before
December 31, 1998, and is based on an exercise price of $75.40 per share of CDC
common stock in 1998. The option may be exercised in cash, common stock of the
Company or any combination thereof.
The Company's chief executive officer is also an officer of CDC. In
addition, the Company's chief executive officer and one of the Company's
directors are also directors of CDC.
(8) EMPLOYEE RETIREMENT PLAN
The Company provides a defined contribution 401(k) plan for eligible
employees. Employee contribution to the plan is voluntary. In 1994, the Company
voluntarily began contributing an amount equal to 25% of a covered employee's
contribution to a maximum of 1% of compensation. The Company's contributions to
the plan totaled $21,000 in 1997, $32,000 in 1996 and $45,000 in 1995.
F-16
<PAGE> 162
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
BioStar, Inc.
We have audited the accompanying balance sheets of BioStar, Inc. as of
December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BioStar, Inc. at December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Denver, Colorado
February 12, 1998
F-17
<PAGE> 163
BIOSTAR, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 1,281 $ 87,472
Trade accounts receivable, net of allowance for doubtful
accounts of $100,000 for 1997 and $125,318 for 1996..... 1,663,427 1,442,477
Other receivables......................................... 126,403 160,538
Inventories (Note 3)...................................... 1,412,710 1,650,476
Prepaid expenses.......................................... 159,248 184,785
------------ ------------
Total current assets............................... 3,363,069 3,525,748
------------ ------------
Property and equipment:
Laboratory and manufacturing equipment.................... 3,040,311 2,521,747
Office equipment.......................................... 518,433 415,239
Furniture and fixtures.................................... 98,778 166,815
Leasehold improvements.................................... 123,304 109,695
------------ ------------
3,780,826 3,213,496
Accumulated depreciation and amortization................. (1,624,166) (1,606,300)
------------ ------------
2,156,660 1,607,196
------------ ------------
Patents and trademarks:
Purchased patents......................................... 920,431 920,431
Deferred patent and trademark costs....................... 814,650 641,538
------------ ------------
1,735,081 1,561,969
Accumulated amortization.................................. (1,159,474) (1,031,281)
------------ ------------
575,607 530,688
------------ ------------
Other assets................................................ 234,125 118,133
------------ ------------
Total assets....................................... $ 6,329,461 $ 5,781,765
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable.......................................... $ 1,217,909 $ 955,635
Accrued compensation...................................... 879,662 594,526
Accrued liabilities....................................... 320,715 306,185
Deferred revenue.......................................... 165,843 25,000
Note payable.............................................. 251,301 --
Current portion of capital lease obligations (Note 7)..... 374,072 518,031
Current portion of subordinated debt (Note 6)............. 747,047 596,427
Line of credit (Note 6)................................... 1,000,000 450,000
Subordinated promissory notes (Note 6).................... 1,565,050 --
------------ ------------
Total current liabilities.......................... 6,521,599 3,445,804
------------ ------------
Total long-term liabilities................................. 5,420,603 6,109,082
------------ ------------
Commitments and contingencies (Note 7)
Stockholders' deficit (Note 4):
Convertible preferred stock, $.0001 par value, 20,327,784
shares authorized, 15,605,320 shares issued and
outstanding in 1997 (15,559,606 in 1996)................ 1,561 1,556
Common stock, $.0001 par value, 41,644,443 shares
authorized, 1,963,708 shares issued and outstanding in
1997 (2,402,755 in 1996)................................ 196 240
Additional paid-in capital................................ 20,207,268 20,232,433
Accumulated deficit....................................... (25,821,766) (23,888,517)
Less treasury stock at cost, 0 shares in 1997 (516,667 in
1996)................................................... -- (118,833)
------------ ------------
Total stockholders' deficit........................ (5,612,741) (3,773,121)
------------ ------------
Total liabilities and stockholders' deficit........ $ 6,329,461 $ 5,781,765
============ ============
</TABLE>
See accompanying notes.
F-18
<PAGE> 164
BIOSTAR, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.......................................... $10,829,631 $11,589,030 $ 9,529,535
Contract revenues.................................. 5,027,930 778,148 61,497
----------- ----------- -----------
Total revenue...................................... 15,857,561 12,367,178 9,591,032
Operating costs and expenses:
Cost of sales.................................... 4,924,467 5,066,519 3,723,414
Research and development......................... 3,235,601 2,345,169 1,417,924
Sales and marketing.............................. 6,179,280 6,241,660 7,726,880
General and administrative....................... 2,661,633 1,885,449 1,346,985
----------- ----------- -----------
Total operating costs and expenses................. 17,000,981 15,538,797 14,215,203
----------- ----------- -----------
Loss from operations............................... (1,143,420) (3,171,619) (4,624,171)
----------- ----------- -----------
Other income (expense):
Royalties and miscellaneous...................... 93,882 50,544 103,653
Interest income.................................. 4,182 28,821 61,124
Interest expense................................. (887,893) (730,859) (343,781)
----------- ----------- -----------
Total other expense, net........................... (789,829) (651,494) (179,004)
----------- ----------- -----------
Net loss........................................... $(1,933,249) $(3,823,113) $(4,803,175)
=========== =========== ===========
Basic and diluted net loss per share............... $ (1.00) $ (2.23) $ (2.55)
=========== =========== ===========
Weighted average shares outstanding................ 1,935,341 1,710,914 1,881,477
=========== =========== ===========
</TABLE>
See accompanying notes.
F-19
<PAGE> 165
BIOSTAR, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE TREASURY STOCK
PREFERRED STOCK COMMON STOCK ADDITIONAL AT COST
------------------- ------------------ PAID-IN ACCUMULATED -------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT
---------- ------ --------- ------ ----------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.......... 15,559,606 $1,556 1,829,089 $183 $20,129,436 $(15,262,229) -- $ --
Purchase of treasury stock............ -- -- -- -- -- -- (516,667) (118,833)
Issuance of common stock upon exercise
of stock options and stock
bonuses............................. -- -- 247,925 25 37,362 -- -- --
Net loss.............................. -- -- -- -- -- (4,803,175) -- --
---------- ------ --------- ---- ----------- ------------ -------- --------
Balance at December 31, 1995.......... 15,559,606 1,556 2,077,014 208 20,166,798 (20,065,404) (516,667) (118,833)
Issuance of common stock upon exercise
of stock options and stock
bonuses............................. -- -- 325,741 32 65,635 -- -- --
Net loss.............................. -- -- -- -- -- (3,823,113) -- --
---------- ------ --------- ---- ----------- ------------ -------- --------
Balance at December 31, 1996.......... 15,559,606 1,556 2,402,755 240 20,232,433 (23,888,517) (516,667) (118,833)
Issuance of preferred stock to Lehman
Brothers Inc........................ 45,714 5 -- -- 79,995 -- -- --
Issuance of common stock upon exercise
of stock options and stock
bonuses............................. -- -- 77,620 8 13,621 -- -- --
Retirement of treasury stock.......... -- -- (516,667) (52) (118,781) -- 516,667 118,833
Net loss.............................. -- -- -- -- -- (1,933,249) -- --
---------- ------ --------- ---- ----------- ------------ -------- --------
Balance at December 31, 1997.......... 15,605,320 $1,561 1,963,708 $196 $20,207,268 $(25,821,766) -- $ --
========== ====== ========= ==== =========== ============ ======== ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Balance at December 31, 1994.......... $ 4,868,946
Purchase of treasury stock............ (118,833)
Issuance of common stock upon exercise
of stock options and stock
bonuses............................. 37,387
Net loss.............................. (4,803,175)
-----------
Balance at December 31, 1995.......... (15,675)
Issuance of common stock upon exercise
of stock options and stock
bonuses............................. 65,667
Net loss.............................. (3,823,113)
-----------
Balance at December 31, 1996.......... (3,773,121)
Issuance of preferred stock to Lehman
Brothers Inc........................ 80,000
Issuance of common stock upon exercise
of stock options and stock
bonuses............................. 13,629
Retirement of treasury stock.......... --
Net loss.............................. (1,933,249)
-----------
Balance at December 31, 1997.......... $(5,612,741)
===========
</TABLE>
See accompanying notes.
F-20
<PAGE> 166
BIOSTAR, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $(1,933,249) $(3,823,113) $(4,803,175)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and
equipment...................................... 763,121 732,252 452,010
Amortization of patents and trademarks............ 128,193 67,479 183,999
Deferred rent credit.............................. (38,993) (30,068) (21,401)
Changes in operating assets and liabilities:
Trade accounts receivable...................... (220,950) 200,522 (729,896)
Other receivables.............................. 34,135 (78,508) (35,650)
Inventories.................................... 237,766 (122,527) (414,949)
Prepaid expenses............................... 25,537 45,745 (110,435)
Other assets................................... (35,992) (10,918) (30,779)
Accounts payable............................... 262,274 143,185 359,806
Accrued liabilities............................ 912,144 511,211 (25,167)
----------- ----------- -----------
Net cash provided by (used in) operating
activities........................................ 133,986 (2,364,740) (5,175,637)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of marketable securities.................. -- -- (2,305,400)
Sales of marketable securities...................... -- -- 3,525,461
Purchase of property and equipment.................. (1,012,460) (379,488) (643,250)
Capitalized patent and trademark costs.............. (173,112) (101,792) (152,694)
Note receivable from officer........................ -- 106,167 --
----------- ----------- -----------
Net cash provided by (used in) investing
activities........................................ (1,185,572) (375,113) 424,117
----------- ----------- -----------
FINANCING ACTIVITIES
Issuance of common stock............................ 13,629 65,667 37,387
Issuance of subordinated debt....................... -- -- 2,500,000
Payments on subordinated debt....................... (596,427) (248,483) (408,043)
Issuance of convertible subordinated debt........... -- 3,000,000 1,000,000
Issuance of subordinated promissory notes........... 1,565,050 -- --
Payments on note payable............................ (48,824) -- --
Proceeds from line of credit........................ 2,931,732 500,000 1,070,000
Payments on line of credit.......................... (2,381,732) (970,000) (150,000)
Proceeds from sale-leaseback transactions........... -- 81,718 385,166
Payments on capital lease obligations............... (518,033) (572,940) (412,211)
----------- ----------- -----------
Net cash provided by financing activities........... 965,395 1,855,962 4,022,299
----------- ----------- -----------
Net decrease in cash................................ (86,191) (883,891) (729,221)
Cash at beginning of year........................... 87,472 971,363 1,700,584
----------- ----------- -----------
Cash at end of year................................. $ 1,281 $ 87,472 $ 971,363
=========== =========== ===========
</TABLE>
F-21
<PAGE> 167
BIOSTAR, INC.
STATEMENTS OF CASH FLOWS -- (CONTINUED)
SUPPLEMENTAL CASH FLOW INFORMATION
The Company incurred no capital lease obligations in 1997 and obligations
of $208,136 and $115,515 in 1996 and 1995, respectively, in connection with
Master Lease Agreements in which the lessors paid vendors directly for the
Company to acquire equipment and furniture and fixtures.
The Company paid interest of approximately $292,000, $371,000, and $342,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
In 1997, the Company purchased manufacturing equipment for $687,250, of
which $300,125 was financed with a note from the manufacturer, payable in
installments over 12 months.
In 1997, the Company issued 45,714 shares of Series E Preferred Stock to
Lehman Brothers Inc. in exchange for consulting services in connection with the
proposed merger discussed in Note 2.
In connection with issuance of Convertible Subordinated Notes in 1996,
$500,000 of subordinated debt was converted to convertible subordinated debt.
In 1995, the Company received shares of common stock for payment of
principal and interest of $118,833 on the note receivable from an officer.
See accompanying notes.
F-22
<PAGE> 168
BIOSTAR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Purpose
BioStar develops, manufactures and markets point-of-care diagnostic tests
using its proprietary highly-sensitive, thin film technologies. BioStar's
current products employ its Optical ImmunoAssay ("OIA(R)") technology, a thin
film, platform technology developed for the rapid detection of a variety of
medical conditions. BioStar's OIA tests help caregivers, in a cost-effective and
efficient manner, to identify causes of illness and select appropriate patient
therapy by providing information during the initial patient encounter.
Internally and through collaborative arrangements, BioStar is developing
additional thin film technologies which are intended to broaden the range of
applications for its existing products and to enable the introduction of new
products.
The Company was formed on June 17, 1992 pursuant to the purchase of the
assets and assumption of certain liabilities of BioStar Medical Products, Inc.
("BMPI") from the BMPI Liquidating Trust (the "Trust") under an Asset Purchase
Agreement (the "Purchase Agreement"). In conjunction with the transaction, the
Company issued to the Trust a Convertible Contingent Payment Instrument (the
"CCPI"), which will be canceled immediately prior to the effective date of the
proposed merger (see Note 2).
At December 31, 1997 and 1996, all trade accounts receivable were due from
customers in the health care industry. Substantially all of these customers are
physicians, clinics, universities, hospitals and laboratories located in the
United States. Credit losses relating to these customers have been within
management's expectations. The Company does not require collateral from its
customers. Sales of Group A strep products accounted for 83% of gross sales in
1997 and 1996, and 93% of gross sales in 1995.
Liquidity and Management Plans
The Company incurred a net loss of $1,933,249 for the year ended December
31, 1997 and has an accumulated deficit of $25,821,766. In addition, the Company
had a net capital deficiency of $5,612,741 at December 31, 1997. As is more
fully described in Note 2, BioStar and Cortech, Inc. ("Cortech") have entered
into an Agreement and Plan of Merger and Reorganization. Cortech's principal
assets are cash and short-term investments which amounted to $15,403,000 at
December 31, 1997. If the merger is not successfully completed, the Company will
need to raise additional funds through equity or debt placements to meet its
obligations on existing debt and to sustain operations. The Company has obtained
commitments from the holders of its subordinated promissory notes aggregating
$1,510,092, that should the Merger not be consummated, they will extend the due
dates to March 31, 1999. In addition, certain preferred stockholders who are
also subordinated debt holders have committed to actively support and assist the
Company in obtaining operating funds through March 31, 1999 and participate in a
private placement, if required, to provide adequate working capital.
Fair Value of Financial Instruments
The carrying values of cash, accounts receivable and payable, debt and
capital lease obligations approximate fair value. The carrying values of
long-term debt are the principal balances of each debt instrument, which
approximate their fair value when using discounted cash flow analysis.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-23
<PAGE> 169
BIOSTAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company recognizes sales revenue upon shipment of product and records
royalty income when royalties are received. Revenues earned under collaborative
research agreements are recognized as the related services are performed and
research expenses are incurred. Amounts received in advance of services to be
performed are recorded as deferred revenue until the related expenses are
incurred. Milestone payments are recognized as revenue in the period earned.
The Company has received government grants which support the Company's
research efforts on specific research projects. These grants generally provide
for reimbursement to the Company of approved costs incurred as defined in the
various awards.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Excess and idle capacity costs are expensed as incurred.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements and equipment under capitalized leases are amortized on a
straight-line basis over the shorter of their estimated lives or the lease term.
Patents and Trademarks
Purchased patents were capitalized and amortized over their estimated
economic lives of three years and are fully amortized.
Costs related to patents and trademarks for which the Company has applied
are deferred until such time as the patents or trademarks are issued or
declined. Costs of patents and trademarks issued are amortized over their
estimated economic lives. Costs of patents and trademarks declined are charged
to operations.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations in accounting for outstanding stock options. Under APB 25,
because the exercise price of the Company's stock options equals the fair value
of the underlying stock on the date of grant, no compensation expense is
recognized.
Net Loss Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. All
periods presented conform to Statement 128 requirements. As of December 31,
1997, 1996 and 1995, respectively, the Company has 15,605,320; 15,559,606 and
15,559,606 shares of preferred stock which were convertible to common,
Convertible Subordinated Notes in 1997 and 1996 which can be converted to
2,571,426 preferred shares (Note 5), 5,177,569; 3,077,675 and 471,249 preferred
and common stock warrants outstanding, and 3,610,406; 2,873,315 and 2,523,130
employee stock options outstanding. In the event that all these common stock
equivalents were converted to common stock, there would be 28,928,429;
26,484,777 and 20,630,999 common shares outstanding for calculation of diluted
earnings per share.
F-24
<PAGE> 170
BIOSTAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. MERGER AGREEMENT
On December 22, 1997, the Company signed an Agreement and Plan of Merger
and Reorganization with Cortech, a publicly-owned biopharmaceutical company
which, until significant reductions in work force were made in 1997, had been
engaged in the discovery and development of therapeutics for treatment of
inflammatory disorders. Upon consummation of the merger contemplated by such
Agreement, which is expected to occur in the second quarter of 1998 if approved
by stockholders of both companies, the Company would become a wholly owned
subsidiary of Cortech and each share of the Company's common and preferred stock
would be exchanged for a pro rata share of Cortech common stock. For accounting
purposes, the merger would be treated as a purchase of Cortech by the Company.
All assets and obligations of Cortech would be combined with those of the
Company, and the Company's current management would manage the combined entity.
The costs related to the merger incurred as of December 31, 1997, of $168,719
have been deferred and are included in other assets.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Raw materials............................................... $ 539,413 $ 770,008
Work-in-process............................................. 139,268 290,474
Finished goods.............................................. 734,029 589,994
---------- ----------
$1,412,710 $1,650,476
========== ==========
</TABLE>
4. STOCKHOLDERS' EQUITY
Series A, Series B, Series C, Series D, Series E and Series F Convertible
Preferred Stock
The authorized and outstanding shares of convertible preferred stock and
related liquidation preferences were as follows at December 31, 1997:
<TABLE>
<CAPTION>
SHARES AS
CONVERTED
INTO LIQUIDATION LIQUIDATION
AUTHORIZED SHARES COMMON PREFERENCE PREFERENCE
DESIGNATION SHARES OUTSTANDING STOCK PER SHARE TOTAL
----------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Series A..................... 3,500,000 3,500,000 3,500,000 $1.00 $ 3,500,000
Series B..................... 5,060,750 5,000,000 5,000,000 $1.00 5,000,000
Series C..................... 1,691,786 -- -- $5.00 --
Series D..................... 2,908,889 2,908,889 2,908,889 $2.25 6,545,000
Series E..................... 4,928,359 4,196,431 4,196,431 $1.75 7,343,754
Series F..................... 2,238,000 -- -- $1.75 --
---------- ---------- ---------- -----------
20,327,784 15,605,320 15,605,320 $18,752,645
========== ========== ========== ===========
</TABLE>
The significant features of the Series A, Series B, Series C, Series D,
Series E and Series F convertible preferred stock are as follows:
Voting Rights -- The Series A, B, C, D, E, and F stockholders are
entitled to the number of votes equal to the number of shares of common
stock into which each share of preferred stock is convertible.
Preferences -- The Series A, B, C, D, E, and F stockholders are
entitled to quarterly noncumulative dividends, at the rate of $.10, $.10,
$.50, $.23, $.175, and $.175 per share, per annum, respectively, payable
only when and if declared by the Company's Board of Directors.
F-25
<PAGE> 171
BIOSTAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Upon liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of Series F will be entitled to
receive, prior to Series A, B, C, D and E and common stockholders, an
amount equal to the sum of $1.75 for each outstanding share, plus all
declared but unpaid dividends. The Series B, Series D, and Series E
stockholders will be entitled to receive, prior to Series A and Series C
and common stockholders, an amount per share equal to the original Series B
($1.00), Series D ($2.25), and Series E ($1.75) issue price for each
outstanding share, plus all declared but unpaid dividends. Series A and
Series C stockholders will be entitled to receive, prior to common
stockholders, an amount equal to the original Series A ($1.00) and Series C
($5.00) issue price for each outstanding share, plus all declared but
unpaid dividends. No dividends have been declared through December 31,
1997.
Immediately prior to the effective time of the proposed merger (see
Note 2), the Company's Certificate of Incorporation will be amended to
eliminate the liquidation preferences described above.
Optional Conversion -- The Series A, B, C, D, E, and F stockholders,
at their option, may convert their shares into common stock at any time
based on the conversion rate in effect. The conversion rate is subject to
adjustment, to prevent the dilution of Series A, B, C, D, E, and F
conversion rights, pursuant to the Company's Certificate of Incorporation.
Automatic Conversion -- All Series A, B, C, D, E, and F shares shall
automatically be converted into common stock, based on the conversion rate
in effect, upon the closing of a qualified underwritten public offering as
described in the Company's Certificate of Incorporation. Upon consummation
of the proposed merger (see Note 2), all preferred shares will be exchanged
for shares of Cortech common stock.
Redemption -- The Company has no right to redeem the Series A, B, C,
D, E, or F shares.
Other Series A, B, C, D, E, and F Rights
As long as Series A, B, C, D, E, and F shares are outstanding, the Company
will not, without the consent of a majority of the outstanding shares voting
together as a single class:
- Authorize any liquidation, dissolution, winding up, consolidation or
merger of the Company or effect any transaction or series of related
transactions in which more than 50% of the voting power of the Company is
disposed.
- Alter or change the rights, preferences or privileges of the Series A, B,
C, D, E, or F shares so as to adversely affect the shares.
- Authorize any other series of capital stock ranking prior to the Series
A, B, C, D, E, or F shares or on a parity with the Series A, B, C, D, E,
or F shares with respect to voting, dividends or upon liquidation.
All of the above rights terminate upon the proposed merger with Cortech
(see Note 2).
Stock Option Plan
The Company has a Stock Option Plan (the "Plan") for its employees,
directors, and consultants which provides for the issuance of incentive and
nonqualified options for up to 6,250,000 shares of common stock. The options
shall be exercisable under conditions as determined by the Board of Directors,
with the term of each option being up to ten years from the date of grant.
The per share price for any option shall be determined by the Board of
Directors. The exercise price of the shares covered by each incentive stock
option shall not be less than the fair market value of the shares at the time of
granting the incentive stock option. The exercise price of a nonqualified stock
option may be less
F-26
<PAGE> 172
BIOSTAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
than the fair market value at the time of granting the nonqualified stock
option, as determined by the Board of Directors. If an incentive stock option is
granted to an employee who then owns more than 10% of the combined voting power
of all classes of stock, then the option price must be at least 110% of the fair
market value of the stock subject to the option, and the option shall not be
exercisable after expiration of five years from the date the option was granted.
Stock option activity for the years ended December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE PRICE
--------- ----------- --------
<S> <C> <C> <C>
Balance, December 31, 1995........................ 2,523,130 $.10 - $.23
Granted........................................... 904,370 $ .23 $.23
Exercised......................................... (323,008) $.10 - $.23 $.16
Canceled.......................................... (231,177) $.10 - $.23 $.23
---------
Balance, December 31, 1996........................ 2,873,315 $.10 - $.23 $.21
Granted........................................... 1,587,968 $ .23 $.23
Exercised......................................... (60,620) $.10 - $.23 $.21
Canceled.......................................... (790,257) $.10 - $.23 $.23
---------
Balance, December 31, 1997........................ 3,610,406 $.10 - $.23 $.21
=========
Options exercisable at December 31, 1997.......... 1,660,770 $.10 - $.23 $.20
</TABLE>
The weighted-average fair value of options granted during 1997 and 1996 was
$.05 for both years. The weighted-average remaining contractual life was 3.6
years.
Pro forma information regarding net income is required by Statement 123,
which also requires that the information be determined as if the Company had
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair value method of that statement. The fair value for these options
was estimated at the date of grant using a minimum value method option pricing
model with the following assumptions for 1997 and 1996: risk-free interest rate
range of 5.34% to 7.84%; no expected dividend; and an estimated expected life of
four years.
The minimum value method was developed for use in estimating the fair value
of the awards. Under Statement 123, the "minimum value" method may be used by
nonpublic companies to value options, which calculates the excess of the fair
value of the stock at the date of grant over the present value of both the
exercise price and the expected dividend payments, each discounted at the
risk-free rate, over the expected exercise life of the option. In concept, the
minimum value method is similar to the Black-Scholes and binomial models, except
that it excludes the factor for volatility.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma financial information is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net loss............................ $(1,947,811) $(3,832,735) $(4,805,686)
=========== =========== ===========
Pro forma basic and diluted net loss per
share....................................... $ (1.01) $ (2.24) $ (2.55)
=========== =========== ===========
</TABLE>
Statement 123 is applicable only to options granted subsequent to December
31, 1994. Because options vest over periods up to four years, the pro forma
effect of the Statement will not be fully reflected until 1998.
In May 1994, a key executive purchased 800,000 shares of restricted common
stock from the Company at $.23 per share. Twenty-five percent of the stock
became unrestricted twelve months from the purchase date
F-27
<PAGE> 173
BIOSTAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and the remainder became unrestricted on a monthly basis thereafter. In 1995,
when the executive left the Company, the Company repurchased 516,667 common
shares from the executive at $.23 per share.
In April 1997, the Board of Directors, upon subsequent approval by the
shareholders of the Company, increased total authorized shares to 61,972,227
with 41,644,443 shares designated common stock and 20,327,784 shares designated
preferred stock. As part of that authorization, 536,667 shares of common stock
held in treasury in connection with the repurchase of unvested shares previously
held by a former officer of the Company, including 20,000 shares which were
repurchased from a former Director in 1997, were retired.
In February 1998, the Board of Directors approved an aggregate cash bonus
of $380,000 to five executives. In connection with such bonus, the executives
have agreed to use an aggregate of $240,000 to purchase an aggregate of
1,032,000 common stock options previously awarded to the executives. The Board
of Directors also approved the award of options to purchase an aggregate of
500,000 common shares which vest one year after the closing of the proposed
merger with Cortech or monthly over four years if the proposed merger with
Cortech does not close.
Warrants
An immediately exercisable warrant to purchase 60,750 shares of Series B
convertible preferred stock for $2.20 per share was issued in connection with a
Master Lease Agreement during 1992. The warrant expires in the year 2000. The
Company has reserved 60,750 shares of Series B convertible preferred stock for
issuance in connection with this warrant.
During February 1994, an additional warrant was issued in connection with
the amended Master Lease Agreement to purchase 53,357 shares of Series E
convertible preferred stock at $1.75 per share. The warrant, which is currently
exercisable, expires on the earlier of February 18, 2003 or four years after the
closing of a qualified underwritten public offering of at least $5,000,000. The
Company has reserved 53,357 shares of Series E convertible preferred stock for
issuance in connection with this warrant.
In connection with a $2,500,000 subordinated debt security agreement and a
separate Master Lease Agreement, two warrants to purchase a total of 271,428
shares of Series E convertible preferred stock for $1.75 per share were issued
in May 1995. The warrants are exercisable and expire on the earlier of May 3,
2004 or four years from the effective date of a qualified underwritten public
offering. If the Company has not repaid the principal in its entirety at the end
of the thirty-six month term, the Company shall grant the lender additional
warrants, on the same terms as the two warrants described above, equal to 1% of
the principal amount each month. The Company has reserved 271,428 shares of
Series E convertible preferred stock for issuance in connection with these
warrants.
A warrant to purchase 85,714 shares of Series E convertible preferred stock
at $1.75 per share was issued in 1995 to a bank in connection with a $2,000,000
line of credit agreement (see Note 6). The warrant expires upon the earlier of
September 14, 2001 or three years after the Company sells its shares in a
registered public offering.
In connection with the issuance of $4,500,000 Convertible Subordinated
Notes, the Company issued warrants to purchase 2,571,426 shares of common stock
at an exercise price of $.23. The warrants expire at the earlier of the closing
of the proposed merger (see Note 2) or March 2001.
A warrant to purchase 321,429 shares of Series E convertible preferred
stock at $1.75 per share was issued in April 1997 to a bank in connection with a
$1,000,000 line of credit and a $2,000,000 bridge loan agreement (see Note 6).
The warrant expires on April 30, 2002.
In connection with an amendment to the bank credit facility of $2,000,000,
a warrant to purchase 35,000 shares of common stock at $.23 per share was issued
in October 1996 with an expiration date of October 27, 2002.
F-28
<PAGE> 174
BIOSTAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Common shares reserved for future issuance are as follows:
<TABLE>
<S> <C>
Preferred stock conversions................................. 15,605,320
CCPI conversion (see Note 7)................................ 1,600,000
Stock option plan........................................... 4,901,054
Convertible Subordinated Notes.............................. 2,571,426
Warrants.................................................... 5,177,569
----------
Total............................................. 29,855,369
==========
</TABLE>
5. INCOME TAXES
The Company accounts for income taxes in conformity with Statement of
Financial Accounting Standard No. 109, Accounting for Income Taxes. Under the
provisions of Statement 109, a deferred tax liability or asset (net of a
valuation allowance) is provided in the financial statements by applying the
provisions of applicable tax laws to measure the deferred tax consequences of
temporary differences that will result in net taxable or deductible amounts in
future years as a result of events recognized in the financial statements in the
current or preceding years.
The Company has net operating loss carryforwards of approximately $25
million for income tax purposes expiring from 2007 through 2012. Research and
development tax credits will be recognized on the flow-through method as a
reduction of income taxes in the year in which such credits are utilized. The
Company has research and development tax credit carryforwards of approximately
$233,000 expiring from 2007 through 2011. The Tax Reform Act of 1986 contains
provisions that limit the utilization of net operating loss and tax credit
carryforwards if there has been a "change of ownership" as described in Section
382 of the Internal Revenue Code. Such change of ownership may limit the
Company's utilization of its net operating loss and tax credit carryforwards.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's current and long-term deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Current deferred tax assets:
Accrued liabilities....................................... $ 18,375 $ 74,411
Other..................................................... 34,000 57,103
----------- -----------
Total current deferred tax assets........................... 52,375 131,514
Valuation allowance for current deferred tax assets......... (52,375) (131,514)
----------- -----------
Net current deferred tax assets............................. $ -- $ --
=========== ===========
Long-term deferred tax assets:
Book over tax depreciation................................ $ 1,128 $ 32,958
Research and development credit carryforwards............. 233,379 199,598
Tax net operating loss carryforwards...................... 8,659,129 7,899,421
Other..................................................... 9,310 23,052
----------- -----------
Total long-term deferred tax assets......................... 8,902,946 8,155,029
Valuation allowance for long-term deferred tax assets....... (8,902,946) (8,155,029)
----------- -----------
Net long-term deferred tax assets........................... $ -- $ --
=========== ===========
</TABLE>
F-29
<PAGE> 175
BIOSTAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT
The detail of long-term liabilities is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Long-term portion of subordinated debt...................... $ -- $ 747,047
Long-term portion of capital lease obligations.............. 61,924 435,998
Convertible subordinated debt............................... 4,500,000 4,500,000
Accrued interest and other liabilities...................... 858,679 426,037
---------- ----------
$5,420,603 $6,109,082
========== ==========
</TABLE>
The Company entered into a $2,000,000 line of credit agreement with a bank
in September 1995. The agreement provided for borrowings of up to 70% of
eligible accounts receivable. Interest on outstanding borrowings under the
agreement accrued at prime plus 2%. The line of credit was terminated in May
1997, and any amounts then due were repaid.
In May 1995, the Company borrowed $2.5 million at 14% interest under a
subordinated debt line. Principal and interest payments are due monthly. A lump
sum payment of $523,000 is due in May 1998 and is collateralized by all tangible
and intangible assets of the Company, up to the extent of the outstanding
balance. This secured interest may be subordinated to the interests of a senior
lender. As of December 31, 1997, the Company had $747,047 of principal
outstanding.
In March and April 1996, the Company completed Convertible Subordinated
Notes and Warrant Purchase agreements (the "Agreements") with certain
stockholders and debt holders. The Agreements provided the Company with
$3,000,000 in cash proceeds and converted $1,000,000 of subordinated debt to
convertible subordinated debt (the "Notes"). Additionally, the holder of
additional subordinated debt converted $500,000 of that debt into the Notes and
agreed to forbear receipt of another $500,000 of principal repayments due on the
subordinated debt in 1996 until May 1998. The resulting principal balance of the
Notes at December 31, 1997 was $4,500,000. Interest accrues at prime plus 2%.
The Notes plus interest are due upon the earlier of: (a) three years from the
date of issuance; or (b) the closing of an initial public offering; or (c) the
closing of a consolidation, merger or sale of the Company. Accrued interest,
totaling $831,298 at December 31, 1997, is included in other long-term
liabilities. The Notes are collateralized by all tangible and intangible assets
of the Company, up to the extent of the outstanding balance. This secured
interest may be subordinated to the interests of a senior lender. Immediately
prior to the effective time of the proposed merger (see Note 2), principal and
interest due on this note will be converted to Series F convertible preferred
stock of the Company.
In February 1997, the Company issued $1,000,000 in Subordinated Promissory
Notes to certain of its stockholders. The Notes provide the holder with rights
for demand payment, subject to subordination to certain other debt holders and
with an interest rate of 10.25%.
In April 1997, the Company changed its primary banking relationship and
entered into a new credit agreement. A $1,000,000 credit facility provides for
borrowings of up to 75% of eligible accounts receivable. Interest on the
outstanding borrowings under this facility accrues at prime plus 2% and is due
monthly. Any outstanding principal amount under the loan is due April 30, 1998.
A second credit facility for $2,000,000 was provided under a bridge loan funded
to an equity event or October 30, 1997, whichever occurred first. Interest on
the bridge loan accrued under this facility at prime plus 3%. The agreement
required that the Company maintain a certain minimum financial covenant on
monthly losses. Amounts outstanding under this agreement were secured by
substantially all the Company's tangible and intangible assets. As of December
31, 1997, $1,000,000 was drawn on the credit facility. The $2,000,000 bridge
loan terminated on October 30, 1997 and any amounts borrowed were repaid with
interest. In connection with this credit facility, warrants were issued
F-30
<PAGE> 176
BIOSTAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for the purchase of 321,429 shares of Series E Preferred Stock with a exercise
price of $1.75 per share. In February 1998, the credit facility was amended such
that the facility secured by eligible accounts receivable was increased to
$1,500,000 and the bridge loan was renewed at a maximum at $1,500,000. The
credit facility is due May 3, 1999. The bridge loan term expires June 4, 1998
and is made available in tranches as the proposed merger with Cortech
progresses. In connection with the amendment, the Company issued warrants to
purchase 59,659 shares of Series F convertible preferred stock at a purchase
price of $.88 per share. The warrant expires on February 3, 2003.
In June 1997, the Company converted the February 1997 Promissory Notes into
new Subordinated Promissory Notes ("New Notes") expiring February 1998 with an
interest rate of prime plus 2%. This offering had a principal amount of
$1,565,050, which included $1,000,000 from the February 1997 notes, $35,384 in
accrued interest on those notes, and $529,666 in new funds. Participation in the
note offering was made available to all qualifying stockholders, debt holders
and warrant holders. The offering included 1,778,465 warrants for Series F
shares at a purchase price of $.88 per share with a preferred liquidation value
of $1.75. All holders of the New Notes, subsequent to December 31, 1997, agreed
to extend the due date to the earlier of the merger (see Note 2) or May 31,
1998. Accrued interest, totaling $87,787 at December 31, 1997, is included in
accrued liabilities. The holders of at least $1,541,535 of face amount of New
Notes have committed to convert these New Notes into Series F Preferred Stock
immediately prior to the effective time of the proposed merger (see Note 2).
Maturities of the line of credit and long-term debt for the years ending
December 31 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998..................................................... $3,563,398
1999..................................................... 4,500,000
----------
$8,063,398
==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases equipment and furniture and fixtures under capital
leases. Title of assets acquired under the lease line of credit resides with the
lessor. The Company has the option to purchase these assets at the end of the
lease term for fair market value. The interest rates on borrowings under the
lease line of credit range between 9.25% and 10.75% per annum.
Assets and related accumulated amortization included in the above leasing
arrangements are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1997 1996
---------- -----------
<S> <C> <C>
Laboratory and manufacturing equipment..................... $1,281,438 $ 1,811,485
Office equipment........................................... 110,940 215,242
Furniture and fixtures..................................... 32,197 143,104
Accumulated amortization................................... (914,740) (1,215,802)
---------- -----------
$ 509,835 $ 954,029
========== ===========
</TABLE>
The Company leases its facility under a noncancelable operating lease which
expires August 1998. The Company has the option to renew the facility lease for
two additional five-year periods. The rental amount upon renewal will be based
upon the market rate, not to exceed the initial lease rate indexed for
inflation, at the inception of the original lease. The Company incurred rent
expense of approximately $267,000 for each of the years ended December 31, 1997,
1996 and 1995.
F-31
<PAGE> 177
BIOSTAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, the Company subleased approximately 14% of its facility to an
unrelated third party at a rate of $3,700 per month, including operating and
maintenance costs, from June 1993 to June 1997. Rental income from this sublease
totaled $24,295, $50,165, and $69,822 in 1997, 1996 and 1995, respectively.
Future minimum payments under capital leases and a noncancelable operating
lease are as follows at December 31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASE
--------- ---------
<S> <C> <C>
1998........................................................ $ 396,962 $317,863
1999........................................................ 63,703 58,979
2000........................................................ -- 6,792
2001........................................................ -- 1,624
--------- --------
Total minimum lease payments................................ 460,665 $385,258
========
Less amounts representing interest.......................... (24,669)
---------
Present value of future minimum lease payments.............. 435,996
Less current maturities..................................... (374,072)
---------
Long-term maturities........................................ $ 61,924
=========
</TABLE>
CCPI
In conjunction with the purchase of the assets and assumption of certain
liabilities of BMPI from the Trust, the Company issued to the Trust the
Convertible Contingent Payment Instrument (see Note 1). The CCPI provides that
under certain circumstances, the Company could be required to pay up to
$8,000,000 or issue 1,600,000 shares of Series C convertible preferred stock.
The Company has assigned no dollar value to the CCPI because of its contingent
nature. A liability for the CCPI and additional cost of the acquisition would be
recorded if it became probable that an amount will become due under the CCPI and
such amount could be reasonably estimated.
As a result of the uncertainties in determining whether the CCPI will
ultimately have value and because determination of such value is not measurable
until such time as the contingencies are resolved, no value was assigned to the
CCPI in the proposed merger (see Note 2). However, subsequent to year end, the
Trust agreed to cancel the CCPI immediately prior to the effective time of the
proposed merger (see Note 2) in exchange for the issuance of 160,000 shares of
the Company's preferred stock which will be exchanged for Cortech shares at the
time of the merger.
8. RETIREMENT PLAN
The Company established a 401(k) Retirement Plan for its employees during
1993. Any full-time employee of the Company is eligible and can make voluntary
contributions to the plan.
F-32
<PAGE> 178
APPENDIX A -- AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
================================================================================
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG:
CORTECH, INC.,
A DELAWARE CORPORATION,
CORTECH MERGER SUB, INC.
A DELAWARE CORPORATION,
AND
BIOSTAR, INC.,
A DELAWARE CORPORATION
---------------------
DATED AS OF DECEMBER 22, 1997
---------------------
================================================================================
<PAGE> 179
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C> <C>
1. DESCRIPTION OF TRANSACTION......................................... A-1
1.1 Merger of Merger Sub into BioStar........................... A-1
1.2 Effect of the Merger........................................ A-1
1.3 Closing; Effective Time..................................... A-1
1.4 Certificate of Incorporation and Bylaws..................... A-1
1.5 Conversion of Stock; Options and Warrants................... A-2
1.6 Closing of BioStar's Transfer Books......................... A-3
1.7 Exchange of Certificates.................................... A-4
1.8 Dissenting Shares........................................... A-5
1.9 Tax Consequences............................................ A-5
1.10 Accounting Consequences..................................... A-5
1.11 Further Action.............................................. A-5
1.12 Cortech Charter Amendment................................... A-6
1.13 BioStar Charter Amendment................................... A-6
2. REPRESENTATIONS AND WARRANTIES OF BIOSTAR.......................... A-6
2.1 Due Organization; Subsidiaries; Etc......................... A-6
2.2 Certificate of Incorporation and Bylaws..................... A-6
2.3 Capitalization, Etc......................................... A-6
2.4 Financial Statements........................................ A-8
2.5 Absence of Changes.......................................... A-8
2.6 Title to Assets............................................. A-8
2.7 Real Property; Equipment; Leasehold......................... A-8
2.8 Proprietary Assets.......................................... A-9
2.9 Material Contracts.......................................... A-9
2.10 Liabilities................................................. A-11
2.11 Compliance with Legal Requirements.......................... A-11
2.12 Certain Business Practices.................................. A-11
2.13 Governmental Authorizations................................. A-11
2.14 Tax Matters................................................. A-12
2.15 Employee and Labor Matters; Benefit Plans................... A-12
2.16 Environmental Matters....................................... A-14
2.17 Insurance................................................... A-14
2.18 Transactions with Affiliates................................ A-14
2.19 Legal Proceedings; Orders................................... A-14
2.20 Authority; Binding Nature of Agreement...................... A-15
2.21 No Existing Discussions..................................... A-15
2.22 Vote Required............................................... A-15
2.23 Non-Contravention; Consents................................. A-15
2.24 Financial Advisor........................................... A-16
2.25 Full Disclosure............................................. A-16
</TABLE>
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<TABLE>
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3. REPRESENTATIONS AND WARRANTIES OF CORTECH AND MERGER SUB........... A-16
3.1 Due Organization, Subsidiaries, Etc......................... A-16
3.2 Certificate/Certificate of Incorporation and Bylaws......... A-16
3.3 Capitalization, Etc......................................... A-17
3.4 SEC Filings; Financial Statements........................... A-18
3.5 Absence of Changes.......................................... A-18
3.6 Title to Assets............................................. A-18
3.7 Real Property; Equipment; Leasehold......................... A-19
3.8 Proprietary Assets.......................................... A-19
3.9 Material Contracts.......................................... A-20
3.10 Liabilities................................................. A-21
3.11 Compliance with Legal Requirements.......................... A-21
3.12 Certain Business Practices.................................. A-21
3.13 Governmental Authorizations................................. A-22
3.14 Tax Matters................................................. A-22
3.15 Employee and Labor Matters; Benefit Plans................... A-23
3.16 Environmental Matters....................................... A-24
3.17 Insurance................................................... A-24
3.18 Transactions with Affiliates................................ A-24
3.19 Legal Proceedings; Orders................................... A-25
3.20 Authority; Binding Nature of Agreement...................... A-25
3.21 No Existing Discussions..................................... A-25
3.22 Vote Required............................................... A-25
3.23 Non-Contravention; Consents................................. A-25
3.24 Fairness Opinion............................................ A-26
3.25 Valid Issuance; Reservation of Shares....................... A-26
3.26 Financial Advisor........................................... A-26
3.27 Full Disclosure............................................. A-27
3.28 Cash Position............................................... A-27
4. CERTAIN COVENANTS OF THE PARTIES................................... A-27
4.1 Access and Investigation; Confidentiality................... A-27
4.2 Operation of BioStar's Business............................. A-27
4.3 Operation of Cortech's Business............................. A-29
4.4 No Solicitation by BioStar.................................. A-31
4.5 No Solicitation by Cortech.................................. A-31
5. ADDITIONAL COVENANTS OF THE PARTIES................................ A-32
5.1 Registration Statement; Joint Proxy Statement............... A-32
5.2 BioStar Stockholders' Meeting............................... A-33
5.3 Cortech Stockholders' Meeting............................... A-34
5.4 Regulatory Approvals........................................ A-35
5.5 ESPP........................................................ A-35
5.6 Indemnification Continuation................................ A-35
5.7 Additional Agreements....................................... A-36
5.8 Disclosure.................................................. A-37
5.9 Tax Matters................................................. A-37
5.10 Resignation of Officers and Directors....................... A-37
5.11 FIRPTA Matters.............................................. A-37
5.12 Affiliate Agreements........................................ A-37
5.13 Election of Directors....................................... A-37
5.14 Registration Rights......................................... A-37
5.15 Market Stand-off Agreement.................................. A-38
</TABLE>
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<TABLE>
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6. CONDITIONS PRECEDENT TO OBLIGATIONS OF CORTECH AND MERGER SUB...... A-38
6.1 Accuracy of Representations................................. A-38
6.2 Performance of Covenants.................................... A-38
6.3 Effectiveness of Registration Statement..................... A-38
6.4 Stockholder Approval........................................ A-38
6.5 Consents.................................................... A-38
6.6 Documents................................................... A-38
6.7 No Material Adverse Change.................................. A-39
6.8 No Restraints............................................... A-39
6.9 No Governmental Litigation.................................. A-39
6.10 No Other Litigation......................................... A-39
6.11 Delivery of Affiliates Agreements........................... A-39
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BIOSTAR..................... A-39
7.1 Accuracy of Representations................................. A-39
7.2 Performance of Covenants.................................... A-40
7.3 Effectiveness of Registration Statement..................... A-40
7.4 Stockholder Approval........................................ A-40
7.5 Documents................................................... A-40
7.6 No Material Adverse Change.................................. A-40
7.7 No Restraints............................................... A-40
7.8 Directors................................................... A-40
7.9 Consents.................................................... A-40
7.10 No Governmental Litigation.................................. A-40
7.11 No Other Litigation......................................... A-40
8. TERMINATION........................................................ A-41
8.1 Termination................................................. A-41
8.2 Effect of Termination....................................... A-42
8.3 Expenses; Termination Fees.................................. A-42
9. MISCELLANEOUS PROVISIONS........................................... A-42
9.1 Amendment................................................... A-42
9.2 Waiver...................................................... A-43
9.3 No Survival of Representations and Warranties............... A-43
9.4 Entire Agreement; Counterparts; Applicable Law.............. A-43
9.5 Jury Waiver................................................. A-43
9.6 Disclosure Schedule......................................... A-43
9.7 Attorneys' Fees............................................. A-43
9.8 Assignability............................................... A-43
9.9 Notices..................................................... A-44
9.10 Cooperation................................................. A-44
9.11 Construction................................................ A-44
</TABLE>
EXHIBITS
Exhibit A -- Certain Definitions
Exhibit B -- Form of BioStar Charter Amendment
Exhibit C -- Forms of Affiliate Agreement
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AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made
and entered into as of December 22, 1997, by and among CORTECH, INC., a Delaware
corporation ("Cortech"); CORTECH MERGER SUB, INC., a Delaware corporation and a
wholly-owned subsidiary of Cortech ("Merger Sub"); and BIOSTAR, INC., a Delaware
corporation ("BioStar"). Certain capitalized terms used in this Agreement are
defined in Exhibit A.
RECITALS
A. Cortech, Merger Sub and BioStar intend to effect a merger of Merger Sub
into BioStar in accordance with this Agreement and the Delaware General
Corporation Law (the "Merger"). Upon consummation of the Merger, Merger Sub will
cease to exist, and BioStar will become a wholly-owned subsidiary of Cortech.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended. For financial reporting purposes, it is intended that the Merger be
accounted for as a purchase.
C. The respective boards of directors of Cortech, Merger Sub and BioStar
adopted this Agreement and approved the Merger.
D. Certain stockholders of Cortech and BioStar have executed Voting
Agreements in connection with the Merger obligating them to vote to approve the
Merger when it is presented for approval at a meeting of stockholders of Cortech
and BioStar, respectively.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO BIOSTAR. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into BioStar, and the separate
existence of Merger Sub shall cease. BioStar will continue as the surviving
corporation in the Merger (the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the Delaware General
Corporation Law ("DGCL").
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, 2595 Canyon Boulevard, Suite 250, Boulder, Colorado at
10:00 a.m. on a date to be agreed by Cortech and BioStar (the "Closing Date"),
which shall be no later than the tenth business day after the satisfaction or
waiver of the conditions set forth in Sections 6 and 7. Contemporaneously with
or as promptly as practicable after the Closing, a properly executed certificate
of merger conforming to the requirements of Section 251 of the DGCL shall be
filed with the Secretary of State of the State of Delaware. The Merger shall
take effect at the time such certificate of merger is filed with the Secretary
of State of the State of Delaware (the "Effective Time").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) The Certificate of Incorporation of Merger Sub shall be the Certificate
of Incorporation of the Surviving Corporation.
(b) The Bylaws of Merger Sub shall be the Bylaws of the Surviving
Corporation.
(c) The officers of BioStar immediately prior to the Effective Time shall
be the officers of the Surviving Corporation. The persons identified in Section
5.13 below shall be the directors of the Surviving Corporation.
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1.5 CONVERSION OF STOCK; OPTIONS AND WARRANTS.
(a) At the Effective Time, by virtue of the Merger and without any further
action on the part of Cortech, Merger Sub, BioStar or any stockholder of
Cortech, Merger Sub or BioStar:
(i) any shares of BioStar Common Stock or BioStar Preferred Stock then
held by BioStar, if any, shall be canceled and retired and shall cease to
exist, and no consideration shall be delivered in exchange therefor;
(ii) any shares of BioStar Common Stock or BioStar Preferred Stock
then held by Cortech or any other subsidiary of Cortech, if any, shall be
canceled and retired and shall cease to exist, and no consideration shall
be delivered in exchange therefor;
(iii) except as provided in clauses "(i)" and "(ii)" above and subject
to Sections 1.5(b), 1.5(d) and 1.8, each share of BioStar Common Stock and
BioStar Preferred Stock then outstanding shall be converted into the right
to receive the number of fully paid and nonassessable shares of Cortech
Common Stock equal to a fraction the numerator of which is 28,500,000 and
the denominator of which is the number of shares of BioStar Common Stock
and BioStar Preferred Stock outstanding plus the number of shares of
BioStar Common Stock and BioStar Preferred Stock issuable upon exercise of
all (x) the outstanding BioStar Warrants and (y) outstanding BioStar
Options, in each case as of the Effective Time, and upon surrender of the
certificate representing such share of BioStar Common Stock and BioStar
Preferred Stock in the manner provided in Section 1.7 below.
(iv) each share of the common stock, $.001 par value, of Merger Sub
then outstanding shall be converted into one share of common stock of the
Surviving Corporation. Each stock certificate representing shares of common
stock of Merger Sub prior to the Effective Time shall represent an equal
number of shares of common stock of the Surviving Corporation from and
after the Effective Time.
(b) At the Effective Time of the Merger and without any further action on
the part of Cortech, Merger Sub, BioStar or any stockholder of Cortech, Merger
Sub or of BioStar:
(i) each BioStar Option shall be assumed by Cortech (an "Assumed
BioStar Option") (the aggregate number of shares of BioStar Common Stock
issuable upon the exercise of all outstanding BioStar Options immediately
prior to the Effective Time is referred to herein as the "Outstanding
Option Amount"). Each BioStar Option so assumed by Cortech will continue to
have, and be subject to, substantially the same terms and conditions set
forth in the documents governing such BioStar Options immediately prior to
the Effective Time, except that (A) such Assumed BioStar Option will be
exercisable for that number of whole shares of Cortech Common Stock equal
to the product of the number of shares of BioStar Common Stock subject to
such Assumed BioStar Option immediately prior to the Effective Time
multiplied by the Exchange Ratio (as defined in Section 1.5(d)), rounded
down to the nearest whole number of shares of Cortech Common Stock and (B)
the per share exercise price for the shares of Cortech Common Stock
issuable upon exercise of such Assumed BioStar Option will be equal to the
quotient obtained by dividing the exercise price per share under which such
BioStar Option, determined immediately prior to the Effective Time, by the
Exchange Ratio, rounded up to the nearest whole cent. The parties intend
that the assumption of the BioStar Options hereunder will constitute a
transaction to which Section 424(a) of the Code applies and this Section
shall be interpreted consistent with such intention. Consistent with the
terms of the BioStar Options and the documents governing such BioStar
Options, except as set forth in the BioStar Disclosure Schedule, the Merger
will not terminate or accelerate any Assumed BioStar Option or any right of
exercise, vesting or repurchase relating thereto with respect to shares of
Cortech Common Stock acquired upon exercise of such BioStar Option.
(ii) Holders of vested BioStar Options may elect to exercise such
options prior to the Effective Time and receive Cortech Common Stock by
providing notice of such exercise and payment of the exercise price thereof
to BioStar at any time prior to the Effective Time. In the event that any
holder of BioStar Options does not exercise such BioStar Options prior to
the Effective Time, such BioStar Options shall become Assumed BioStar
Options.
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(iii) As soon as practicable after the Effective Time, Cortech shall
issue to each holder of an Assumed BioStar Option a document evidencing the
stock option assumption by Cortech. The right to receive an Assumed BioStar
Option may not be assigned or transferred except as permitted by the
BioStar Stock Option Plans. Any attempted assignment contrary to this
Section 1.5(b)(iii) shall be null and void.
(c) Each warrant to purchase shares of BioStar Common Stock or BioStar
Preferred Stock remaining outstanding (other than those which will expire if
they remain unexercised as of the Effective Time) at the Effective Time shall
be, in connection with the Merger, assumed by Cortech. Each warrant so assumed
by Cortech under this Agreement shall continue to have, and be subject to, the
same terms and conditions set forth in the respective warrant agreements
governing such warrant immediately prior to the Effective Time, except that each
such warrant shall, following the Effective Time, be exercisable only for shares
of Cortech Common Stock in such number, and at such exercise price as is
determined by applying the Exchange Ratio in accordance with the terms of the
applicable warrant agreement.
(d) The fraction of a share of Cortech Common Stock determined in
accordance with Section 1.5(a)(iii) with regard to the BioStar Common Stock and
BioStar Preferred Stock (as such fraction may be adjusted in accordance with
this Section 1.5(d)) is hereinafter referred to as the "Exchange Ratio." If,
between the date of this Agreement and the Effective Time, the outstanding
shares of BioStar Common Stock or Cortech Common Stock are changed into a
different number or class of shares by reason of any stock split, stock
dividend, reverse stock split (including, without limitation, the reverse stock
split contemplated by Section 1.12 of this Agreement if effected prior to the
Effective Time), reclassification, recapitalization, exchange of shares or other
similar transaction, or if Cortech or BioStar pays an extraordinary dividend or
makes an extraordinary distribution, then such event shall be reflected in the
calculation of the Exchange Ratio as of the Effective Time.
(e) Except as set forth in the BioStar Disclosure Schedule, if any shares
of BioStar Common Stock or BioStar Preferred Stock outstanding immediately prior
to the Effective Time are unvested or are subject to a repurchase option, risk
of forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with BioStar or under which BioStar has any rights,
then the shares of Cortech Common Stock issued in exchange for such shares of
BioStar Common Stock or BioStar Preferred Stock will also be unvested or subject
to the same repurchase option, risk of forfeiture or other condition, as the
case may be, and the certificates representing such shares of Cortech Common
Stock may accordingly be marked with appropriate legends. BioStar shall take all
action that may be necessary to ensure that, from and after the Effective Time,
Cortech is entitled to exercise any such repurchase option or other right set
forth in any such restricted stock purchase agreement or other agreement.
(f) No fractional shares of Cortech Common Stock shall be issued in
connection with the Merger, and no certificates or scrip for any such fractional
shares shall be issued. Any holder of BioStar Common Stock who would otherwise
be entitled to receive a fraction of a share of Cortech Common Stock (after
aggregating all fractional shares of Cortech Common Stock issuable to such
holder) shall, in lieu of such fraction of a share and, upon surrender of such
holder's BioStar Stock Certificate(s) (as defined in Section 1.6), be paid in
cash the dollar amount (rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by the closing price (adjusted, if
necessary, to reflect the reverse stock split referenced in Section 1.12 below)
of a share of Cortech Common Stock on the Nasdaq National Market on the date the
Merger becomes effective.
1.6 CLOSING OF BIOSTAR'S TRANSFER BOOKS. At the Effective Time: (a) all
shares of BioStar Common Stock and BioStar Preferred Stock outstanding
immediately prior to the Effective Time shall automatically be canceled and
retired and shall cease to exist, and all holders of certificates representing
shares of BioStar Common Stock or BioStar Preferred Stock that were outstanding
immediately prior to the Effective Time shall cease to have any rights as
stockholders of BioStar except the right to receive (i) certificates
representing the number of fully paid and nonassessable shares of Cortech Common
Stock into which such shares of BioStar Common Stock or BioStar Preferred Stock
were converted at the Effective Time and (ii) any cash in lieu of fractional
shares of Cortech Common Stock, to be issued or paid in consideration therefor
upon
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surrender of such certificate in accordance with Section 1.7; and (b) the stock
transfer books of BioStar shall be closed with respect to all shares of BioStar
Common Stock and BioStar Preferred Stock outstanding immediately prior to the
Effective Time. No further transfer of any such shares of BioStar Common Stock
or BioStar Preferred Stock shall be made on such stock transfer books after the
Effective Time. If, after the Effective Time, a valid certificate previously
representing any of such shares of BioStar Common Stock or BioStar Preferred
Stock (a "BioStar Stock Certificate") is presented to the Exchange Agent (as
defined in Section 1.7) or to the Surviving Corporation, such BioStar Stock
Certificate shall be canceled and shall be exchanged as provided in Section 1.7.
1.7 EXCHANGE OF CERTIFICATES.
(a) On or prior to the Effective Time, Cortech shall select a reputable
bank or trust company reasonably acceptable to BioStar to act as exchange agent
in the Merger (the "Exchange Agent"). As of the Effective Time, Cortech shall
deposit with the Exchange Agent (i) certificates representing the shares of
Cortech Common Stock issuable pursuant to this Section 1, and (ii) cash
sufficient to make payments in lieu of fractional shares in accordance with
Section 1.5(f). The shares of Cortech Common Stock and cash amounts so deposited
with the Exchange Agent, together with any dividends or distributions with
respect to such shares with a record date on or after the Effective Time, are
referred to collectively as the "Exchange Fund."
(b) As soon as reasonably practicable after the Effective Time, and in any
event within five (5) business days, the Exchange Agent will mail to the holders
of BioStar Stock Certificates (i) a letter of transmittal in customary form and
containing such provisions as Cortech may reasonably specify (including a
provision confirming that delivery of BioStar Stock Certificates shall be
effected, and risk of loss and title to BioStar Stock Certificates shall pass,
only upon delivery of such BioStar Stock Certificates to the Exchange Agent),
and (ii) instructions for use in effecting the surrender of BioStar Stock
Certificates in exchange for certificates representing the Cortech Common Stock.
Upon surrender of a BioStar Stock Certificate to the Exchange Agent for
exchange, together with a duly executed letter of transmittal and such other
documents as may be reasonably required by the Exchange Agent or Cortech, (1)
the holder of such BioStar Stock Certificate shall be entitled to receive in
exchange therefore a certificate representing the number of whole shares of
Cortech Common Stock that such holder has the right to receive pursuant to the
provisions of Section 1.5, any cash in lieu of any fractional share(s) of
Cortech Common Stock, and any dividends or other distributions to which such
holder is entitled, and (2) the BioStar Stock Certificate so surrendered shall
be canceled. Until surrendered as contemplated by this Section 1.7, each BioStar
Stock Certificate shall be deemed, from and after the Effective Time, to
represent only the right, upon surrender as provided in this Section 1.7, to
receive shares of Cortech Common Stock, any cash in lieu of any fractional
share(s) of Cortech Common Stock, and any dividends or other distributions to
which such holder is entitled, each as contemplated by Section 1. If any BioStar
Stock Certificate shall have been lost, stolen or destroyed, Cortech may, in its
discretion and as a condition precedent to the issuance of any certificate
representing Cortech Common Stock, require the owner of such lost, stolen or
destroyed BioStar Stock Certificate to provide an appropriate affidavit and to
deliver a bond (in such sum as Cortech may reasonably direct) as indemnity
against any claim that may be made against the Exchange Agent, the Surviving
Corporation or Cortech with respect to such BioStar Stock Certificate. In the
event of a transfer of ownership of BioStar Common Stock or BioStar Preferred
Stock which is not registered in the transfer records of BioStar, a certificate
representing the proper number of shares of Cortech Common Stock may be issued
to a Person other than the Person in whose name the certificate so surrendered
is registered, if, upon presentation to the Exchange Agent, such certificate
shall be properly endorsed or otherwise be in proper form for transfer and the
Person requesting such issuance shall pay any transfer or other taxes required
by reason of the issuance of shares of Cortech Common Stock to a Person other
than the registered holder of such certificate or establish to the satisfaction
of Cortech that such tax has been paid or is not applicable.
(c) No dividends or other distributions declared or made with respect to
Cortech Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered BioStar Stock Certificate with respect to the
shares of Cortech Common Stock represented thereby, and no cash payment in lieu
of any fractional share nor any other cash payment shall be paid to any such
holder, until such holder surrenders such BioStar Stock Certificate in
accordance with this Section 1.7 (at which time such holder shall be entitled,
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<PAGE> 186
subject to the effect of applicable escheat or similar laws, to receive all such
dividends, distributions and cash payments, without interest).
(d) Any portion of the Exchange Fund that remains undistributed to holders
of BioStar Stock Certificates as of the date 180 days after the date on which
the Merger becomes effective shall be delivered to Cortech upon demand, and any
holders of BioStar Stock Certificates who have not theretofore surrendered their
BioStar Stock Certificates in accordance with this Section 1.7 shall thereafter
look only to Cortech for satisfaction of their claims for Cortech Common Stock,
cash in lieu of fractional shares of Cortech Common Stock and any dividends or
distributions with respect to Cortech Common Stock.
(e) Each of the Exchange Agent, the Surviving Corporation and Cortech shall
be entitled to deduct and withhold from any consideration payable or otherwise
deliverable pursuant to this Agreement to any holder or former holder of BioStar
Common Stock or BioStar Preferred Stock such amounts as may be required to be
deducted or withheld therefrom under the Code or any provision of state, local
or foreign tax law or under any other applicable Legal Requirement. To the
extent such amounts are so deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the Person to whom
such amounts would otherwise have been paid.
(f) Neither Cortech, the Surviving Corporation nor the Exchange Agent shall
be liable to any holder or former holder of BioStar Common Stock or BioStar
Preferred Stock or to any other Person with respect to any shares of Cortech
Common Stock (or dividends or distributions with respect thereto), or for any
cash amounts, delivered to any public official pursuant to any applicable
abandoned property law, escheat law or similar Legal Requirement.
1.8 DISSENTING SHARES.
(a) Notwithstanding anything to the contrary contained in this Agreement,
any shares of BioStar Common Stock or BioStar Preferred Stock outstanding
immediately prior to the Effective Time held by a holder who has demanded and
perfected appraisal or dissenters' rights for such shares in accordance with the
DGCL and who, as of the Effective Time, has not effectively withdrawn or lost
such appraisal or dissenters' rights, shall not be converted into or represent a
right to receive Cortech Common Stock pursuant to Section 1.5, but the holder
thereof shall only be entitled to such rights as are granted by the DGCL.
(b) Notwithstanding the provisions of subsection (a), if any holder of
shares of BioStar Common Stock or BioStar Preferred Stock who demands appraisal
of such shares under the DGCL shall effectively withdraw or lose (through
failure to perfect or otherwise) the right to appraisal, then, as of the later
of the Effective Time and the occurrence of such event, such holder's shares
shall automatically be converted into and represent only the right to receive
Cortech Common Stock and cash in lieu of fractional shares as provided in
Section 1.5, without interest thereon, upon surrender of the certificate
representing such shares.
(c) BioStar shall give Cortech (i) prompt notice of any written demands for
appraisal of any shares of BioStar Common Stock or BioStar Preferred Stock,
withdrawals of such demands, and any other instruments served pursuant to the
DGCL and received by BioStar and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. BioStar shall not, except with the prior written consent of Cortech,
voluntarily make any payment with respect to any demands for appraisal of
capital stock of BioStar or offer to settle or settle any such demands.
1.9 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.10 ACCOUNTING CONSEQUENCES. For financial reporting purposes, the Merger
is intended to be accounted for as a purchase.
1.11 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Cortech to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full right,
title and possession of and to all rights and property of Merger Sub and
BioStar,
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<PAGE> 187
the officers and directors of the Surviving Corporation and Cortech shall be
fully authorized (in the names of Merger Sub, BioStar and otherwise) to take
such action.
1.12 CORTECH CHARTER AMENDMENT. The board of directors of Cortech will
approve and submit for approval of Cortech's stockholders an amendment to
Cortech's Certificate of Incorporation (the "Cortech Charter Amendment") to (i)
change the name of Cortech to a new name mutually acceptable to Cortech and
BioStar and (ii) effectuate a one-for-four reverse stock split of Cortech's
Common Stock (the "Reverse Stock Split"). If approved by Cortech's stockholders,
the Cortech Charter Amendment will be filed immediately prior to the Effective
Time. The approval and effectuation of the Cortech Charter Amendment are not a
condition of the parties' obligation to consummate the Merger.
1.13 BIOSTAR CHARTER AMENDMENT. The board of directors of BioStar has
approved an amendment to BioStar's Restated Certificate of Incorporation
attached hereto as Exhibit B (the "BioStar Charter Amendment"), in order to
effectuate the consummation of the Merger. If approved by the BioStar
stockholders, the BioStar Charter Amendment will be filed immediately prior to
the Effective Time. The approval and effectuation of the BioStar Charter
Amendment is a condition to the parties' obligations to consummate the Merger.
2. REPRESENTATIONS AND WARRANTIES OF BIOSTAR
BioStar represents and warrants to Cortech and Merger Sub, except as set
forth in the BioStar Disclosure Schedule as follows:
2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) BioStar is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own, lease and use its
assets in the manner in which its assets are currently owned, leased and used;
and (iii) to perform its obligations under all BioStar Contracts by which it is
bound. BioStar is qualified to do business as a foreign corporation, and is in
good standing, under the laws of all jurisdictions where the nature of its
business requires such qualification except in jurisdictions where the failure
to so qualify, individually and in the aggregate, would not have a Material
Adverse Effect.
(b) BioStar has no Subsidiaries and does not own any capital stock of, or
any equity interest of any nature in, any other Entity, other than the Entities
identified in the BioStar Disclosure Schedule. Except as set forth in the
BioStar Disclosure Schedule, BioStar has not agreed nor is it obligated to make,
nor is it bound by any Contract under which it may become obligated to make, any
future investment in or capital contribution to any other Entity. Except as set
forth in the BioStar Disclosure Schedule, BioStar has not, at any time, been a
general partner of any general partnership, limited partnership or other Entity.
(c) BioStar has not conducted any business under or otherwise used, for any
purpose or in any jurisdiction, any fictitious name, assumed name, trade name or
other name, other than the name BioStar, Inc. and BioStar Medical Products, Inc.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS. BioStar has delivered to
Cortech accurate and complete copies of the Certificate of Incorporation, Bylaws
and other charter and organizational documents of BioStar, including all
amendments thereto.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of BioStar consists of: (i) 41,644,443
shares of BioStar Common Stock, $0.0001 par value, of which, as of November 30,
1997, 1,961,208 shares were issued and outstanding and (ii) 20,327,784 shares of
BioStar Preferred Stock, $0.0001 par value, of which, as of the date hereof, (A)
3,500,000 shares are designated Series A Preferred Stock of which 3,500,000 are
issued and outstanding; (B) 5,060,750 shares are designated Series B Preferred
Stock of which 5,000,000 are issued and outstanding; (C) 1,691,786 shares are
designated Series C Preferred Stock, none of which are issued and outstanding;
(D) 2,908,889 shares are designated Series D Preferred Stock, all of which are
issued and outstanding;
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(E) 4,928,359 shares are designated Series E Preferred Stock, of which 4,196,431
are issued and outstanding; and (F) 2,238,000 shares are designated Series F
Preferred Stock, none of which is issued and outstanding. All of the outstanding
shares of BioStar Common Stock and BioStar Preferred Stock have been duly
authorized and validly issued, and are fully paid and nonassessable. Except as
set forth in the BioStar Disclosure Schedule: (i) none of the outstanding shares
of BioStar Common Stock or BioStar Preferred Stock is entitled or subject to any
preemptive right, right of participation in future financings, right to maintain
a percentage ownership position, or any similar right; (ii) none of the
outstanding shares of BioStar Common Stock or BioStar Preferred Stock is subject
to any right of first refusal in favor of BioStar; and (iii) there is no
Contract relating to the voting or registration of, or restricting any Person
from purchasing, selling, pledging or otherwise disposing of (or granting any
option or similar right with respect to), any shares of BioStar Common Stock or
BioStar Preferred Stock. Except as set forth in the BioStar Disclosure Schedule,
BioStar is not under any obligation, and is not bound by any Contract pursuant
to which it may become obligated, to repurchase, redeem or otherwise acquire any
outstanding shares of BioStar Common Stock or BioStar Preferred Stock.
(b) As of November 30, 1997, 3,618,823 shares of BioStar Common Stock are
reserved for future issuance pursuant to BioStar Options and 1,300,231 shares
remain available for grant under the BioStar Option Plan (defined below). The
BioStar Disclosure Schedule sets forth the following information with respect to
each BioStar Option outstanding as of the date of this Agreement: (i) the name
of the optionee; (ii) the number of shares of BioStar Common Stock subject to
such BioStar Option; (iii) whether the BioStar Option was granted pursuant to
the 1995 Equity Incentive Plan (the "BioStar Option Plan") or was granted
outside of the BioStar Option Plan; (iv) the exercise price of such BioStar
Option; (v) the date on which such BioStar Option was granted; and (vi) the
extent to which such BioStar Option is vested and exercisable as of November 30,
1997. BioStar has delivered to Cortech accurate and complete copies of all stock
option plans and forms of option grant pursuant to which BioStar has granted any
outstanding stock options. Except as set forth in the BioStar Disclosure
Schedule, BioStar did not grant any new BioStar Options between November 30,
1997 and the date hereof. BioStar has reserved 2,606,426 shares of BioStar
Common Stock for issuance upon the exercise of certain warrants to purchase
Common Stock, 60,750 shares of Series B Preferred Stock for issuance upon the
exercise of certain warrants to purchase Series B Preferred Stock, 731,928
shares of Series E Preferred Stock for issuance upon the exercise of certain
warrants to purchase Series E Preferred Stock, and 1,778,465 shares of Series F
Preferred Stock for issuance upon the conversion of certain warrants to purchase
Series F Preferred Stock. The BioStar Disclosure Schedule sets forth the
following information with respect to each outstanding warrant to purchase
BioStar Common Stock and BioStar Preferred Stock: (i) the name of the holder of
such warrant; (ii) the number of shares of BioStar Common Stock or BioStar
Preferred Stock subject to such warrant; (iii) the exercise price of such
warrant; (iv) the date on which such warrant was issued; and (v) the date on
which such warrant expires. BioStar has delivered to Cortech an accurate and
complete copy of each such warrant. BioStar has reserved 1,600,000 shares of
Series C Preferred Stock for issuance upon the conversion of a convertible
contingent payment instrument (the "Contingent Instrument"). BioStar has
delivered to Cortech an accurate and complete copy of such instrument. BioStar
issued notes which are convertible into either Series E Preferred Stock or any
subsequent series of preferred stock sold by BioStar at a price per share less
than $1.75 (the "Next Round Preferred")(the "Convertible Notes"). BioStar and
the BioStar stockholders have undertaken to amend its Certificate of
Incorporation immediately prior to the conversion of the Convertible Notes in
order to provide for the Next Round Preferred.
(c) Except as set forth in the BioStar Disclosure Schedule, there is no:
(i) outstanding subscription, option, call, warrant or right (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of BioStar; (ii) outstanding security, instrument or obligation that
is or may become convertible into or exchangeable for any shares of the capital
stock or other securities of BioStar; (iii) stockholder rights plan (or similar
plan commonly referred to as a "poison pill") or Contract under which BioStar is
or may become obligated to sell or otherwise issue any shares of its capital
stock or any other securities; or (iv) condition or circumstance that may
reasonably give rise to or provide a basis for the assertion of a claim by any
Person to the effect that such Person is entitled to acquire or receive any
shares of capital stock or other securities of BioStar. Except as set forth on
the BioStar Disclosure Schedule, or elsewhere in this Section 2.3, there are no
bonds, debentures, notes or other indebtedness of BioStar
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outstanding having the right to vote (or convertible into securities having the
right to vote) on any matters on which the stockholders of BioStar have the
right to vote. BioStar has reserved 1,600,000 shares of Series C Preferred Stock
for issuance upon the conversion of the Contingent Instrument.
(d) All outstanding securities of BioStar, including shares of BioStar
Common Stock and BioStar Preferred Stock, all outstanding BioStar Options, all
outstanding warrants to purchase BioStar Common Stock or BioStar Preferred
Stock, and all outstanding notes convertible into BioStar Preferred Stock have
been issued and granted in all material respects in compliance with (i) all
applicable securities laws and other applicable Legal Requirements, and (ii) all
requirements set forth in applicable Contracts.
2.4 FINANCIAL STATEMENTS.
(a) The BioStar Disclosure Schedule sets forth BioStar's audited balance
sheets as of December 31, 1995 and December 31, 1996 and related audited
statements of operations, stockholders' equity and cash flows for the three
years then ended (collectively, the "Audited Financials") and BioStar's
unaudited balance sheets as of September 30, 1997 (the "Balance Sheet") and the
related unaudited statements of operations and cash flows for the nine-month
period then ended (collectively, the "Unaudited Financials")(the Audited
Financials and the Unaudited Financials are collectively referred to herein as
the "BioStar Financials"). The BioStar Financials were prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods covered. The BioStar Financials present fairly in
all material respects the financial condition and operating results of BioStar
as of the dates and during the periods indicated therein, subject, in the case
of the Unaudited Financials, to normal year-end adjustments, which will not be
material in amount or significance, and the absence of footnotes.
(b) Since September 30, 1997, BioStar has not incurred any liabilities of
the type required under GAAP to be recorded on a balance sheet or reported in
the footnotes thereto except liabilities incurred in the ordinary course of
business.
2.5 ABSENCE OF CHANGES. Since September 30, 1997:
(a) there has not been any Material Adverse Change in the business,
condition, capitalization, assets, liabilities, operations or financial
performance of BioStar taken as a whole, and no event has occurred that could
reasonably be expected to have a Material Adverse Effect on BioStar;
(b) there has not been any material loss, damage or destruction to, or any
material interruption in the use of, any of the assets of BioStar (whether or
not covered by insurance);
(c) there has not been any transaction, commitment, or other event or
condition (financial or otherwise) which would be prohibited by Section
4.2(b)(i), (iii), (xi), (xii), or (xiii) if it were to be effected, accepted or
were to take place, between the date hereof and the Effective Time.
2.6 TITLE TO ASSETS. Except as set forth in the BioStar Disclosure
Schedule, BioStar owns, and has good, valid and marketable title to, all assets
purported to be owned by it, including all assets reflected in BioStar's books
and records as being owned by BioStar. All of said assets are owned by BioStar
free and clear of any Encumbrances, except for (a) any lien for current taxes
not yet due and payable, (b) minor liens that have arisen in the ordinary course
of business and that do not (in any case or in the aggregate) materially detract
from the value of the assets subject thereto or materially impair the operations
of BioStar, and (c) liens described in the BioStar Disclosure Schedule.
2.7 REAL PROPERTY; EQUIPMENT; LEASEHOLD.
(a) BioStar does not own any real property or any interest in real
property, except for the leasehold created under the real property lease(s) set
forth in the BioStar Disclosure Schedule. Complete and correct copies of such
lease(s) have previously been delivered to Cortech by BioStar.
(b) All material items of equipment and other tangible assets owned by or
leased to BioStar are reasonably adequate for the uses to which they are being
put, are in good condition and repair (ordinary wear and tear excepted) and are
reasonably adequate for the conduct of BioStar's business in the manner in which
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such business is currently being conducted and in the manner in which such
business is required to be conducted pursuant to BioStar Contracts and which are
in effect on the date hereof.
2.8 PROPRIETARY ASSETS.
(a) The BioStar Disclosure Schedule describes each Proprietary Asset owned
by BioStar and deemed by BioStar to have material value to BioStar. Except as
disclosed in the BioStar Disclosure Schedule, BioStar has good title to such
Proprietary Assets and has no obligation to make any material ongoing royalty or
other payment to any Person in respect thereto. Any limitation on the right of
BioStar to use or exploit a BioStar Proprietary Asset deemed by BioStar to have
material value to BioStar has been disclosed in the BioStar Disclosure Schedule.
(b) BioStar has taken reasonable measures and precautions to protect and
maintain the confidentiality, secrecy and value of all material BioStar
Proprietary Assets (except BioStar Proprietary Assets whose value would not be
impaired materially by disclosure). Except where the failure to obtain such
agreements would not impair the value of any BioStar Proprietary Asset in a
material respect, BioStar has obtained, from all current and former employees of
BioStar and from all current and former consultants and independent contractors
to BioStar, signed agreements appropriately restricting the use and disclosure
of BioStar Proprietary Assets, and providing for assignment to BioStar of
BioStar Proprietary Assets developed by such employees and consultants.
(c) To the best of the knowledge of BioStar: (i) all patents, patent
applications, registered trademarks, registered service marks and registered
copyrights held by BioStar and deemed by BioStar to have a material value to
BioStar were filed and were and have been prosecuted in good faith and in
compliance with all applicable Legal Requirements; and (ii) there has not been
any claim, action or proceeding, and there is no pending or threatened claim,
action or proceeding related to any registration or filing of a BioStar
Proprietary Asset; (iii) none of the BioStar Proprietary Assets infringes,
misappropriates or conflicts with any Proprietary Asset owned or used by any
other Person; (iv) none of the products that are or have been designed, created,
developed, assembled, manufactured or sold by BioStar is infringing,
misappropriating or making any unlawful or unauthorized use of any Proprietary
Asset owned or used by any other Person, and none of such products has at any
time infringed, misappropriated or made any unlawful or unauthorized use of, and
BioStar has not received any notice or other communication (in writing or
otherwise) of any actual, alleged, possible or potential infringement,
misappropriation or unlawful or unauthorized use of, any Proprietary Asset owned
or used by any other Person; (v) no other Person is infringing, misappropriating
or making any unlawful or unauthorized use of, and no Proprietary Asset owned or
used by any other Person infringes or conflicts with, any material BioStar
Proprietary Asset.
(d) The BioStar Proprietary Assets constitute all the Proprietary Assets
reasonably necessary to enable BioStar to conduct its business in the manner in
which such business is being conducted and in the manner in which such business
is required to be conducted pursuant to the BioStar Contracts which are in
effect on the date hereof. Except as set forth in the BioStar Disclosure
Schedule, BioStar has not (i) licensed any of the material BioStar Proprietary
Assets to any Person on an exclusive basis, or (ii) entered into any covenant
not to compete or Contract limiting its ability to exploit fully any material
BioStar Proprietary Assets or to transact business in any market or geographical
area or with any Person.
2.9 MATERIAL CONTRACTS.
(a) The BioStar Disclosure Schedule identifies each BioStar Contract that
constitutes a "BioStar Material Contract." For purposes of this Agreement, each
of the following shall be deemed to constitute a BioStar Material Contract:
(i) any Contract relating to the employment of, or the performance of
services by, any officer or consultant, and any Contract pursuant to which
BioStar is or may become obligated to make any severance, termination,
bonus or relocation payment or any other payment (other than payments in
respect of salary and the grant of standard benefits);
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(ii) any Contract relating to the acquisition, transfer, development,
sharing or license of any BioStar Proprietary Asset deemed by BioStar to
have material value to BioStar (except for any Contract pursuant to which
any Proprietary Asset is licensed to BioStar under any third party software
license generally available to the public);
(iii) any Contract which provides for indemnification of any officer,
director, employee or agent;
(iv) any Contract imposing any restriction on the right or ability of
BioStar (A) to compete with any other Person, (B) to acquire any product or
other asset or any services from any other Person, to sell any product or
other asset to or perform any services for any other Person or to transact
business or deal in any other manner with any other Person, or (C) to
develop or distribute any technology, in each case where breach thereof by
BioStar would have a Material Adverse Effect on BioStar;
(v) any Contract (A) relating to the acquisition, issuance, voting,
registration, sale or transfer of any securities, (B) providing any Person
with any preemptive right, right of participation, right of maintenance or
any similar right with respect to any securities, or (C) providing BioStar
with any right of first refusal with respect to, or right to repurchase or
redeem, any securities;
(vi) any Contract requiring that BioStar give any notice, obtain any
consent or provide any information to any Person prior to accepting any
Acquisition Proposal;
(vii) any Contract (not otherwise identified in this Section) that (A)
has a term of more than 60 days or that may not be terminated by BioStar
(without penalty) within 60 days after the delivery of a termination notice
by BioStar and (B) that contemplates or involves (I) the payment or
delivery of cash or other consideration on or after the date hereof in an
amount or having a value in excess of $100,000 in aggregate payments under
such Contract, or (II) the performance of services on or after the date
hereof having a value in excess of $100,000 in aggregate payments under
such Contract;
(viii) any Contract (A) to which any Governmental Body is a party or
under which any Governmental Body has any rights or obligations, or
involving or directly or indirectly benefiting any Governmental Body
(including any subcontract or other Contract between BioStar and any
contractor or subcontractor to any Governmental Body) and that (B)
contemplates or involves (I) the payment or delivery of cash or other
consideration on or after the date hereof in an amount or having a value in
excess of $100,000 in aggregate payments under such Contract, or (II) the
performance of services on or after the date hereof having a value in
excess of $100,000 in aggregate payments under such Contract;
(ix) any open purchase order placed by BioStar requiring future
aggregate payments in excess of $100,000; and
(x) any Contract (not otherwise identified in this Section), if a
breach of such Contract could reasonably be expected to have a Material
Adverse Effect on BioStar.
(b) Each BioStar Material Contract is valid and in full force and effect,
and is enforceable in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies. Except as set forth in the BioStar Disclosure Schedule, the
aggregate amount payable by BioStar under Contracts that would be BioStar
Material Contracts but for the limitations of Sections 2.9(a)(vii)(B) or
2.9(a)(viii)(B) do not exceed $500,000. The aggregate amount payable by BioStar
under purchase orders not listed on the BioStar Disclosure Schedule does not
exceed $500,000.
(c) Except as set forth in the BioStar Disclosure Schedule: (i) BioStar has
not materially violated or breached, or committed any material default under,
any BioStar Material Contract, and, to the best of the knowledge of BioStar, no
other Person has materially violated or breached, or committed any material
default under, any BioStar Material Contract; (ii) to the best of the knowledge
of BioStar, no event has occurred, and no circumstance or condition exists, that
(with or without notice or lapse of time) could reasonably be expected to (A)
result in a material violation or breach of any of the provisions of any BioStar
Material Contract, (B) give any Person the right to declare a default or
exercise any remedy under any BioStar Material Contract, (C) give any Person the
right to a rebate, charge-back, penalty or change in delivery
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schedule under any BioStar Material Contract, (D) give any Person the right to
accelerate the maturity or performance of any BioStar Material Contract, or (E)
give any Person the right to cancel, terminate or materially modify any BioStar
Material Contract; (iii) since September 30, 1997, BioStar has not received any
written notice or other written communication regarding any actual or possible
violation or breach of, default under, or intention to terminate, any BioStar
Contract except for communication (A) that has subsequently been revoked; or (B)
has been received from a complaining party that has not contacted BioStar or
otherwise, to the knowledge of BioStar, taken any action with respect to such
party's complaint for a period of more than six months following receipt of the
communication; and (iv) BioStar has not waived any of its material rights under
any BioStar Material Contract, in each case where such breach, default,
violation or waiver would have a Material Adverse Effect on BioStar.
(d) To the best of the knowledge of BioStar, no Person is renegotiating, or
has the right to renegotiate, any material amount paid or payable to BioStar
under any BioStar Material Contract, or any other material term or provision of
any BioStar Material Contract, including termination provisions.
(e) The BioStar Contracts collectively constitute all of the Contracts
necessary to enable BioStar to conduct its business in the manner in which its
business is currently being conducted and in the manner in which its business is
required to be conducted pursuant to Contracts to which BioStar is a party and
which are in effect on the date hereof.
(f) The BioStar Disclosure Schedule sets forth a list of all claims made
under any BioStar Material Contract which are disputed in any material respect
or, to BioStar's knowledge, where a dispute as to any material matter has been
threatened.
2.10 LIABILITIES. BioStar has no accrued, contingent or other liabilities
of any nature, either matured or unmatured (whether or not required to be
reflected in financial statements in accordance with GAAP, and whether due or to
become due), except for: (a) liabilities identified as such in the BioStar
Financials; (b) normal and recurring liabilities that have been incurred by
BioStar since September 30, 1997 in the ordinary course of business and
consistent with past practices; and (c) other liabilities which have not had and
could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect on BioStar.
2.11 COMPLIANCE WITH LEGAL REQUIREMENTS. BioStar is, and to the best
knowledge of BioStar has at all times since inception been, in compliance with
all applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and could not reasonably be expected to have a
Material Adverse Effect on BioStar. Since inception, BioStar has not received
any notice or other communication from any Governmental Body regarding any
actual or possible violation of, or failure to comply with, any material Legal
Requirement.
2.12 CERTAIN BUSINESS PRACTICES. Neither BioStar nor any director, officer,
agent or employee of BioStar has (i) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity,
(ii) made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii)
made any other unlawful payment.
2.13 GOVERNMENTAL AUTHORIZATIONS. BioStar holds all material Governmental
Authorizations necessary to enable BioStar to conduct its business in the manner
in which its business is currently being conducted. All such Governmental
Authorizations are valid and in full force and effect. BioStar is, and to the
best knowledge of BioStar, at all times since inception has been, in substantial
compliance with the terms and requirements of such Governmental Authorizations.
Since inception, BioStar has not received any notice or other communication from
any Governmental Body regarding (a) any actual or possible violation of or
failure to comply with any term or requirement of any material Governmental
Authorization, or (b) any actual or possible revocation, withdrawal, suspension,
cancellation, termination or modification of any material Governmental
Authorization or (c) any requirement to apply for or hold Governmental
Authorization not held by BioStar, in each case where such violation,
revocation, suspension, cancellation, termination or modification would have a
Material Adverse Effect on BioStar.
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2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of BioStar with
any Governmental Body with respect to any taxable period ending on or before the
Closing Date (the "BioStar Returns") have been or will be filed on or before the
applicable due date (including any extensions of such due date). All amounts
shown on the BioStar Returns to be due on or before the Closing Date have been
or will be paid on or before the Closing Date.
(b) The BioStar Financials fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through the dates thereof in
accordance with generally accepted accounting principles. BioStar will
establish, in the ordinary course of business and consistent with its past
practices, quarterly reserves adequate for the payment of all Taxes for the
applicable periods from December 31, 1996 through the Closing Date. Since
January 1, 1997, no material Tax liability has been incurred other than in the
ordinary course of business.
(c) Except as set forth in the BioStar Disclosure Schedule, no BioStar
Return has ever been examined or audited by any Governmental Body. No extension
or waiver of the limitation period applicable to any of the BioStar Returns has
been granted (by BioStar or any other Person), and no such extension or waiver
has been requested from BioStar.
(d) No claim or Legal Proceeding is pending or, to the best of the
knowledge of BioStar, has been threatened in writing against or with respect to
BioStar in respect of any Tax. There are no unsatisfied liabilities for Taxes
(including liabilities for interest, additions to tax and penalties thereon and
related expenses) with respect to any notice of deficiency or similar document
received by BioStar (other than liabilities for Taxes asserted under any such
notice of deficiency or similar document which are being contested in good faith
by BioStar and with respect to which adequate reserves for payment have been
established). There are no liens for Taxes upon any of the assets of BioStar
except liens for current Taxes not yet due and payable. BioStar has not entered
into nor has it become bound by any agreement or consent pursuant to Section
341(f) of the Code. BioStar has not been, and will not be, required to include
any adjustment in taxable income for any tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions or events occurring, or
accounting methods employed, prior to the Closing. BioStar is not nor has it
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code. BioStar has no liability for the taxes of any
other Person.
(e) Except as set forth in the BioStar Disclosure Schedule, there is no
agreement, plan, arrangement or other Contract covering any employee or
independent contractor or former employee or independent contractor of BioStar
that, considered individually or considered collectively with any other such
Contracts, will, or could reasonably be expected to, give rise directly or
indirectly to the payment of any amount that would not be deductible pursuant to
Section 280G or Section 162 of the Code. BioStar is not, nor has it ever been, a
party to or bound by any tax indemnity agreement, tax sharing agreement, tax
allocation agreement or similar Contract (other than a Contract entered into in
the ordinary course of business in connection with the purchase or sale of
inventory or supplies).
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) The BioStar Disclosure Schedule identifies each salary, bonus, deferred
compensation, incentive compensation, stock purchase, stock option, severance
pay, termination pay, hospitalization, medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plan
or program (collectively, the "BioStar Plans") sponsored, maintained,
contributed to or required to be contributed to by BioStar for the benefit of
any current or former employee of BioStar.
(b) No BioStar Plan is subject to Title IV of ERISA, Part 3 of Title I of
ERISA or Section 412 of the Code, and no BioStar Plan constitutes a
"multi-employer plan" (as defined in Section 3(37) of ERISA).
(c) With respect to each BioStar Plan, BioStar has made available to
Cortech: (i) an accurate and complete copy of each such BioStar Plan (including
all amendments thereto); (ii) an accurate and complete
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copy of the annual report, if required under ERISA, with respect to such BioStar
Plans for the last two plan years; (iii) an accurate and complete copy of the
most recent summary plan description, together with each summary of material
modifications thereto, if required under ERISA, with respect to such BioStar
Plans, (iv) if such BioStar Plans are funded through a trust or any third party
funding vehicle, an accurate and complete copy of the trust or other funding
agreement (including all amendments thereto); (v) accurate and complete copies
of all Contracts relating to such BioStar Plans, including service provider
agreements, insurance contracts, minimum premium contracts, stop-loss
agreements, investment management agreements, subscription and participation
agreements and record-keeping agreements; and (vi) an accurate and complete copy
of the most recent determination, opinion, notification or advisory letter
received from the Internal Revenue Service with respect to such BioStar Plans
(if such BioStar Plans are intended to be qualified under Section 401(a) of the
Code).
(d) BioStar has no plan or commitment to create any additional Plan, or to
modify or change any existing Plan (other than to comply with applicable law) in
a manner that would create any material liability for BioStar.
(e) No BioStar Plan provides death, medical or health benefits coverage
(whether or not insured) with respect to any current or former employee of
BioStar after any such employee's termination of service (other than (i) benefit
coverage mandated by applicable law, including coverage provided pursuant to
Section 4980B of the Code ("COBRA"), (ii) deferred compensation benefits accrued
as liabilities on the BioStar Financials, and (iii) benefits the full costs of
which are borne by current or former employees of BioStar (or the employees'
beneficiaries)).
(f) With respect to any BioStar Plan constituting a group health plan
within the meaning of Section 4980B(g)(2) of the Code, the provisions of COBRA
have been complied with in all material respects. The BioStar Disclosure
Schedule lists all qualified beneficiaries under COBRA with respect to all such
BioStar Plans.
(g) Each of the BioStar Plans has been operated and administered in all
material respects in accordance with its terms and applicable Legal
Requirements, including but not limited to ERISA and the Code.
(h) All material contributions, premiums or other payments due from BioStar
to (or under) any BioStar Plan have been fully paid or adequately provided for
on the books and financial statements of BioStar.
(i) Each of the BioStar Plans intended to be qualified under Section 401(a)
of the Code has received a favorable determination, opinion, notification or
advisory letter from the Internal Revenue Service, and BioStar is not aware of
any reason why any such letter should be revoked.
(j) Except as set forth in the BioStar Disclosure Schedule, neither the
execution, delivery or performance of this Agreement, nor the consummation of
the Merger or any of the other transactions contemplated by this Agreement, will
result in any payment (including any bonus, golden parachute or severance
payment) to any current or former employee or director of BioStar (whether or
not under any BioStar Plan), or materially increase the benefits payable under
any BioStar Plan, or result in any acceleration of the time of payment or
vesting of any such benefits.
(k) The BioStar Disclosure Schedule contains a list of the ten employees
with the highest salaries of BioStar as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. BioStar is not a party to any collective bargaining contract or
other Contract with a labor union involving any of its employees. To the best
knowledge of BioStar, all of the employees of BioStar are "at will" employees.
(l) The BioStar Disclosure Schedule identifies each Employee who is not
fully available to perform work because of disability or other leave and sets
forth the basis of such leave and the anticipated date of return to full
service.
(m) BioStar is in compliance in all material respects with all applicable
Legal Requirements and Contracts relating to employment, employment practices,
wages, bonuses and terms and conditions of
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employment, including employee compensation matters and the classification of
independent contractors and workers.
2.16 ENVIRONMENTAL MATTERS. BioStar is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by BioStar of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. BioStar has not received any notice or other communication
(in writing or otherwise), whether from a Governmental Body, citizens group,
employee or otherwise, that alleges that BioStar is not in compliance with any
Environmental Law. To the knowledge of BioStar without further inquiry, no
current or prior owner of any property leased or controlled by BioStar has
received any notice or other communication (in writing or otherwise), whether
from a Government Body, citizens group, employee or otherwise, that alleges that
such current or prior owner or BioStar is not in compliance with any
Environmental Law. To the best knowledge of BioStar, all property that is leased
to, controlled by or used by BioStar, and all surface water, groundwater and
soil associated with or adjacent to such property is in clean and healthful
condition and is free of any material environmental contamination of any nature.
To the best knowledge of BioStar, BioStar has not disposed of, emitted,
discharged, handled, stored, transported, used or released any Materials of
Environmental Concern, arranged for the disposal, discharge, storage or release
of any Materials of Environmental Concern, or exposed any employee or other
individual to any Materials of Environmental Concern or condition so as to give
rise to any material liability or material corrective or remedial obligation
under any Environmental Laws.
2.17 INSURANCE. BioStar has delivered to Cortech a summary of all material
insurance policies and all material self-insurance programs relating to the
business, assets and operations of BioStar and has made available to Cortech
copies of the policies. Each of such insurance policies is in full force and
effect. Since September 30, 1997, BioStar has not received any notice or other
communication regarding any actual or possible (a) cancellation or invalidation
of any insurance policy, (b) refusal of any coverage or rejection of any
material claim under any insurance policy, or (c) material adjustment in the
amount of the premiums payable with respect to any insurance policy. Except as
set forth in the BioStar Disclosure Schedule, there is no pending claim
(including any workers' compensation claim) other than routine claims for
benefits under any BioStar Plan under or based upon any insurance policy of
BioStar.
2.18 TRANSACTIONS WITH AFFILIATES.
(a) Since December 31, 1996, except as set forth in the BioStar Disclosure
Schedule, no event has occurred that would be required to be reported by BioStar
pursuant to Item 404 of Regulation S-K promulgated by the SEC if BioStar was a
reporting company. The BioStar Disclosure Schedule identifies each Person who is
an "affiliate" (as that term is used in Rule 145 under the Securities Act) of
BioStar as of the date of this Agreement.
(b) The BioStar Disclosure Schedule contains an accurate and complete list
as of the date of this Agreement of all outstanding loans and advances made by
BioStar to any employee, director, consultant or independent contractor other
than routine travel advances and advances made for relocation purposes made to
employees in the ordinary course of business.
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) There is no pending Legal Proceeding, and (to the best of the knowledge
of BioStar) no Person has threatened to commence any Legal Proceeding: (i) that
involves BioStar or any of the assets owned or used by BioStar; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, the Merger or any of the other transactions
contemplated by this Agreement. To the best of the knowledge of BioStar, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that could reasonably be expected to give rise to or serve as a basis
for the commencement of any such Legal Proceeding that would reasonably be
expected to have a Material Adverse Effect on BioStar.
(b) There is no material order, writ, injunction, judgment or decree to
which BioStar, or any of the assets owned or used by BioStar, is subject. To the
best of the knowledge of BioStar, no officer or key employee of
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BioStar is subject to any order, writ, injunction, judgment or decree that
prohibits such officer or other employee from engaging in or continuing any
conduct, activity or practice relating to the business of BioStar.
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. BioStar has the absolute and
unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement. The board of directors of BioStar (at a
meeting duly called and held) has unanimously (a) determined that the Merger is
advisable and fair and in the best interests of BioStar and its stockholders,
(b) authorized and approved the execution, delivery and performance of this
Agreement by BioStar and unanimously approved the Merger, and (c) recommended
the approval of this Agreement and the Merger by the holders of BioStar Common
Stock and BioStar Preferred Stock and directed that this Agreement and the
Merger be submitted for consideration by the BioStar stockholders at a BioStar
Stockholders' Meeting (as defined in Section 5.2). This Agreement constitutes
the legal, valid and binding obligation of BioStar, enforceable against BioStar
in accordance with its terms, subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of
law governing specific performance, injunctive relief and other equitable
remedies.
2.21 NO EXISTING DISCUSSIONS. BioStar has terminated any existing
discussions with any Person that relate to any Acquisition Proposal. Neither
BioStar, nor any Representative of BioStar, is currently engaged, directly or
indirectly, in any discussions or negotiations with any other Person relating to
any Acquisition Proposal.
2.22 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the shares of BioStar Common Stock and BioStar Preferred Stock (voting on an
as-converted basis) outstanding on the BioStar Record Date, voting together as a
single class, and the affirmative vote of the holders of a majority of the
shares of each series of BioStar Preferred Stock outstanding on the BioStar
Record Date, voting as separate classes (the "Required BioStar Stockholder
Vote") are the only votes of the holders of any class or series of BioStar's
capital stock necessary to approve this Agreement, the Merger, the BioStar
Charter Amendment, and the other transactions contemplated by this Agreement.
2.23 NON-CONTRAVENTION; CONSENTS. Neither (x) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (y) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the Certificate of Incorporation, Bylaws or other charter
or organizational documents of BioStar, or (ii) any resolution adopted by
the stockholders, the board of directors or any committee of the board of
directors of BioStar;
(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge the Merger or any
of the other transactions contemplated by this Agreement or to exercise any
remedy or obtain any relief under, any Legal Requirement or any order,
writ, injunction, judgment or decree to which BioStar, or any of the assets
owned or used by BioStar, is subject, if the result would have a Material
Adverse Effect on BioStar;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by BioStar or that otherwise relates to the
business of BioStar or to any of the assets owned or used by BioStar, if
the result would have a Material Adverse Effect on BioStar;
(d) contravene, conflict with or result in a violation or material
breach of, or result in a default (or an event which with notice or lapse
of time or both would become a default) under, any provision of any BioStar
Material Contract, or give any Person the right to (i) declare a default or
exercise any remedy under any such BioStar Material Contract, (ii) a
rebate, charge-back, penalty or change in delivery schedule under any such
BioStar Material Contract, (iii) accelerate the maturity or performance of
any such BioStar Material Contract, or (iv) cancel, terminate or materially
modify any term of such BioStar Material Contract, if the result would have
a Material Adverse Effect on BioStar; or
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(e) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by BioStar (except for minor liens
that will not, in any case or in the aggregate, materially detract from the
value of the assets subject thereto or materially impair the operations of
BioStar).
Except as may be set forth in the BioStar Disclosure Schedule or as
required by the Exchange Act, the DGCL and the NASD Bylaws (as they relate to
the Form S-4 Registration Statement and the Joint Proxy Statement) BioStar is
not, nor will it be required to make any filing with or give any notice to, or
to obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement.
2.24 FINANCIAL ADVISOR. Except for Lehman Brothers, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or any of the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
BioStar. BioStar has furnished to Cortech accurate and complete copies of all
agreements under which any such fees, commissions or other amounts have been
paid or may become payable and all indemnification and other arrangements
relating to the engagement of Lehman Brothers.
2.25 FULL DISCLOSURE. This Agreement (including the BioStar Disclosure
Schedule) does not, and the certificate referred to in Section 6.6(c) will not,
(i) contain any representation, warranty or information that is false or
misleading with respect to any material fact, or (ii) omit to state any material
fact necessary in order to make the representations, warranties and information
contained and to be contained herein and therein (in the light of the
circumstances under which such representations, warranties and information were
or will be made or provided) not false or misleading.
3. REPRESENTATIONS AND WARRANTIES OF CORTECH AND MERGER SUB
Cortech and Merger Sub represent and warrant to BioStar, except as set
forth in the Cortech Disclosure Schedule or the Cortech SEC Documents (as
defined in Section 3.4 below) as follows (and notwithstanding any particular
reference in a representation or warranty to the Cortech SEC Documents or
Cortech Disclosure Schedule):
3.1 DUE ORGANIZATION, SUBSIDIARIES, ETC.
(a) Each of Cortech and its Subsidiaries (collectively, the "Cortech
Corporations"), is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own, lease and use its
assets in the manner in which its assets are currently owned, leased and used;
and (iii) to perform its obligations under all contracts by which it is bound.
Each of the Cortech Corporations is qualified to do business as foreign
corporation, and is in good standing, under the laws of all jurisdictions where
the nature of its business requires such qualification except in jurisdictions
where the failure to so qualify, individually and in the aggregate, would not
have a Material Adverse Effect.
(b) Cortech has no Subsidiaries, except for the corporation identified in
the Cortech Disclosure Schedule; and neither Cortech nor the corporation
identified in the Cortech Disclosure Schedule owns any capital stock of, or any
equity interest of any nature in, any other Entity other than the Entities
identified in the Cortech Disclosure Schedule. None of the Cortech Corporations
has agreed or is obligated to make or is bound by any Contract under which it is
obligated to make, any future investment in or capital contribution to any other
Entity. None of the Cortech Corporations has, at any time, been a general
partner of any general partnership, limited partnership, or other Entity.
3.2 CERTIFICATE/CERTIFICATE OF INCORPORATION AND BYLAWS. Cortech has
delivered to BioStar complete and accurate copies of the Certificate of
Incorporation, Bylaws, and other charter and organizational documents of the
respective Cortech Corporations, including all amendments thereto.
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3.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of Cortech consists of: (i) 50,000,000
shares of Cortech Common Stock, par value $0.002, of which, as of November 30,
1997 18,523,918 shares were issued and outstanding and no shares were held in
its treasury, and (ii) 2,000,000 shares of Cortech Preferred Stock, par value
$0.002, none of which were issued and outstanding or held in its treasury as of
November 30, 1997. All of the outstanding shares of Cortech Common Stock have
been duly authorized and validly issued, and are fully paid and nonassessable.
Except as set forth in the Cortech Disclosure Schedule: (i) none of the
outstanding shares of Cortech Common Stock is entitled or subject to any
preemptive right, right of participation in future financings, right to maintain
a percentage ownership position, or any similar right; (ii) none of the
outstanding shares of Cortech Common Stock is subject to any right of first
refusal in favor of Cortech; and (iii) there is no Cortech Contract relating to
the voting or registration of, or restricting any Person from purchasing,
selling, pledging or otherwise disposing of (or granting any option or similar
right with respect to), any shares of Cortech Common Stock. None of the Cortech
Corporations is under any obligation, or is bound by any Contract pursuant to
which it may become obligated, to repurchase, redeem or otherwise acquire any
outstanding shares of Cortech Common Stock or any other securities of any
Cortech Corporation, other than the stockholder rights plan disclosed pursuant
to Section 3.3(c) hereof. The authorized capital of Merger Sub consists of 100
shares of Common Stock, par value $.001 per share, 10 shares of which are issued
and outstanding and are held beneficially, and of record, by Cortech.
(b) As of November 30, 1997: (i) 376,662 shares of Cortech Common Stock are
reserved for future issuance pursuant to stock options granted and outstanding
under Cortech's Amended and Restated 1986 Incentive Stock Option Plan, (ii) no
shares of Cortech Common Stock are reserved for future issuance pursuant to
stock options granted and outstanding under Cortech's 1991 Non-employee
Directors' Stock Option Plan, (iii) 207,815 shares of Cortech Common Stock are
reserved for future issuance pursuant to stock options granted and outstanding
under Cortech's Amended and Restated 1992 Non-employee Directors' Stock Option
Plan, (iv) 333,682 shares of Cortech Common Stock are reserved for future
issuance pursuant to stock options granted and outstanding under Cortech's 1993
Equity Incentive Plan, and (v) 108,236 shares of Cortech Common Stock are
reserved for future issuance under Cortech's 1993 Employee Stock Purchase Plan
(the "Cortech ESPP"). The Cortech Disclosure Schedule sets forth the following
information with respect to each Cortech Option outstanding as of the date of
this Agreement: (i) the particular plan pursuant to which such Cortech Option
was granted; (ii) the name of the optionee; (iii) the number of shares of
Cortech Common Stock subject to such Cortech Option; (iv) the exercise price of
such Cortech Option; (v) the date on which such Cortech Option was granted; and
(vi) the extent to which such Cortech Option is vested and exercisable as of
November 30, 1997. Cortech has delivered to BioStar accurate and complete copies
of all stock option plans and forms of option grant pursuant to which Cortech
has granted any outstanding stock options. Cortech has reserved 709,688 shares
of Cortech Common Stock for issuance upon exercise of warrants. The Cortech
Disclosure Schedule sets forth the following information with respect to the
outstanding warrant to purchase Cortech Common Stock: (1) the name of the holder
of such warrant; (2) the number of shares of Cortech Common Stock subject to
such warrant; (3) the exercise price of such warrant; (4) the date on which such
warrant was issued; and (5) the date on which such warrant expires. Cortech has
delivered to BioStar an accurate and complete copy of such warrant.
(c) Except as set forth in the Cortech Disclosure Schedule, there is no:
(i) outstanding subscription, option, call, warrant or right (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of Cortech or any other Cortech Corporation; (ii) outstanding
security, instrument or obligation that is or may become convertible into or
exchangeable for any shares of the capital stock or other securities of Cortech
or any other Cortech Corporation; (iii) stockholder rights plan (or similar plan
commonly referred to as a "poison pill") or Contract under which Cortech or any
other Cortech Corporation is or may become obligated to sell or otherwise issue
any shares of its capital stock or any other securities; or (iv) condition or
circumstance that may reasonably give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is entitled to
acquire or receive any shares of capital stock or other securities of Cortech or
any other Cortech Corporation. There are no bonds, debentures, notes or other
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indebtedness of Cortech outstanding having the right to vote (or convertible
into securities having the right to vote) on any matters on which the
stockholders of the Cortech have the right to vote.
(d) All outstanding securities of all of the Cortech Corporations,
including shares of Cortech Common Stock, all outstanding Cortech Options, all
outstanding warrants to purchase Cortech Common Stock, all outstanding rights
under the Cortech ESPP and all outstanding shares of capital stock of each
subsidiary of Cortech have been issued and granted in all material respects in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements, and (ii) all requirements set forth in applicable Contracts.
(e) All of the outstanding shares of capital stock of Merger Sub have been
duly authorized and are validly issued, are fully paid and nonassessable and
(other than the capital stock of Cortech) are owned beneficially and of record
by Cortech, free and clear of any Encumbrances.
3.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Cortech has made available to BioStar accurate and complete copies
(excluding copies of exhibits) of all registration statements, proxy statements
and other statements, reports, schedules, forms and other documents filed by
Cortech with the SEC since September 30, 1993 (the "Cortech SEC Documents"). All
statements, reports, schedules, forms and other documents required to have been
filed by Cortech with the SEC have been so filed by Cortech on a timely basis
with the exception of the 1997 Annual Meeting Proxy Statement. As of the time it
was filed with the SEC (or, if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing): (i) each of the
Cortech SEC Documents complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act (as the case may be); and
(ii) none of the Cortech SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The consolidated financial statements (including any related notes)
contained in the Cortech SEC Documents (the "Cortech Financial Statements"): (i)
complied as to form in all material respects with the published rules and
regulations of the SEC applicable thereto; (ii) were prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods covered (except as may be indicated in the notes to such
financial statements and, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC, and except that unaudited financial statements may not
contain footnotes and are subject to normal and recurring year-end audit
adjustments which will not, individually or in the aggregate, be material in
amount); and (iii) fairly present the financial position of Cortech as of the
respective dates thereof and the results of operations and cash flows of Cortech
for the periods covered thereby.
(c) Since September 30, 1997, Cortech and its subsidiaries have not
incurred any liabilities of the type required under GAAP to be recorded on a
balance sheet or in the footnotes thereto except liabilities incurred in the
ordinary course of business.
3.5 ABSENCE OF CHANGES. Since September 30, 1997:
(a) there has not been any Material Adverse Effect on the business,
condition, capitalization, assets, liabilities, operations or financial
performance of the Cortech Corporations, and no event has occurred that could
reasonably be expected to have a Material Adverse Effect on the Cortech
Corporations;
(b) there has not been any material loss, damage or destruction to, or any
material interruption in the use of, any of the assets of the Cortech
Corporations which are necessary for the conduct of Cortech's business as
currently conducted (whether or not covered by insurance);
(c) there has not been any transaction, commitment, or other event or
condition (financial or otherwise) which would be prohibited by Section
4.3(b)(i), (iv), (ix), (x) or (xi) if it were to be effected, accepted or were
to take place between the date hereof and the Effective Time.
3.6 TITLE TO ASSETS. Except as set forth in the Cortech Disclosure Schedule
or the Cortech SEC Documents, the Cortech Corporations own, and have good, valid
and marketable title to, all assets purported to be owned by them, including:
all assets reflected in their books and records as being owned by the Cortech
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Corporations. All of said assets are owned by the Cortech Corporations free and
clear of any Encumbrances, except for (a) any lien for current taxes not yet due
and payable, (b) minor liens that have arisen in the ordinary course of business
and that do not (in any case or in the aggregate) materially detract from the
value of the assets subject thereto or materially impair the operations of any
of the Cortech Corporations, and (c) liens described in the Cortech Disclosure
Schedule.
3.7 REAL PROPERTY; EQUIPMENT; LEASEHOLD. Except as described in the Cortech
Disclosure Schedule or the Cortech SEC Documents:
(a) None of the Cortech Corporations owns any real property or any material
interest in real property, except for the leasehold created under real property
leases set forth in the Cortech Disclosure Schedule. Complete and correct copies
of such leases have previously been delivered to BioStar by Cortech.
(b) All material items of equipment and other tangible assets owned by or
leased to the Cortech Corporations are reasonably adequate for the uses to which
they are being put, are in good condition and repair (ordinary wear and tear
excepted) and are reasonably adequate for the conduct of the business of the
Cortech Corporations in the manner in which such business is currently being
conducted and in the manner in which such business is required to be conducted
pursuant to Cortech Contracts and which are in effect on the date hereof.
3.8 PROPRIETARY ASSETS.
(a) The Cortech SEC Documents describe each Proprietary Asset owned by
Cortech and deemed by Cortech to have material value to Cortech. Except as
disclosed in the Cortech SEC Documents, Cortech has good title to such
Proprietary Assets and has no obligation to make any material ongoing royalty or
other payment to any Person in respect thereto. Any limitation on the right of
Cortech to use or exploit a Cortech Proprietary Asset deemed by Cortech to have
material value to Cortech has been disclosed in the Cortech SEC Documents.
(b) The Cortech Corporations have taken reasonable measures and precautions
to protect and maintain the confidentiality, secrecy and value of all Cortech
Proprietary Assets (except Cortech Proprietary Assets whose value would be
unimpaired by disclosure). Except where the failure to obtain such agreements
would not impair the value of any Cortech Proprietary Asset, the Cortech
Corporations have obtained, from all current and former employees of the Cortech
Corporations and from all current and former consultants and independent
contractors to the Cortech Corporations, signed agreements appropriately
restricting the use and disclosure of the Cortech Proprietary Assets, and
providing for assignment to the Cortech Corporations of the Cortech Proprietary
Assets developed by such employees and consultants.
(c) To the best of the knowledge of Cortech: (i) all patents, patent
applications, registered trademarks, registered service marks and registered
copyrights held by any of the Cortech Corporations and deemed by Cortech to have
material value to Cortech were filed and were and have been prosecuted in good
faith and in compliance with all applicable Legal Requirements; (ii) there has
not been any claim, action or proceeding, and there is no pending or threatened
claim, action or proceeding relating to any registration or filing of a Cortech
Proprietary Asset; (iii) none of the Cortech Proprietary Assets infringes,
misappropriates or conflicts with any Proprietary Asset owned or used by any
other Person; (iv) no other Person is infringing, misappropriating or making any
unlawful or unauthorized use of, and no Proprietary Asset owned or used by any
other Person infringes or conflicts with, any material Cortech Proprietary
Asset.
(d) The Cortech Proprietary Assets constitute all of the Proprietary Assets
reasonably necessary to enable the Cortech Corporations to conduct their
businesses in the manner in which such businesses are being conducted and in the
manner in which such businesses are required to be conducted pursuant to
Contracts to which Cortech is a party and which are in effect on the date
hereof. Except as set forth in the Cortech Disclosure Schedule or the Cortech
SEC Documents, none of the Cortech Corporations has (i) licensed any of the
material Cortech Proprietary Assets to any Person on an exclusive basis, or (ii)
entered into any covenant not to compete or Contract limiting its ability to
exploit fully any material Cortech Proprietary Assets or to transact business in
any market or geographical area or with any Person.
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3.9 MATERIAL CONTRACTS.
(a) The Cortech Disclosure Schedule identifies each Cortech Corporation
Contract that constitutes a "Cortech Material Contract." For purposes of this
Agreement, each of the following shall be deemed to constitute a Cortech
Material Contract:
(i) any Contract relating to the employment of, or the performance of
services by, any officer or consultant, and any Contract pursuant to which
any of the Cortech Corporations is or may become obligated to make any
severance, termination, bonus or relocation payment or any other payment
(other than payments in respect of salary and the grant of standard
benefits);
(ii) any Contract relating to the acquisition, transfer, development,
sharing or license of any Proprietary Asset deemed by Cortech to have
material value to Cortech (except for any Contract pursuant to which any
Proprietary Asset is licensed to the Cortech Corporations under any third
party software license generally available to the public);
(iii) any Contract which provides for indemnification of any officer,
director, employee or agent;
(iv) any Contract imposing any restriction on the right or ability of
Cortech (A) to compete with any other Person, (B) to acquire any product or
other asset or any services from any other Person, to sell any product or
other asset to or perform any services for any other Person or to transact
business or deal in any other manner with any other Person, or (C) to
develop or distribute any technology, in each case where breach thereof by
Cortech would have a Material Adverse Effect on Cortech;
(v) any Contract (A) relating to the acquisition, issuance, voting,
registration, sale or transfer of any securities, (B) providing any Person
with any preemptive right, right of participation, right of maintenance or
any similar right with respect to any securities, or (C) providing Cortech
with any right of first refusal with respect to, or right to repurchase or
redeem, any securities;
(vi) any Contract requiring that Cortech give any notice, obtain any
consent or provide any information to any Person prior to accepting any
Acquisition Proposal;
(vii) any Contract (not otherwise identified in this Section) that (A)
has a term of more than 60 days or that may not be terminated by a Cortech
Corporation (without penalty) within 60 days after the delivery of a
termination notice by such Cortech Corporation and (B) that contemplates or
involves (I) the payment or delivery of cash or other consideration on or
after the date hereof in an amount or having a value in excess of $100,000
in aggregate payments under such Contract, or (II) the performance of
services on or after the date hereof having a value in excess of $100,000
in aggregate payments under such Contract;
(viii) any Contract (A) to which any Governmental Body is a party or
under which any Governmental Body has any rights or obligations, or
involving or directly or indirectly benefiting any Governmental Body
(including any subcontract or other Contract between BioStar and any
contractor or subcontractor to any Governmental Body) and (B) that
contemplates and involves (I) the payment or delivery of cash or other
consideration on or after the date hereof in an amount or having a value in
excess of $100,000 in aggregate payments under such Contract, or (B) the
performance of services on or after the date hereof having a value in
excess of $100,000 in aggregate payments under such Contract;
(ix) any open purchase order placed by a Cortech Corporation requiring
future aggregate payments in excess of $100,000;
(x) any other Contract (not otherwise identified in this Section), if
a breach of such Contract could reasonably be expected to have a Material
Adverse Effect on any of the Cortech Corporations.
(b) Each Cortech Material Contract is valid and in full force and effect,
and is enforceable in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies. The aggregate amount payable by the Cortech Corporations
under Contracts that would be Cortech Material Contracts but for the limitations
of Sections 3.9(a)(vii)(B) or 3.9(a)(viii)(B) do not exceed
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$50,000. The aggregate amount payable by the Cortech Corporations under purchase
orders not listed on the Cortech Disclosure Schedule does not exceed $50,000.
(c) Except as set forth in the Cortech Disclosure Schedule: (i) none of the
Cortech Corporations has materially violated or breached, or committed any
material default under, any Cortech Material Contract, and, to the best of the
knowledge of Cortech, no other Person has materially violated or breached, or
committed any material default under, any Cortech Material Contract; (ii) to the
best of the knowledge of Cortech, no event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time) could
reasonably be expected to (A) result in a material violation or breach of any of
the provisions of any Cortech Material Contract, (B) give any Person the right
to declare a default or exercise any remedy under any Cortech Material Contract,
(C) give any Person the right to a rebate, charge-back, penalty or change in
delivery schedule under any Cortech Material Contract, (D) give any Person the
right to accelerate the maturity or performance of any Cortech Material
Contract, or (E) give any Person the right to cancel, terminate or materially
modify any Cortech Material Contract; (iii) since September 30, 1997, none of
the Cortech Corporations has received any written notice or other written
communication regarding any actual or possible violation or breach of, default
under, or any intention to terminate, any Cortech Contract, except for
communication (A) that has subsequently been revoked; or (B) has been received
from a complaining party that has not contacted Cortech or otherwise, to
Cortech's knowledge, taken any action with respect to such party's complaint for
a period of more than six months following receipt of the communication; and
(iv) none of the Cortech Corporations has waived any of its material rights
under any Cortech Material Contract, in each case where such breach, default,
violation or waiver would have a Material Adverse Effect on Cortech.
(d) To the best of the knowledge of Cortech, no Person is renegotiating, or
has the right to renegotiate, any material amount paid or payable to the Cortech
Corporations under any Cortech Material Contract, or any other material term or
provision of any Cortech Material Contract, including termination provisions.
(e) The Cortech Material Contracts and other Contracts of the Cortech
Corporations collectively constitute all of the Contracts necessary to enable
the Cortech Corporations to conduct their respective businesses in the manner in
which their businesses are currently being conducted and in the manner in which
such businesses are required to be conducted pursuant to Contracts to which
Cortech is a party and which are in effect on the date hereof.
(f) The Cortech Disclosure Schedule sets forth a list of all claims made
under any Cortech Material Contract which are disputed in any material respect
or, to Cortech's knowledge, where a dispute as to any material matter has been
threatened.
3.10 LIABILITIES. None of the Cortech Corporations has any accrued,
contingent or other liabilities of any nature, either matured or unmatured
(whether or not required to be reflected in financial statements in accordance
with GAAP, and whether due or to become due), except for: (a) liabilities
identified as such in the Cortech Financial Statements; (b) normal and recurring
liabilities that have been incurred by the Cortech Corporations since September
30, 1997 in the ordinary course of business and consistent with past practices;
and (c) other liabilities which have not had and could not reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect on the Cortech Corporations.
3.11 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the Cortech Corporations
is, and, to the best knowledge of Cortech, has at all times since inception
been, in compliance with all applicable Legal Requirements, except where the
failure to comply with such Legal Requirements has not had and could not
reasonably be expected to have, a Material Adverse Effect on the Cortech
Corporations. Since inception, none of the Cortech Corporations has received any
notice or other communication from any Governmental Body regarding any actual or
possible violation of, or failure to comply with, any material Legal
Requirement.
3.12 CERTAIN BUSINESS PRACTICES. None of the Cortech Corporations nor any
director, officer, agent or employee of any of the Cortech Corporations has (i)
used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns
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or violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended, or (iii) made any other unlawful payment.
3.13 GOVERNMENTAL AUTHORIZATIONS. The Cortech Corporations hold all
material Governmental Authorizations necessary to enable them to conduct their
respective businesses in the manner in which such businesses are currently being
conducted. All such Governmental Authorizations are valid and in full force and
effect. Each Cortech Corporation is, and to the best knowledge of Cortech, at
all times since inception has been, in substantial compliance with the terms and
requirements of such Governmental Authorizations. To the best knowledge of
Cortech, since inception, none of the Cortech Corporations has received any
notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any material Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any material Governmental Authorization or (c) any requirement
to apply for or hold a Governmental Authorization not held by Cortech, in each
case where such violation, revocation, suspension, cancellation, termination or
modification would have a Material Adverse Effect on Cortech.
3.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of the respective
Cortech Corporations with any Governmental Body with respect to any taxable
period ending on or before the Closing Date (the "Cortech Returns") have been or
will be filed on or before the applicable due date (including any extensions of
such due date). All amounts shown on the Cortech Returns to be due on or before
the Closing Date have been or will be paid on or before the Closing Date.
(b) The Cortech Financial Statements fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through the dates thereof in
accordance with GAAP. Each Cortech Corporation will establish, in the ordinary
course of business and consistent with its past practices, quarterly reserves
adequate for the payment of all Taxes for the applicable periods from December
31, 1996 through the Closing Date. Since January 1, 1997 no material Tax
liability has been incurred other than in the ordinary course of business.
(c) Except as set forth in the Cortech Disclosure Schedule, no Cortech
Return has ever been examined or audited by any Governmental Body. No extension
or waiver of the limitation period applicable to any of the Cortech Returns has
been granted (by Cortech or any other Person), and no such extension or waiver
has been requested by the Cortech Corporations.
(d) No claim or Legal Proceeding is pending or, to the best of the
knowledge of Cortech, has been threatened in writing against or with respect to
any Cortech Corporation in respect of any Tax. There are no unsatisfied
liabilities for Taxes (including liabilities for interest, additions to tax and
penalties thereon and related expenses) with respect to any notice of deficiency
or similar document received by any Cortech Corporation (other than liabilities
for Taxes asserted under any such notice of deficiency or similar document which
are being contested in good faith by the Cortech Corporation and with respect to
which adequate reserves for payment have been established). There are no liens
for Taxes upon any of the assets of any of the Cortech Corporations except liens
for current Taxes not yet due and payable. None of the Cortech Corporations has
entered into or become bound by any agreement or consent pursuant to Section
341(f) of the Code. None of the Cortech Corporations has been, and none of the
Cortech Corporations will be required to include any adjustment in taxable
income for any tax period (or portion thereof) pursuant to Section 481 or 263A
of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions or events occurring, or accounting methods employed,
prior to the Closing. None of the Cortech Corporations is nor has been a United
States real property holding corporation within the meaning of Section 847(c)(2)
of the Code. No Cortech Corporation has liabilities for the Taxes of any other
Person.
(e) Except as set forth in the Cortech Disclosure Schedule or the Cortech
SEC Documents, there is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of any of the Cortech Corporations that, considered
individually or considered collectively with any other such Contracts, will, or
could reasonably be expected to, give rise directly or indirectly to the payment
of any amount that would not be deductible pursuant to Section 280G or
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Section 162 of the Code. None of the Cortech Corporations is, or has ever been,
a party to or bound by any tax indemnity agreement, tax sharing agreement, tax
allocation agreement or similar Contract (other than a Contract entered into in
the ordinary course of business in connection with the purchase or sale of
inventory or supplies).
3.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) The Cortech Disclosure Schedule or the Cortech SEC Documents identifies
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, medical, life or
other insurance, supplemental unemployment benefit, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Cortech Plans")
sponsored, maintained, contributed to or required to be contributed to by any of
the Cortech Corporations for the benefit of any current of former employee of
each Cortech Corporation.
(b) No Cortech plan is subject to Title IV of ERISA, Part 3 of Title I of
ERISA or Section 412 of the Code, and no Cortech Plan constitutes a
"multi-employer plan" (as defined in Section 3(37) of ERISA).
(c) With respect to each Cortech Plan, Cortech has made available to
BioStar: (i) an accurate and complete copy of each such Cortech Plan (including
all amendments thereto); (ii) an accurate and complete copy of the annual
report, if required under ERISA, with respect to such Cortech Plans for the last
two plan years; (iii) an accurate and complete copy of the most recent summary
plan description, together with each summary of material modifications thereto,
if required under ERISA, with respect to such Cortech Plans; (iv) if such
Cortech Plans are funded through a trust or a third party funding vehicle, an
accurate and complete copy of the trust or other funding agreement (including
all amendments thereto); (v) accurate and complete copies of all Contracts
relating to such Cortech Plans, including service provider agreements, insurance
contracts, minimum premium contracts, stop-loss agreements, investment
management agreements, subscription and participation agreements and
record-keeping agreements; and (vi) an accurate and complete copy of the most
recent determination, opinion, notification or advisory letter received from the
Internal Revenue Service with respect to such Cortech Plans (if such Cortech
Plans are intended to be qualified under Section 401(a) of the Code).
(d) Cortech has no plan or commitment to create any additional Plan, or to
modify or change any existing Plan (other than to comply with applicable law) in
a manner that would create any material liability for any of the Cortech
Corporations.
(e) No Cortech Plan provides death, medical or health benefits coverage
(whether or not insured) with respect to any of its current or former employees
after any such employee's termination of service (other than (i) benefit
coverage mandated by applicable law, including coverage provided pursuant to
Section 4980B of the Code, (ii) deferred compensation benefits accrued as
liabilities on the most recent financial statements included in the Cortech SEC
filings, and (iii) benefits the full cost of which are borne by such current or
former employees (or the employees' beneficiaries)).
(f) With respect to any Cortech Plan constituting a group health plan
within the meaning of Section 4980B(g)(2) of the Code, COBRA has been complied
with in all material respects. The Cortech Disclosure Schedule lists all
qualified beneficiaries under COBRA with respect to all such Cortech Plans.
(g) Each of the Cortech Plans has been operated and administered in all
material respects in accordance with its terms and applicable Legal
Requirements, including but not limited to ERISA and the Code.
(h) All material contributions, premiums or other payments due from any of
the Cortech Corporations to (or under) any Cortech Plan have been fully paid or
adequately provided for on the books and financial statements of the Cortech
Corporations.
(i) Each of the Cortech Plans intended to be qualified under Section 401(a)
of the Code has received a favorable determination, opinion, notification or
advisory letter from the Internal Revenue Service, and Cortech is not aware of
any reason why any such letter should be revoked.
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(j) Except as set forth in the Cortech Disclosure Schedule, neither the
execution, delivery or performance of this Agreement, nor the consummation of
the Merger or any of the other transactions contemplated by this Agreement, will
result in any payment (including any bonus, golden parachute or severance
payment) to any of Cortech's current or former employees or directors (whether
or not under any Cortech Plan), or materially increase the benefits payable
under any Cortech Plan, or result in any acceleration of the time of payment or
vesting of any such benefits.
(k) Cortech is not a party to any collective bargaining contract or other
Contract with a labor union involving any of its employees. To the best
knowledge of Cortech, all of Cortech's employees are "at will" employees.
(l) Each Cortech Corporation is in compliance in all material respects with
all applicable Legal Requirements and Contracts relating to employment,
employment practices, wages, bonuses and terms and conditions of employment,
including employee compensation matters and the classification of independent
contractors and workers.
3.16 ENVIRONMENTAL MATTERS. Each of the Cortech Corporations is in
compliance in all material respects with all applicable Environmental Laws,
which compliance includes the possession by each of the Cortech Corporations of
all permits and other Governmental Authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof. None
of the Cortech Corporations has received any notice or other communication (in
writing or otherwise), whether from a Governmental Body, citizens group,
employee or otherwise, that alleges that any of the Cortech Corporations is not
in compliance with any Environmental Law, and, to the best of the knowledge of
Cortech, there are no circumstances that may prevent or interfere with the
compliance by any of the Cortech Corporations with any Environmental Law in the
future. To the knowledge of Cortech without further inquiry, no current or prior
owner of any property leased or controlled by any of the Cortech Corporations
has received any notice or other communications (in writing or otherwise),
whether from a Government Body, citizens group, employee or otherwise, that
alleges that such current or prior owner or any of the Cortech Corporations is
not in compliance with any Environmental Law. To the best of the knowledge of
Cortech, all property that is leased to, controlled by or used by Cortech, and
all surface water, groundwater and soil associated with or adjacent to such
property is in clean and healthful condition and is free of any material
environmental contamination of any nature. To the best knowledge of Cortech,
none of the Cortech Corporations has disposed of, emitted, discharged, handled,
stored, transported, used or released any Materials of Environmental Concern,
arranged for the disposal, discharge, storage or release of any Materials of
Environmental Concern, or exposed any employee or other individual to any
Materials of Environmental Concern or condition so as to give rise to any
material liability or material corrective or remedial obligation under any
Environmental Laws.
3.17 INSURANCE. Cortech has delivered to BioStar a summary of all material
insurance policies and all material self-insurance programs relating to the
business, assets and operations of the respective Cortech Corporations and has
made available to BioStar copies of the polices. Each of such insurance policies
is in full force and effect. Since September 30, 1997, none of the Cortech
Corporations has received any notice or other communication regarding any actual
or possible (a) cancellation or invalidation of any insurance policy, (b)
refusal of any coverage or rejection of any material claim under any insurance
policy, or (c) material adjustment in the amount of the premiums payable with
respect to any insurance policy. Except as set forth in the Cortech Disclosure
Schedule, there is no pending claim (including any workers' compensation claim)
other than routine claims for benefits under any Cortech Plan, under or based
upon any insurance policy of any of the Cortech Corporations.
3.18 TRANSACTIONS WITH AFFILIATES.
(a) Except as set forth in the Cortech SEC Reports, since the date of
Cortech's last proxy statement filed with the SEC, no event has occurred that
would be required to be reported by Cortech pursuant to Item 404 of Regulation
S-K promulgated by the SEC. The Cortech Disclosure Schedule identifies each
Person who is an "affiliate" (as that term is used in Rule 145 under the
Securities Act) of Cortech and who beneficially owns more than one percent of
the outstanding voting capital stock of Cortech as of the date of this
Agreement.
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(b) The Cortech Disclosure Schedule contains an accurate and complete list
as of the date of this Agreement of all outstanding loans and advances made by
any of the Cortech Corporations to any employee, director, consultant or
independent contractor other than routine travel advances and advances made for
relocation purposes made to employees in the ordinary course of business.
3.19 LEGAL PROCEEDINGS; ORDERS.
(a) There is no pending Legal Proceeding, and (to the best of the knowledge
of Cortech) no Person has threatened to commence any Legal Proceeding: (i) that
involves Cortech or any of the assets owned or used by Cortech or any of the
Cortech Corporations; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the Merger
or any of the other transactions contemplated by this Agreement. To the best of
the knowledge of Cortech, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding
that would reasonably be expected to have a Material Adverse Effect on the
Cortech Corporations.
(b) There is no material order, writ, injunction, judgment or decree to
which any of the Cortech Corporations, or any of the assets owned or used by any
of the Cortech Corporations, is subject. To the best of the knowledge of
Cortech, no officer or key employee of the Cortech Corporations is subject to
any order, writ, injunction, judgment or decree that prohibits such officer or
other employee from engaging in or continuing any conduct, activity or practice
relating to the business of any of the Cortech Corporations.
3.20 AUTHORITY; BINDING NATURE OF AGREEMENT. Cortech and Merger Sub have
the absolute and unrestricted right, power and authority to enter into and to
perform their obligations under this Agreement. The board of directors of
Cortech (at a meeting duly called and held) has unanimously (a) determined that
the Merger is advisable and fair and in the best interests of Cortech and its
stockholders, (b) authorized and approved the execution, delivery and
performance of this Agreement by Cortech and approved the Merger as sole
stockholder of Merger Sub, (c) recommended the approval of the issuance of
Cortech Common Stock in the Merger by the holders of Cortech Common Stock, and
directed that such issuance be submitted for consideration by Cortech's
stockholders at the Cortech Stockholders' Meeting (as defined in Section 5.3)
and the board of directors of Merger Sub has duly authorized by all necessary
action the execution, delivery and performance by Merger Sub of this Agreement.
This Agreement constitutes the legal, valid and binding obligation of Cortech
and Merger Sub, enforceable against Cortech and Merger Sub in accordance with
its terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
3.21 NO EXISTING DISCUSSIONS. Cortech has terminated any existing
discussions with any Person that relate to any Acquisition Proposal. None of the
Cortech Corporations, and no Representative of any of the Cortech Corporations,
is currently engaged, directly or indirectly, in any discussions or negotiations
with any Person (other than BioStar) relating to any Acquisition Proposal.
3.22 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the total votes cast at a meeting of the Cortech stockholders at which a quorum
is present (the "Required Cortech Stockholder Merger Vote"), is the only vote of
the holders of any class or series of Cortech's capital stock necessary to
approve the issuance of Cortech Common Stock in the Merger. The affirmative vote
of the holders of a majority of the outstanding shares of Cortech Common Stock
entitled to vote at the Cortech Stockholders Meeting is the only vote of the
holder of any class or series of Cortech's capital stock necessary to approve
the Cortech Charter Amendment (the "Required Cortech Stockholder Charter Vote).
3.23 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of Cortech's Certificate of Incorporation, Bylaws or other
charter or organizational documents of any of the Cortech
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Corporations, or (ii) any resolution adopted by the stockholders, the board
of directors or any committee of the board of directors of any of the
Cortech Corporations;
(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge the Merger or any
of the other transactions contemplated by this Agreement or to exercise any
remedy or obtain any relief under, any Legal Requirement or any order,
writ, injunction, judgment or decree to which any of the Cortech
Corporations, or any of the assets owned or used by any of the Cortech
Corporations, is subject, if the result would have a Material Adverse
Effect on Cortech;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by Cortech or that otherwise relates to
Cortech's business or to any of the assets owned or used by any of the
Cortech Corporations, if the result would have a Material Adverse Effect on
Cortech;
(d) contravene, conflict with or result in a violation or material
breach of, or result in a default (or an event which with notice or lapse
of time or both would become a default) under, any provision of any Cortech
Contract that is or would constitute a Cortech Material Contract, or give
any Person the right to (i) declare a default or exercise any remedy under
any such Cortech Material Contract, (ii) a rebate, charge-back, penalty or
change in delivery schedule under any such Cortech Material Contract, (iii)
accelerate the maturity or performance of any such Cortech Material
Contract, or (iv) cancel, terminate or materially modify any term of such
Cortech Material Contract, if the result would have a Material Adverse
Effect on Cortech; or
(e) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by any of the Cortech Corporations
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or
materially impair the operations of any of the Cortech Corporations).
Except as may be required by the Exchange Act, the DGCL, and the NASD
Bylaws (as they relate to the Form S-4 Registration Statement and the Joint
Proxy Statement) none of the Cortech Corporations was, is or will be required to
make any filing with or give any notice to, or to obtain any Consent from, any
Person in connection with (x) the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement, or (y)
the consummation of the Merger or any of the other transactions contemplated by
this Agreement.
3.24 FAIRNESS OPINION. Cortech's board of directors has received the
written opinion of Cowen, financial advisor to Cortech, dated as of the date of
this Agreement, to the effect that the terms of the Merger are fair to Cortech
from a financial point of view.
3.25 VALID ISSUANCE; RESERVATION OF SHARES. The Cortech Common Stock to be
issued in the Merger in exchange for BioStar Common Stock and BioStar Preferred
Stock and to be issued upon exercise or conversion of all BioStar Options,
BioStar Warrants, the Contingent Instrument and the Convertible Notes will, when
issued in accordance with the provisions of this Agreement and the terms of such
BioStar Options, BioStar Warrants, Contingent Instrument and Convertible Notes,
be validly issued, fully paid and nonassessable. Cortech's board of directors
has duly reserved by all necessary action the Cortech Common Stock issuable upon
exercise or conversion of such BioStar Options, BioStar Warrants, Contingent
Instrument and Convertible Notes.
3.26 FINANCIAL ADVISOR. Except for Cowen, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger or any of the other transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Cortech
Corporations. Cortech has furnished to BioStar accurate and complete copies of
all agreements under which any such fees, commissions, or other amounts have
been paid or may become payable and all indemnification and other arrangements
relating to the engagement of Cowen.
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3.27 FULL DISCLOSURE. This Agreement (including the Cortech Disclosure
Schedule) does not, and the certificate referred to in Section 7.5(c) will not,
(i) contain any representation, warranty or information that is false or
misleading with respect to any material fact, or (ii) omit to state any material
fact necessary in order to make the representations, warranties and information
contained and to be contained herein and therein (in the light of the
circumstances under which such representations, warranties and information were
or will be made or provided) not false or misleading.
3.28 CASH POSITION. The Cortech Disclosure Schedule sets forth the
projected cash position of Cortech as of December 31, 1997 and March 31, 1998
and, if the Closing shall not have theretofore occurred, projected expenses for
the months of April and May 1998 (the "Cortech Cash Projection").
4. CERTAIN COVENANTS OF THE PARTIES
4.1 ACCESS AND INVESTIGATION; CONFIDENTIALITY.
(a) During the period from the date of this Agreement through the Effective
Time (the "Pre-Closing Period"), BioStar and Cortech each shall, and BioStar and
Cortech shall cause the respective Representatives of BioStar and the Cortech
Corporations to: (a) provide each other and their respective Representatives
with reasonable access to each others' and their Subsidiaries' respective
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to each other
and to their Subsidiaries; and (b) provide each other and their respective
Representatives with such copies of the existing books, records, Tax Returns,
work papers and other documents and information relating to each other and their
Subsidiaries, and with such additional financial, operating and other data and
information regarding each other and their Subsidiaries, as Cortech and BioStar
may reasonably request.
(b) Each of the parties hereto hereby agrees to and reaffirms the terms and
provisions of the Mutual Nondisclosure Agreement between Cortech and BioStar
executed as of October 31, 1997 (the "Nondisclosure Agreement").
4.2 OPERATION OF BIOSTAR'S BUSINESS.
(a) During the Pre-Closing Period: (i) BioStar shall conduct its business
and operations (A) in the ordinary course and in accordance with past practices
or the operating plan previously delivered by BioStar to Cortech and (B) in
compliance with all applicable Legal Requirements and the requirements of all
BioStar Material Contracts; (ii) BioStar shall use reasonable efforts to ensure
that BioStar preserves intact its current business organization, keeps available
the services of its current officers and employees and maintains its relations
and goodwill with all suppliers, customers, landlords, creditors, licensors,
licensees, employees and other Persons having business relationships with
BioStar; (iii) BioStar shall keep in full force all insurance policies referred
to in Section 2.17 or replace any such policies that terminate with comparable
or superior policies; (iv) BioStar shall provide all notices, assurances and
support required by any BioStar Contract relating to any BioStar Proprietary
Asset in order to ensure that no condition under such BioStar Contract occurs
which could result in, or could increase the likelihood of, any transfer or
public disclosure by BioStar of any BioStar Proprietary Asset; and (v) BioStar
shall (to the extent requested by Cortech) cause its officers to report
regularly to Cortech concerning the status of BioStar's business.
(b) During the Pre-Closing Period, BioStar shall not (without the prior
written consent of Cortech):
(i) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities, except for repurchases at less than fair market value pursuant
to employment or consulting agreements in effect prior to the date hereof;
(ii) sell, issue, grant or authorize the issuance or grant of (A) any
capital stock or other security (except BioStar Common Stock upon the valid
exercise of BioStar Options or BioStar warrants outstanding on the date of
this Agreement or pursuant to equipment lease financings, in connection
with BioStar's line of credit with Venture Lending and similar transactions
or otherwise in the ordinary course of business), (B) any option, call,
warrant or right to acquire any capital stock or other security, or
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(C) any instrument convertible into or exchangeable for any capital stock
or other security; provided, however, that notwithstanding the foregoing,
BioStar may grant up to 800,000 options to employees following the date of
this Agreement under its existing stock option plans.
(iii) except as contemplated by this Agreement, amend or waive any of
its rights under, or accelerate the vesting under, any provision of the
BioStar Option Plan, any provision of any agreement evidencing any
outstanding stock option or any restricted stock purchase agreement, or
otherwise modify any of the terms of any outstanding option, warrant or
other security or any related Contract;
(iv) except as contemplated by this Agreement, amend or permit the
adoption of any amendment to its Certificate of Incorporation or Bylaws or
other charter or organizational documents, or effect or become a party to
any merger, consolidation, share exchange, business combination,
recapitalization, reclassification of shares, stock split, reverse stock
split or similar transaction;
(v) form any Subsidiary or acquire any equity interest or other
interest in any other Entity;
(vi) make any capital expenditure, except capital expenditures through
December 31, 1997 in an aggregate amount of no more than the amount
provided for in the capital budget previously provided to Cortech for such
period, and thereafter in an aggregate amount of no more than a pro-rata
portion of the amount that is provided for in a 1998 capital budget which
shall be provided to and approved by Cortech (such approval not to be
unreasonably withheld) prior to January 1, 1998;
(vii) except as set forth in the operating plan previously provided to
Cortech, enter into or become bound by, or permit any of the assets owned
or used by it to become bound by, any BioStar Material Contract, or amend
or terminate, or waive or exercise any material right or remedy under, any
BioStar Material Contract;
(viii) acquire, lease or license any right or other asset from any
other Person or sell or otherwise dispose of, or lease or license, any
right or other asset to any other Person (except in each case for (A)
assets not constituting BioStar Proprietary Assets and acquired, leased,
licensed or disposed of by BioStar in the ordinary course of business; (B)
consistent with past practices and except in the case of the in-licensing
of Proprietary Assets, for agreements involving the payment of less than
$25,000 per year and a royalty of less than 0.75% and (C) rights granted to
academic institutions and researchers for research purposes, or waive or
relinquish any material right;
(ix) lend money to any Person, except travel advances and loans
related to relocation, education and immigration-related expenses made in
the ordinary course of business, and loans in connection with employee
stock purchases as provided for in agreements in effect on the date hereof,
or incur or guarantee any indebtedness or pledge or encumber any material
assets (except that BioStar may make routine borrowings in the ordinary
course of business and in accordance with past practices under its line of
credit with Venture Lending);
(x) except as set forth in the BioStar Disclosure Schedule, establish,
adopt or amend any employee benefit plan, pay any bonus or make any
profit-sharing or similar payment to, or increase the amount of the wages,
salary, commissions, fringe benefits or other compensation or remuneration
payable to, any of its directors, officers or employees;
(xi) change any of its methods of accounting or accounting practices
in any respect;
(xii) make any material Tax election;
(xiii) commence or settle any Legal Proceeding except in the ordinary
course of business;
(xiv) materially amend or otherwise modify any of the terms of its
engagement of the financial advisor referenced in Section 2.24 above;
(xv) amend or otherwise modify any of the terms of any BioStar
Warrants, except to the extent necessary to terminate such Warrants or
reduce the number of shares issuable upon exercise thereunder;
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(xvi) enter into any material transaction or take any other material
action in each case not specifically provided for in the operating plan
previously provided by BioStar to Cortech, or outside the ordinary course
of business or inconsistent with past practices; or
(xvii) agree or commit to take any of the actions described in clauses
"(i)" through "(xvi)" of this Section 4.2(b).
(c) During the Pre-Closing Period, BioStar shall promptly notify Cortech in
writing of: (i) the discovery by BioStar of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes a material inaccuracy in any representation or
warranty made by BioStar in this Agreement; (ii) any event, condition, fact or
circumstance that occurs, arises or exists after the date of this Agreement and
that would cause or constitute a material inaccuracy in any representation or
warranty made by BioStar in this Agreement if (A) such representation or
warranty had been made as of the time of the occurrence, existence or discovery
of such event, condition, fact or circumstance, or (B) such event, condition,
fact or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement; (iii) any material breach of any covenant or obligation of
BioStar; and (iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Section 6 or Section 7
impossible or unlikely or that has had or could reasonably be expected to have a
Material Adverse Effect on BioStar. No notification given to Cortech pursuant to
this Section 4.2(c) shall limit or otherwise affect any of the representations,
warranties, covenants or obligations of BioStar contained in this Agreement.
4.3 OPERATION OF CORTECH'S BUSINESS.
(a) During the Pre-Closing Period: (i) Cortech shall ensure that each of
the Cortech Corporations conducts its business and operations (A) in the
ordinary course and in accordance with the operating plan previously discussed
among Cortech and BioStar and (B) in compliance with all applicable Legal
Requirements and the requirements of all Cortech Material Contracts; (ii)
Cortech shall use reasonable efforts to ensure that each of the Cortech
Corporations preserves intact its current business organization, keeps available
the services of its current officers and employees and maintains its relations
and goodwill with all suppliers, customers, landlords, creditors, licensors,
licensees, employees and other Persons having business relationships with the
respective Cortech Corporations; and (iii) Cortech shall keep in full force all
insurance policies referred to in Section 3.17 or replace such policies with
comparable or superior policies; and (iv) Cortech shall provide all notices,
assurances and support required by any Cortech Contract relating to any
Proprietary Asset in order to ensure that no condition under such Cortech
Contract occurs which could result in, or could increase the likelihood of, any
transfer or public disclosure by any Cortech Corporation of any Proprietary
Asset.
(b) During the Pre-Closing Period, Cortech shall not (without the prior
written consent of BioStar), and shall not permit any of the other Cortech
Corporations to:
(i) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities, except for repurchases at less than fair market value pursuant
to employment or consulting agreements in effect prior to the date hereof;
(ii) hire any new employees, excluding those persons hired to replace
employees who terminate their employment with a Cortech Corporation during
the Pre-Closing Period;
(iii) sell, issue, grant or authorize the issuance or grant of (A) any
capital stock or other security (except Cortech Common Stock upon the valid
exercise of Cortech Options or Cortech warrants outstanding on the date of
this Agreement or the exercise of rights under the Cortech ESPP or pursuant
to equipment lease financings and similar transactions or otherwise in the
ordinary course of business), (B) any option, call, warrant or right to
acquire any capital stock or other security, (C) any instrument convertible
into or exchangeable for any capital stock or other security;
(iv) except as contemplated by this Agreement, amend or waive any of
its rights under, or accelerate the vesting under, any provision of any of
Cortech Option Plans, any provision of any
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agreement evidencing any outstanding stock option or any restricted stock
purchase agreement, or otherwise modify any of the terms of any outstanding
option, warrant or other security or any related Contract;
(v) except as contemplated by this Agreement, amend or permit the
adoption of any amendment to its Certificate of Incorporation or Bylaws or
other charter or organizational documents, or effect or become a party to
any merger, consolidation, share exchange, business combination,
recapitalization, reclassification of shares, stock split, reverse stock
split or similar transaction;
(vi) except as contemplated by this Agreement and except as previously
disclosed to BioStar, form any Subsidiary or acquire any equity interest or
other interest in any other Entity;
(vii) make any capital expenditure, except capital expenditures in an
aggregate amount of no more than $25,000;
(viii) establish, adopt or amend any employee benefit plan or pay any
bonus or make any profit sharing or similar payment to, or increase the
amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees, except as disclosed to BioStar;
(ix) change any of its methods of accounting or accounting practices
in any respect;
(x) make any material Tax election;
(xi) commence or settle any Legal Proceeding except in the ordinary
course of business;
(xii) materially amend or otherwise modify any of the terms of its
engagement of the financial advisor referenced in Section 3.26 above;
(xiii) enter into any material transaction or take any other material
action in each case either inconsistent with the operating plan previously
provided by Cortech to BioStar, or outside the ordinary course of business;
(xiv) except as previously disclosed to BioStar, sell or otherwise
dispose of, or grant an exclusive license or any other exclusive right to
utilize Cortech Proprietary Assets which individually or in the aggregate
constitute core technology material to the business of Cortech, or grant to
any third party a right of first refusal, first offer, or first negotiation
with regard to material products or such core technology; or
(xv) make any expenditure, singly or in the aggregate, that exceeds
the aggregate expenditures set forth in the Cortech Cash Projection during
the period ended March 31, 1998 by more than a net $350,000 or make any
expenditure, singly or in the aggregate, that exceeds the aggregate
expenditures set forth in the Cash Projections by more than a net $100,000
for the months of April 1998 or May 1998; or
(xvi) agree or commit to take any of the actions described in clause
"(i)" through "(xv)" of this Section 4.3(b).
(c) During the Pre-Closing Period, Cortech shall promptly notify BioStar in
writing of: (i) the discovery by Cortech of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes a material inaccuracy in any representation or
warranty made by Cortech in this Agreement; (ii) any event, condition, fact or
circumstance that occurs, arises or exists after the date of this Agreement and
that would cause or constitute a material inaccuracy in any representation or
warranty made by Cortech in this Agreement if (A) such representation or
warranty had been made as of the time of the occurrence, existence or discovery
of such event, condition, fact or circumstance, or (B) such event, condition,
fact or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement; (iii) any material breach of any covenant or obligation of
Cortech; and (iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Section 6 or Section 7
impossible or unlikely or that has had or could reasonably be expected to have a
Material Adverse Effect on the Cortech Corporations. No notification given to
BioStar pursuant to this Section 4.3(c) shall
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limit or otherwise affect any of the representations, warranties, covenants or
obligations of Cortech contained in this Agreement.
4.4 NO SOLICITATION BY BIOSTAR.
(a) BioStar shall not directly or indirectly, and shall not authorize or
permit any Representative of BioStar directly or indirectly to, (i) solicit,
initiate, knowingly encourage or induce the making, submission or announcement
of any Acquisition Proposal or take any similar action, (ii) furnish any
non-public information regarding BioStar to any Person in connection with or in
response to an Acquisition Proposal, (iii) engage in discussions or negotiations
with any Person with respect to any Acquisition Proposal, (iv) approve, endorse
or recommend any Acquisition Proposal or (v) enter into any letter of intent or
similar document or any Contract contemplating or otherwise relating to any
Acquisition Transaction. Without limiting the generality of the foregoing,
BioStar acknowledges and agrees that any violation of any of the restrictions
set forth in the preceding sentence by any Representative of BioStar, whether or
not such Representative is purporting to act on behalf of BioStar, shall be
deemed to constitute a breach of this Section 4.4 by BioStar.
(b) Nothing contained in this Agreement shall prevent BioStar or its board
of directors from (i) furnishing information regarding BioStar (including a copy
of this Section 4.4) to any Person in connection with or in response to a bona
fide, unsolicited Acquisition Proposal or engaging in discussions or
negotiations with respect thereto if and only to the extent that (A) the board
of directors of BioStar determines in good faith, after consultation with its
financial advisor that such Acquisition Proposal is reasonably likely to result
in a Superior Offer, (B) the board of directors of BioStar determines in good
faith, after consultation with its outside counsel, including discussions of
applicable legal standards under Delaware law, that such action is required in
order for the board of directors to comply with its fiduciary duties under
applicable law, (C) the Person who has requested such information has executed
and delivered to BioStar a non-disclosure agreement that is not less restrictive
than the non-disclosure agreement in effect between BioStar and Cortech, and (D)
BioStar has not breached Section 4.4(a)(i), or (ii) complying with Rule 14e-2
and Rule 14d-9 promulgated under the Exchange Act. In addition, nothing in
Section 4.4(a) above shall prevent the board of directors of BioStar from
recommending a Superior Offer to its stockholders, if the Board determines,
after consultation with its outside counsel, including discussions of applicable
legal standards under Delaware law that, in light of such Superior Offer, such
recommendation is required in order for the board of directors to comply with
its fiduciary obligations to BioStar's stockholders under applicable law (which
determination shall be made in light of a revised proposal, if any, made by the
Cortech prior to the date of such determination); provided however that BioStar
(i) shall provide Cortech with at least 48 hours prior written notice of its
intention to hold any meeting at which BioStar's board of directors is
reasonably expected to consider an Acquisition Proposal, or such lesser amount
of time as has been given to the Board in relation to such meeting, and (ii)
shall not recommend to its stockholders a Superior Offer for at least two
business days after BioStar has provided Cortech with the material terms of such
Superior Offer.
(c) BioStar shall promptly advise Cortech orally and in writing of any
Acquisition Proposal (including the identity of the Person making or submitting
such Acquisition Proposal and the terms thereof) that is made or submitted by
any Person during the Pre-Closing Period. BioStar shall keep Cortech informed
with respect to material changes to the terms of any such Acquisition Proposal
and any material modification or proposed modifications thereto.
(d) BioStar shall immediately cease and cause to be terminated any existing
discussions with any Person that relate to any Acquisition Proposal and shall
request the return or destruction of any confidential information previously
disclosed to such Person and shall use commercially reasonable efforts to ensure
that such information is destroyed or returned.
4.5 NO SOLICITATION BY CORTECH.
(a) Cortech shall not directly or indirectly, and shall not authorize or
permit any of the other Cortech Corporations or any Representative of any of the
Cortech Corporations directly or indirectly to, (i) solicit, initiate, knowingly
encourage or induce the making, submission or announcement of any Acquisition
Proposal or take any similar action, (ii) furnish any non-public information
regarding any of the Cortech Corporations
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to any Person in connection with or in response to an Acquisition Proposal,
(iii) engage in discussions or negotiations with any Person with respect to any
Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
Contract contemplating or otherwise relating to any Acquisition Transaction.
Without limiting the generality of the foregoing, Cortech acknowledges and
agrees that any violation of any of the restrictions set forth in the preceding
sentence by any Representative of any of the Cortech Corporations, whether or
not such Representative is purporting to act on behalf of Cortech, shall be
deemed to constitute a breach of this Section 4.5 by Cortech.
(b) Nothing contained in this Agreement shall prevent Cortech or its board
of directors from (i) furnishing information regarding any of the Cortech
Corporations (including copy of this Section 4.5) to any Person in connection
with or in response to a bona fide, unsolicited Acquisition Proposal or engaging
in discussions or negotiations with respect thereto if and only to the extent
that (A) the board of directors of Cortech determines in good faith, after
consultation with its financial advisor that such Acquisition Proposal is
reasonably likely to result in a Superior Offer, (B) the board of directors of
Cortech determines in good faith, after consultation with its outside counsel,
including discussions of applicable legal standards under Delaware law, that
such action is required in order for the board of directors to comply with its
fiduciary duties under applicable law, (C) the Person who has requested such
information has executed and delivered to Cortech a non-disclosure agreement
that is not less restrictive than the non-disclosure agreement in effect between
Cortech and BioStar, and (D) Cortech has not breached Section 4.5(a)(i), or (ii)
complying with Rule 14e-2 and Rule 14d-9 promulgated under the Exchange Act. In
addition, nothing in Section 4.5(a) above shall prevent the board of directors
of Cortech from recommending a Superior Offer to its stockholders, if the Board
determines, after consultation with its outside counsel, including discussions
of applicable legal standards under Delaware law, that, in light of such
Superior Offer, such recommendation is required in order for the board of
directors to comply with its fiduciary obligations to Cortech's stockholders
under applicable law (which determination shall be made in light of a revised
proposal, if any, made by BioStar prior to the date of such determination);
provided however that Cortech (i) shall provide BioStar with at least 48 hours
prior written notice of its intentions to hold any meeting at which Cortech's
board of directors is reasonably expected to consider an Acquisition Proposal,
or such lesser amount of time as has been given to the Board in relation to such
meeting, and (ii) Cortech shall not recommend to its stockholders a Superior
Offer for at least two business days after Cortech has provided BioStar with the
material terms of such Superior Offer.
(c) Cortech shall promptly advise BioStar orally and in writing of any
Acquisition Proposal (including the identity of the Person making or submitting
such Acquisition Proposal and the terms thereof) that is made or submitted by
any Person during the Pre-Closing Period. Cortech shall keep BioStar informed
with respect to material changes to the terms of any such Acquisition Proposal
and any material modification or proposed modifications thereto.
(d) Cortech shall immediately cease and cause to be terminated any existing
discussions with any Person that relate to any Acquisition Proposal and shall
request the return or destruction of any confidential information previously
disclosed to such Person and shall use commercially reasonable efforts to ensure
that such information is destroyed or returned.
5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 REGISTRATION STATEMENT; JOINT PROXY STATEMENT.
(a) As promptly as practicable after the date of this Agreement, Cortech
and BioStar shall prepare and cause to be filed with the SEC the Joint Proxy
Statement and simultaneously or thereafter Cortech shall prepare and cause to be
filed with the SEC the Form S-4 Registration Statement, in which the Joint Proxy
Statement will be included as a prospectus. Each of Cortech and BioStar shall
use all reasonable efforts to cause the Form S-4 Registration Statement and the
Joint Proxy Statement to comply with the rules and regulations promulgated by
the SEC, to respond promptly to any comments of the SEC or its staff and to have
the Form S-4 Registration Statement declared effective under the Securities Act
as promptly as practicable after it is filed with the SEC. Cortech will use all
reasonable efforts to cause the Joint Proxy Statement to be
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mailed to Cortech's stockholders, and BioStar will use all reasonable efforts to
cause the Joint Proxy Statement to be mailed to the BioStar's stockholders, as
promptly as practicable after the Form S-4 Registration Statement is declared
effective under the Securities Act. BioStar and Cortech shall promptly furnish
to the other all information concerning BioStar and the BioStar's stockholders
and the Cortech Corporations, respectively, that may be required or reasonably
requested in connection with any action contemplated by this Section 5.1.
BioStar and Cortech shall notify the other promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff
for any amendment or supplement to the Form S-4 Registration Statement or Joint
Proxy Statement or for any other information and shall supply the other with
copies of all correspondence between such party and the SEC or its staff or
other governmental officials with respect to the S-4 Registration Statement or
Joint Proxy Statement. The information supplied by each of Cortech and BioStar
for inclusion in the Form S-4 Registration Statement and the Joint Proxy
Statement shall not (i) at the time the Form S-4 Registration Statement is
declared effective, (ii) at the time the Joint Proxy Statement is first mailed
to the stockholders of Cortech and BioStar, respectively, (iii) at the time of
the BioStar Stockholders' Meeting and at the time of the Cortech Stockholders'
Meeting, and (iv) at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If Cortech or BioStar
becomes aware of any information, that should be disclosed in an amendment or
supplement to the Form S-4 Registration Statement or the Joint Proxy Statement,
then Cortech or BioStar, as the case may be, shall promptly inform the other
party thereof and shall cooperate with the other in filing such amendment or
supplement with the SEC and, if appropriate, in mailing such amendment or
supplement to the stockholders of BioStar or the stockholders of Cortech.
(b) Prior to the Effective Time, Cortech shall use reasonable efforts to
obtain all regulatory approvals needed to ensure that the Cortech Common Stock
to be issued in the Merger (i) will be registered or qualified under the
securities law of every jurisdiction of the United States in which any
registered holder of BioStar Common Stock has an address of record on the record
date for determining the stockholders entitled to notice of and to vote at
BioStar Stockholders' Meeting; and (ii) will be approved for quotation at the
Effective Time on the Nasdaq National Market; provided, however, that Cortech
shall not be required (i) to qualify to do business as a foreign corporation in
any jurisdiction in which it is not now qualified or (ii) to file a general
consent to service of process in any jurisdiction.
5.2 BIOSTAR STOCKHOLDERS' MEETING.
(a) BioStar shall take all action necessary under all applicable Legal
Requirements to call, give notice of, convene and hold a meeting of the holders
of BioStar Common Stock and BioStar Preferred Stock to consider, act upon and
vote upon the BioStar Charter Amendment and the approval of this Agreement and
of the Merger (the "BioStar Stockholders' Meeting"). The BioStar Stockholders'
Meeting will be held as promptly as practicable and in any event within 45 days
after the Form S-4 Registration Statement is declared effective under the
Securities Act. BioStar shall ensure that the BioStar Stockholders' Meeting is
called, noticed, convened, held and conducted, and that all proxies solicited in
connection with the BioStar Stockholders' Meeting are solicited, in compliance
with all applicable Legal Requirements. BioStar's obligation to call, give
notice of, convene and hold the BioStar Stockholders' Meeting in accordance with
this Section 5.2(a) shall not be limited or otherwise affected by the
withdrawal, amendment or modification of the recommendation of the board of
directors of BioStar with respect to the Merger, except as is required by
applicable law.
(b) Subject to Section 5.2(c): (i) the board of directors of BioStar shall
unanimously recommend that the BioStar stockholders vote in favor of and approve
this Agreement, the Merger and the BioStar Charter Amendment at the BioStar
Stockholders' Meeting; (ii) the Joint Proxy Statement shall include a statement
to the effect that the board of directors of BioStar has unanimously recommended
that the BioStar's stockholders vote in favor of and approve this Agreement, the
Merger and the BioStar Charter Amendment at the BioStar Stockholders' Meeting;
and (iii) neither the board of directors of BioStar nor any committee thereof
shall withdraw, amend or modify, or propose or resolve to withdraw, amend or
modify, in a manner adverse to Cortech, the unanimous recommendation of the
board of directors of BioStar that the BioStar's stockholders
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vote in favor of and approve this Agreement, the Merger and the BioStar Charter
Amendment. For purposes of this Agreement, said recommendation of the board of
directors of BioStar shall be deemed to have been modified in a manner adverse
to Cortech if said recommendation shall no longer be unanimous.
(c) Nothing in Section 5.2(b) shall prevent the board of directors of
BioStar from withdrawing, amending or modifying its unanimous recommendation in
favor of the Merger at any time prior to the approval of this Agreement by the
Required BioStar Stockholder Vote if (i) a Superior Offer is made to BioStar and
is not withdrawn, (ii) neither BioStar nor any of its Representatives shall have
violated any of the restrictions set forth in Section 4.4, and (iii) the board
of directors of BioStar concludes in good faith, after consultation with its
outside counsel, including discussion of applicable legal standards under
Delaware law, that, in light of such Superior Offer, the withdrawal, amendment
or modification of such recommendation is required in order for the board of
directors of BioStar to comply with its fiduciary obligations to the BioStar's
stockholders under applicable law. Except as may be limited by applicable law,
nothing contained in this Section 5.2 shall limit BioStar's obligation to call,
give notice of, convene and hold the BioStar Stockholders' Meeting (regardless
of whether the unanimous recommendation of the board of directors of BioStar
shall have been withdrawn, amended or modified).
5.3 CORTECH STOCKHOLDERS' MEETING.
(a) Cortech shall take all action necessary under all applicable Legal
Requirements to call, give notice of, convene and hold a meeting of the holders
of Cortech Common Stock to consider, act upon and vote upon the issuance of
Cortech Common Stock in the Merger (the "Cortech Stockholders' Meeting"). The
Cortech Stockholders' Meeting will be held as promptly as practicable and in any
event within 45 days after the Form S-4 Registration Statement is declared
effective under the Securities Act. Cortech shall ensure that the Cortech
Stockholders' Meeting is called, noticed, convened, held and conducted, and that
all proxies solicited in connection with the Cortech Stockholders' Meeting are
solicited in compliance with all applicable Legal Requirements. Cortech's
obligation to call, give notice of, convene and hold the Cortech Stockholders'
Meeting in accordance with this Section 5.3(a) shall not be limited or otherwise
affected by any withdrawal, amendment or modification of the recommendation of
the board of directors of Cortech with respect to the Merger, except as may be
required by applicable law.
(b) Subject to Section 5.3(c): (i) the board of directors of Cortech shall
unanimously recommend that Cortech's stockholders vote in favor of and approve
the issuance of Cortech Common Stock in the Merger and the Cortech Charter
Amendment; (ii) the Joint Proxy Statement shall include a statement to the
effect that the board of directors of Cortech has unanimously recommended that
Cortech's stockholders vote in favor of and approve the issuance of Cortech
Common Stock in the Merger and the Cortech Charter Amendment at the Cortech
Stockholders' Meeting; and (iii) neither the board of directors of Cortech nor
any committee thereof shall withdraw, amend or modify, or propose or resolve to
withdraw, amend or modify, in a manner adverse to BioStar, the unanimous
recommendation of the board of directors of Cortech that Cortech's stockholders
vote in favor of and approve the issuance of Cortech Common Stock in the Merger
and the Cortech Charter Amendment. For purposes of this Agreement, said
recommendation of the board of directors of Cortech shall be deemed to have been
modified in a manner adverse to BioStar if said recommendation shall no longer
be unanimous. Approval of Cortech's Stockholders of the Cortech Charter
Amendment shall not be a condition to the consummation of the Merger.
(c) Nothing in Section 5.3(b) shall prevent the board of directors of
Cortech from withdrawing, amending or modifying its unanimous recommendation in
favor of the Merger at any time prior to the approval of this Agreement by the
Required Cortech Stockholder Vote if (i) a Superior Offer is made to Cortech and
is not withdrawn, (ii) neither Cortech nor any of its Representatives shall have
violated any of the restrictions set forth in Section 4.5, and (ii) the board of
directors of Cortech concludes in good faith, based upon the advice of its
outside counsel, including a discussion of applicable legal standards under
Delaware law, that the withdrawal, amendment or modification of such
recommendation is required in order for the board of directors of Cortech to
comply with its fiduciary obligations to Cortech's stockholders under applicable
law. Except as may be limited by applicable law, nothing contained in this
Section 5.3 shall limit Cortech's obligation to call, give notice of, convene
and hold the Cortech Stockholders' Meeting (regardless of
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whether the unanimous recommendation of the board of directors shall have been
withdrawn, amended or modified).
5.4 REGULATORY APPROVALS. BioStar and Cortech shall use all reasonable
efforts to file, as soon as practicable after the date of this Agreement, all
notices, reports and other documents required to be filed with any Governmental
Body with respect to the Merger and the other transactions contemplated by this
Agreement, and to submit promptly any additional information requested by any
such Governmental Body. BioStar and Cortech shall (1) give the other party
prompt notice of the commencement of any Legal Proceeding by or before any
Governmental Body with respect to the Merger or any of the other transactions
contemplated by this Agreement, (2) keep the other party informed as to the
status of any such Legal Proceeding, and (3) promptly inform the other party of
any communication to or from any Governmental Body regarding the Merger. BioStar
and Cortech will consult and cooperate with one another, and will consider in
good faith the views of one another, in connection with any analysis,
appearance, presentation, memorandum, brief, argument, opinion or proposal made
or submitted in connection with any Legal Proceeding under or relating to any
other federal or state antitrust or fair trade law. In addition, except as may
be prohibited by any Governmental Body or by any Legal Requirement, in
connection with any Legal Proceeding under or relating to any federal or state
antitrust or fair trade law or any other similar Legal Proceeding, BioStar and
Cortech will permit authorized Representatives of the other party to be present
at each meeting or conference relating to any such Legal Proceeding and to have
access to and be consulted in connection with any document, opinion or proposal
made or submitted to any Governmental Body in connection with any such Legal
Proceeding.
5.5 ESPP. Subject to the terms of Cortech's ESPP and applicable law,
Cortech shall take all reasonable actions to ensure that from and after the
Effective Time all employees of BioStar shall be entitled to participate in the
ESPP of Cortech.
5.6 INDEMNIFICATION CONTINUATION.
(a) For Purposes of this Section 5.6: (i) "Indemnified Person" means any
person who is now, or has been at any time prior to the Effective Time, an
officer or director of Cortech or BioStar or who was serving at the request of
Cortech or BioStar as an officer or director of another corporation, joint
venture or other enterprise, or a general partner of any partnership, or trustee
of any trust and (ii) "Proceeding" means any claim, action, suit, proceeding or
investigation.
(b) From and after the Effective Time, Cortech shall and shall cause the
Surviving Corporation, to the fullest extent permitted under applicable law,
indemnify, defend and hold harmless each Indemnified Person against and from (i)
any losses, claims damages, expenses (including reasonable attorneys' fees and
court costs), liabilities or judgements, and (ii) any amounts that are paid in
settlement with the consent of Cortech (which consent will not be unreasonably
withheld) of or in connection with any Proceeding based directly or indirectly
(in whole or in part) on, or arising directly or indirectly (in whole or in
part) out of, the fact that such Indemnified Person is or was an officer or
director of Cortech or BioStar or is or was serving at the request of Cortech or
BioStar as an officer or director of another corporation, joint venture or other
enterprise or general partner of any partnership or a trustee of any trust,
whether pertaining to any matter arising before or after the Effective Time.
Cortech shall use all reasonable efforts to assist in the vigorous defense of
every matter asserted in such Proceeding for which such Indemnified Person is
entitled to indemnification under applicable law. In the event of any
Proceeding, any Indemnified Person wishing to claim indemnification will
promptly notify Cortech thereof (provided that failure to so notify Cortech will
not affect the obligations of Cortech to provide indemnification except to the
extent that Cortech shall have been prejudiced as a result of such failure).
With respect to any Proceeding for which indemnification is requested, Cortech
will be entitled to participate therein at its own expense and, except as
otherwise provided below, to the extent that it may wish, Cortech may assume the
defense thereof, with counsel reasonably satisfactory to the Indemnified Person.
After notice from Cortech to the Indemnified Person of its election to assume
the defense of a Proceeding, neither Cortech nor the Surviving Corporation will
be liable to the Indemnified Person for any legal or other expenses subsequently
incurred by the Indemnified Person in connection with the defense thereof, other
than as provided below. Cortech will not settle any Proceeding without the
consent of the
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Indemnified Person unless such settlement includes a full release of the
Indemnified Person, does not impose any injunctive or equitable remedy upon the
Indemnified Person, does not include any admission of civil or criminal
liability on behalf of an officer or director and does not require any payment
to be made by the Indemnified Person. The Indemnified Person will have the right
to employ counsel in any Proceeding, but the fees and expenses of such counsel
incurred after notice from Cortech of its assumption of the defense thereof will
be a the expense of the Indemnified Person, unless, (i) the employment of
counsel by the Indemnified Person has been authorized by Cortech, (ii) the
Indemnified Person shall have reasonably concluded upon the advice of counsel
that there may be a conflict of interest between the Indemnified Person, Cortech
and the Surviving Corporation in the conduct of the defense of a Proceeding, or
(iii) Cortech shall not in fact have employed counsel to assume the defense of a
Proceeding, in each of which cases the reasonable fees and expenses of counsel
selected by the Indemnified Person will be at the expense of Cortech, and
Cortech, to the fullest extent permitted under applicable law, shall in such
event pay expenses in advance of the final disposition of any such Proceeding
upon the receipt from the Indemnified Person to whom such expenses are advanced
of an undertaking to repay such advances if it is ultimately determined that
such Indemnified Person is not entitled to be indemnified by Cortech or the
Surviving Corporation. Notwithstanding the foregoing, neither Cortech nor the
Surviving Corporation will be liable for any settlement effected without its
written consent and neither Cortech nor the Surviving Corporation will be
obligated pursuant to this Section 5.6 to pay the fees and disbursement of more
than one counsel for all Indemnified Persons in any single Proceeding, except to
the extent two or more of such Indemnified Persons have conflicting interests in
the outcome of such action.
(c) In addition to the foregoing, Cortech and the Surviving Corporation
shall continue in full force provisions in Cortech's and the Surviving
Corporation's Certificate of Incorporation and Bylaws in effect on the date of
this Agreement providing for indemnification of Indemnified Persons to the
fullest extent now or hereafter permitted under Delaware Law, which provisions
shall not be amended except as required by applicable law or except to make
changes permitted by law that would enlarge the Indemnified Persons' right of
indemnification.
(d) Cortech shall pay all expenses, including attorneys' fees, that may be
incurred by any Indemnified Person in enforcing the indemnity and other
obligations provided for in this Section 5.6.
(e) The rights of each Indemnified Person hereunder shall be in addition to
any other rights such Indemnified Person may have under Delaware Law, Cortech's
and the Surviving Corporation's Certificate of Incorporation or bylaws in effect
prior to the Effective Time, any agreement or otherwise. The provisions of this
Section 5.6 shall survive the consummation of the Merger for a period of six
years and are expressly intended to benefit and may be relied upon each of the
Indemnified Persons; provided, however, that in the event that any claim or
claims for indemnification are asserted or made within such six-year period, all
rights to indemnification in respect to any such claim or claims shall continue
until the disposition of any and all such claims.
(f) In the event Cortech, the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person or entity and shall not be the continuing or surviving corporation or
entity of such consolidation or merger, or (ii) transfers or conveys all or a
substantial portion of their properties or assets to any person or entity, then,
and in each such case, to the extent necessary to effectuate the purposes of the
Section 5.6 proper provision shall be made so that the successors and assigns of
Cortech or the Surviving Corporation assume the obligations set forth in this
Section 5.6.
5.7 ADDITIONAL AGREEMENTS. Cortech and BioStar shall use all reasonable
efforts to take, or cause to be taken, all actions necessary to consummate the
Merger and make effective the other transactions contemplated by this Agreement.
Without limiting the generality of the foregoing, each party to this Agreement
(i) shall make all filings (if any) and give all notices (if any) required to be
made and given by such party in connection with the Merger and the other
transactions contemplated by this Agreement, (ii) shall use all reasonable
efforts to obtain each Consent (if any) required to be obtained (pursuant to any
applicable Legal Requirement or Contract, or otherwise) by such party in
connection with the Merger or any of the other transactions contemplated by this
Agreement, and (iii) shall use all reasonable efforts to lift any restraint,
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injunction or other legal bar to the Merger. BioStar shall promptly deliver to
Cortech a copy of each such filing made, each such notice given and each such
Consent obtained by BioStar during the Pre-Closing Period.
5.8 DISCLOSURE. Cortech and BioStar shall consult with each other before
issuing any press release or otherwise making any public statement with respect
to the Merger or any of the other transactions contemplated by this Agreement.
Without limiting the generality of the foregoing, neither BioStar nor Cortech
shall, and neither shall permit, any of its Representatives to, make any
disclosure regarding the Merger or any of the other transactions contemplated by
this Agreement unless (a) the other Party shall have approved such disclosure or
(b) the disclosing party shall have been advised in writing by its outside legal
counsel that such disclosure is required by applicable law and shall have given
the other Party the opportunity, to the extent practicable, to review and
comment upon the disclosure.
5.9 TAX MATTERS. Each of Cortech and BioStar acknowledge and agree that (i)
it intends the Merger to constitute a reorganization within the meaning of
Section 368(a) of the Code, (ii) it will report the Merger as such a
reorganization in any and all federal, state and local income tax returns filed
by it. BioStar and Cortech shall each use all reasonable efforts to obtain and
deliver to Cooley Godward LLP and to Pillsbury Madison & Sutro LLP, as soon as
practicable after the date of this Agreement, Continuity of Interest
Certificates (in a form agreed to by counsel to Cortech and the BioStar) signed
by those persons mutually agreed to by Cooley Godward LLP and Pillsbury Madison
& Sutro LLP. At or prior to the filing of the S-4 Registration Statement with
the SEC and, to the extent necessary, at the Closing, BioStar and Cortech shall
execute and deliver to Cooley Godward LLP and to Pillsbury Madison & Sutro LLP
management tax representation letters in a form agreed to by counsel to Cortech
and BioStar. Cortech and BioStar shall use all reasonable efforts prior to the
Effective Time to cause the Merger to qualify as a tax free reorganization under
Section 368(a)(1) of the Code. In the event of the issuance of final or
temporary Treasury regulations relating to the continuity of stockholder
interest (proposed regulations on the topic were issued in the Federal Register
on December 23, 1996 (Reg-252231-96); these regulations would, among other
things, add a new section 1.368-1(a) to existing regulations), the parties agree
to use their reasonable best efforts to take advantage of, and comply with, any
provisions therein (such as an election and/or reporting requirements) to the
extent necessary to cause such regulations to apply to the Merger.
5.10 RESIGNATION OF OFFICERS AND DIRECTORS. Cortech shall use all
reasonable efforts to obtain and deliver to BioStar prior to the Closing the
resignation of each officer and director of Cortech effective as of the
Effective Time, except any directors identified in Section 5.13 below who are
members of the board of directors of Cortech immediately prior to the Effective
Time.
5.11 FIRPTA MATTERS. At the Closing, (a) BioStar shall deliver to Cortech a
statement (in such form as may be reasonably requested by counsel to Cortech)
conforming to the requirements of Section 1.897 -- 2(h)(1)(i) of the United
States Treasury Regulations, and (b) BioStar shall deliver to the Internal
Revenue Service the notification required under Section 1.897 -- 2(h)(2) of the
United States Treasury Regulations.
5.12 AFFILIATE AGREEMENTS. BioStar shall, no later than twenty days in
advance of the Cortech Stockholders' Meeting, deliver to Cortech a list (the
"Affiliate List") of Persons who are "affiliates" (as that term is used in Rule
145 under the Securities Act). Prior to the date of the Cortech Stockholders'
Meeting, BioStar shall deliver to Cortech an Affiliate Agreement in the form of
Exhibit C duly executed by each Person on the Affiliate List, and by each Person
who becomes an affiliate after delivery of the Affiliate List and prior to the
date of delivery of the signed Affiliate Agreements.
5.13 ELECTION OF DIRECTORS. Cortech shall use all reasonable efforts to
nominate and appoint Teresa W. Ayers, Alexander E. Barkas, Ph.D., Thomas A.
Bologna, and two directors designated by Cortech in consultation with BioStar as
the board of directors of Cortech and the Surviving Corporation effective
immediately after the Effective Time.
5.14 REGISTRATION RIGHTS. Cortech shall assume BioStar's obligations under
the BioStar Restated Investors' Rights Agreement dated as of June 27, 1994, as
amended (the "Investors' Rights Agreement"); provided, however, that, BioStar
shall use all reasonable efforts to cause the Investors' Rights Agreement to be
amended to remove Sections 2, 3, and 4 and to provide that no Holder (as defined
in the Investors' Rights
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Agreement) shall request registration or participation in a registration of
Cortech Common Stock pursuant to Sections 1.2, 1.3, or 1.12 thereunder until the
earlier of (a) the date 90 days after the effective date of a registration
statement for the first public offering of Cortech's shares following the
Effective Time, and (b) the first anniversary of the Effective Time.
5.15 MARKET STAND-OFF AGREEMENT. BioStar shall obtain the agreement of each
of the holders of BioStar Common Stock and BioStar Preferred Stock listed on
Schedule A attached hereto (each a "BioStar Investor") that such BioStar
Investor shall not directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any Cortech Common Stock issued to such BioStar Investor in connection
with the Merger for 180 days from the Effective Time.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF CORTECH AND MERGER SUB
The obligations of Cortech and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
6.1 ACCURACY OF REPRESENTATIONS.
The representations and warranties of BioStar contained in this Agreement
shall be accurate in all material respects as of the date hereof and shall be
accurate as of the Closing Date as if made on and as of the Closing Date (except
representations and warranties that refer specifically to "the date of this
Agreement" or a specific date prior to the date of this Agreement) except that
any inaccuracies in such representations and warranties shall be disregarded if
the circumstances giving rise to such inaccuracies (individually and
collectively) do not constitute a Material Adverse Effect on BioStar (it being
understood that, for purposes of determining the accuracy of such
representations and warranties, (i) all "Material Adverse Effect" qualifications
and other materiality qualifications contained in such representations and
warranties shall be disregarded and (ii) any update of or modification to the
BioStar Disclosure Schedule made or purported to have been made after the date
of this Agreement shall be disregarded).
6.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that BioStar is
required to comply with or to perform at or prior to the Closing shall have been
complied with and performed in all material respects.
6.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the Form S-4 Registration Statement.
6.4 STOCKHOLDER APPROVAL. This Agreement, the Merger and the BioStar
Charter Amendment shall have been duly approved by the Required BioStar
Stockholder Vote, and the issuance of Cortech Common Stock in the Merger shall
have been approved by the Required Cortech Stockholder Merger Vote. The number
of shares of BioStar Common Stock and BioStar Preferred Stock as to which
written notices from stockholders of BioStar to dissent from the Merger shall
have been received shall be less than 10% of the then outstanding shares of
BioStar Common Stock and BioStar Preferred Stock as of the BioStar Record Date.
6.5 CONSENTS. All material Consents required to be obtained in connection
with the Merger and the other transactions contemplated by this Agreement
(including the Consents identified in the BioStar Disclosure Schedule) shall
have been obtained and shall be in full force and effect.
6.6 DOCUMENTS. Cortech shall have received the following legal documents,
each of which shall be in full force and effect:
(a) a legal opinion of Cooley Godward LLP dated as of the Closing
Date, in a form reasonably satisfactory to Cortech and its legal counsel;
(b) a legal opinion of Pillsbury Madison & Sutro LLP dated as of the
Closing Date and addressed to Cortech, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code
(it being understood that, in rendering such opinion, Pillsbury Madison &
Sutro
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LLP may rely upon the Continuity of Interest Certificates and tax
representation letters referred to in Section 5.9 and a copy of the legal
opinion described in Section 7.5(b) hereof). The opinions described in this
Section 6.6(b) and in Section 7.5(b) shall be substantially identical in
form and substance; and
(c) a certificate executed on behalf of BioStar by its Chief Executive
Officer confirming that the conditions set forth in Sections 6.1, 6.2, 6.4,
6.5 and 6.7 have been duly satisfied.
6.7 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in the business, financial condition, capitalization, assets,
liabilities, operations or financial performance of BioStar since the date of
this Agreement.
6.8 NO RESTRAINTS. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger shall have
been issued by any court of competent jurisdiction and remain in effect, and
there shall not be any Legal Requirement enacted or deemed applicable to the
Merger that makes consummation of the Merger illegal.
6.9 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Body is or is threatened to become
a party or is otherwise involved: (a) challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by this Agreement; (b) relating to the Merger and seeking to obtain
from Cortech or any of its subsidiaries any damages that may be material to
Cortech; or (c) which would materially and adversely affect the right of Cortech
to own the assets or operate the business of BioStar.
6.10 NO OTHER LITIGATION. There shall not be pending any Legal Proceeding
in which there is a reasonable probability of an outcome that would have a
Material Adverse Effect on BioStar or on Cortech: (a) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement; (b) relating to the Merger and
seeking to obtain from Cortech or any of its subsidiaries any damages that may
be material to Cortech; (c) seeking to prohibit or limit in any material respect
Cortech's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Surviving
Corporation; or (d) which would affect adversely the right of Cortech to own the
assets or operate the business of BioStar.
6.11 DELIVERY OF AFFILIATES AGREEMENTS. BioStar shall have delivered the
Affiliate Agreements referred to in Section 5.12 above.
6.12 DELIVERY OF FAIRNESS OPINION. Cortech's board of directors has
received the written opinion of Cowen, dated as of the date of this Agreement,
to the effect that the terms of the Merger are fair to Cortech from a financial
point of view and the same has not been withdrawn as of the date of the mailing
of the Joint Proxy Statement to the Cortech stockholders for any reason,
including but not limited to a material change in the underlying assumptions of
the financial projections provided to Cowen by BioStar.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BIOSTAR
The obligations of BioStar to effect the Merger and otherwise consummate
the transactions contemplated by this Agreement are subject to the satisfaction,
at or prior to the Closing, of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of
Cortech contained in this Agreement shall have been accurate in all material
respects as of the date of this Agreement and shall be accurate as of the
Closing Date as if made on and as of the Closing Date except that any
inaccuracies in such representations and warranties shall be disregarded if the
circumstances giving rise to such inaccuracies (individually and collectively)
do not constitute a Material Adverse Effect on Cortech (it being understood
that, for purposes of determining the accuracy of such representations and
warranties, (i) all "Material Adverse Effect" qualifications and other
materiality qualifications contained in such representations and warranties
shall be disregarded and (ii) any update of or modification to the Cortech
Disclosure Schedule made or purported to have been made after the date of this
Agreement shall be disregarded).
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7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Cortech is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all material respects.
7.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the Form S-4 Registration Statement.
7.4 STOCKHOLDER APPROVAL. This Agreement, the Merger and the BioStar
Charter Amendment shall have been approved by the Required BioStar Stockholder
Vote, and the issuance of Cortech Common Stock in the Merger shall have been
approved by the Required Cortech Stockholder Merger Vote. The number of shares
of BioStar Common Stock and BioStar Preferred Stock as to which written notices
from stockholders of BioStar to dissent from the Merger shall have been received
shall be less than 10% of the then outstanding shares of BioStar Common Stock
and BioStar Preferred Stock as of the BioStar Record Date.
7.5 DOCUMENTS. BioStar shall have received the following documents:
(a) a legal opinion of Pillsbury Madison & Sutro LLP, dated as of the
Closing Date, a form reasonably satisfactory to BioStar and its legal
counsel;
(b) a legal opinion of Cooley Godward LLP, dated as of the Closing
Date, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368 of the Code (it being understood that, in
rendering such opinion, Cooley Godward LLP, may rely upon the Continuity of
Interest Certificates and tax representation letters referred to in Section
5.9 and a copy of the legal opinions described in Section 6.6(b) hereof.
The opinions described in this Section 7.5(b) and in Section 6.6(b) shall
be substantially identical in form and substance; and
(c) a certificate executed on behalf of Cortech by an executive
officer of Cortech, confirming that conditions set forth in Sections 7.1,
7.2, 7.4, 7.6 and 7.10 have been duly satisfied.
7.6 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in Cortech's business, financial condition, assets, liabilities,
operations or financial performance since the date of this Agreement (it being
understood that a decline in Cortech's stock price or the delisting of Cortech's
stock shall not constitute, in and of itself, a Material Adverse Change).
7.7 NO RESTRAINTS. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger by BioStar
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger by BioStar
illegal.
7.8 DIRECTORS. Cortech shall have taken all actions necessary to cause the
board of directors of Cortech and the Surviving Corporation following the
Effective Time to consist of the individuals set forth in Section 5.13.
7.9 CONSENTS. All material Consents required to be obtained in connection
with the Merger and the other transactions contemplated by this Agreement
(including the Consents identified in the Cortech Disclosure Schedule) shall
have been obtained and shall be in full force and effect.
7.10 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Body is or is threatened to become
a party or is otherwise involved: (a) challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by this Agreement; (b) relating to the Merger and seeking to obtain
from BioStar or any of its subsidiaries any damages that may be material to
BioStar; or (c) which would materially and adversely affect the right of BioStar
to own the assets or operate the business of Cortech.
7.11 NO OTHER LITIGATION. There shall not be pending any Legal Proceeding
in which there is a reasonable probability of an outcome that would have a
Material Adverse Effect on BioStar or on Cortech: (a) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement; (b) relating to the Merger and
seeking to obtain from BioStar
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or any of its subsidiaries any damages that may be material to BioStar; (c)
seeking to prohibit or limit in any material respect BioStar's ability to vote,
receive dividends with respect to or otherwise exercise ownership rights with
respect to the stock of the Surviving Corporation; or (d) resulting in Cortech
as constituted after the Effective Time not containing all of the assets and
business of Cortech as constituted immediately prior to the Effective Time.
8. TERMINATION
8.1 TERMINATION. This Agreement may be terminated prior to the Effective
Time (whether before or after approval of this Agreement and the Merger by the
Required BioStar Stockholder Vote and the Required Cortech Stockholder Vote);
(a) by mutual written consent of Cortech and BioStar;
(b) by either Cortech or BioStar if the Merger shall not have been
consummated by May 31, 1998 (unless the failure to consummate the Merger is
attributable to a failure on the part of the party seeking to terminate
this Agreement to perform any material obligation required to be performed
by such party at or prior to the Effective Time);
(c) by either Cortech or BioStar if a court of competent jurisdiction
or other Governmental Body shall have issued a final and nonappealable
order, decree or ruling, or shall have taken any other action, having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger;
(d) by either Cortech or BioStar if (i) the BioStar Stockholders'
Meeting shall have been held and completed and (ii) this Agreement, the
Merger and the BioStar Charter Amendment shall not have been approved at
such meeting by the Required BioStar Stockholder Vote;
(e) by either Cortech or BioStar if (i) the Cortech Stockholders'
Meeting shall have been held and completed and (ii) the issuance of Cortech
Common Stock in the Merger shall not have been approved at such meeting by
the Required Cortech Stockholder Merger Vote;
(f) by Cortech (at any time prior to the approval of this Agreement,
the Merger and the BioStar Charter Amendment by the Required BioStar
Stockholder Vote) if a BioStar Triggering Event shall have occurred;
(g) by BioStar (at any time prior to the approval of the issuance of
Common Stock in the Merger by the Required Cortech Stockholder Merger Vote)
if a Cortech Triggering Event shall have occurred;
(h) by Cortech if (i) any of BioStar's representations and warranties
contained in this Agreement shall be or shall have become materially
inaccurate, (ii) if any of BioStar's covenants contained in this Agreement
shall have been breached, and such inaccuracy or breach would cause the
condition set forth in Sections 6.1 or 6.2, respectively, to not be
satisfied, or (iii) if Cowen withdraws its fairness opinion as further
provided in Section 6.12 because of a material change in the underlying
assumptions of the financial projections provided to Cowen by BioStar;
provided, however, that if an inaccuracy in BioStar's representations and
warranties or a breach of a covenant by BioStar is curable by BioStar and
BioStar is continuing to exercise all reasonable efforts to cure such
inaccuracy or breach, then Cortech may not terminate this Agreement under
this Section 8.1(h) on account of such inaccuracy or breach until 20 days
after delivery of written notice of the inaccuracy or breach to BioStar by
Cortech, if the inaccuracy or breach has not at that time been cured or May
31, 1998, whichever shall first occur; or
(i) by BioStar if any of Cortech's representations and warranties
contained in this Agreement shall be or shall have become materially
inaccurate, or if any of Cortech's covenants contained in this Agreement
shall have been breached, and such inaccuracy or breach would cause the
condition set forth in Sections 7.1 or 7.2, respectively, to not be
satisfied (except that BioStar may consider any breach of the covenant set
forth in Section 4.3(xv) above to be a material breach); provided, however,
that (except with respect to a breach of the covenant set forth in Section
4.3(xv) which shall be considered a breach incapable of cure) if an
inaccuracy in Cortech's representations and warranties or a breach of a
covenant by Cortech is curable by Cortech and Cortech is continuing to
exercise all reasonable efforts to cure such
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inaccuracy or breach, then BioStar may not terminate this Agreement under
this Section 8.1(i) on account of such inaccuracy or breach until 20 days
after delivery of written notice of the breach or inaccuracy to Cortech by
BioStar, if the inaccuracy or breach has not at that time been cured or May
31, 1998, whichever shall first occur.
8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 8.1, this Agreement shall be of no further
force or effect; provided, however, that (i) this Section 8.2, Section 8.3 and
Section 9 shall survive the termination of this Agreement and shall remain in
full force and effect, (ii) the Nondisclosure Agreement shall remain in full
force and effect to the extent provides therein, and (iii) the termination of
this Agreement shall not relieve any party from any liability for any breach of
any representation, warranty or covenant contained in this Agreement occurring
prior to the date of such termination if such party is not obligated to pay a
termination fee pursuant to Section 8.3 hereof.
8.3 EXPENSES; TERMINATION FEES.
(a) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses, whether or not the
Merger is consummated; provided, however, that Cortech and BioStar shall share
equally all fees and expenses, other than attorneys' fees, incurred in
connection with the filing, printing and mailing of the Form S-4 Registration
Statement and the Joint Proxy Statement and any amendments or supplements
thereto.
(b) If this Agreement is terminated by Cortech pursuant to Section 8.1(f)
or 8.1(h) hereof, BioStar shall pay Cortech a termination fee equal to (i)
$500,000 plus (ii) if the preliminary Joint Proxy Statement has been filed with
the SEC, reimbursement of the amount of the professional fees and expenses which
Cortech incurred in connection with the Merger, up to $150,000.
(c) If this Agreement is terminated by BioStar pursuant to Section 8.1(g),
or 8.1(i) hereof, Cortech shall pay BioStar a termination fee equal to (i)
$500,000 plus (ii) if the preliminary Joint Proxy Statement has been filed with
the SEC, reimbursement of the amount of the professional fees and expenses which
BioStar incurred in connection with the Merger, up to $150,000.
(d) Any termination fees and expenses payable under Section 8.3(b) or
8.3(c) above shall be paid in cash, via wire transfer of immediately available
funds no later than the close of business on the second business day following
the date on which the termination giving rise to such payment occurs.
(e) Cortech and BioStar agree that the agreements contained in Sections
8.3(b) and (c) above are an integral part of the transactions contemplated by
this Agreement and constitute liquidated damages and not a penalty. If one party
fails to promptly pay to the other any fee due under such Sections 8.3(b) and
(c), the defaulting party shall pay the costs and expenses (including legal fees
and expenses) in connection with any action, including the filing of any lawsuit
or other legal action, taken to collect payment, together with interest on the
amount of any unpaid fee at the publicly announced prime rate of Citibank, N.A.
from the date such fee was required to be paid.
9. MISCELLANEOUS PROVISIONS
9.1 AMENDMENT. This Agreement may be amended with the approval of the
respective boards of directors of BioStar and Cortech at any time (whether
before or after approval of this Agreement and the Merger by the stockholders of
BioStar; and whether before or after approval of the issuance of Cortech Common
Stock in the Merger by Cortech's stockholders) provided, however, that (i) after
any such approval of this Agreement and the Merger by BioStar's stockholders, no
amendment shall be made which by law or NASD regulation requires further
approval of the stockholders of BioStar without the further approval of such
stockholders, and (ii) after any such approval of the issuance of Cortech Common
Stock in the Merger by Cortech's stockholders, no amendment shall be made which
by law or NASD regulation requires further approval of Cortech's stockholders
without the further approval of such stockholders. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
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9.2 WAIVER.
(a) No failure on the part of any party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any party
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No party shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
party; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
9.3 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any certificate
delivered pursuant to this Agreement shall survive the Merger.
9.4 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Agreement and the
other agreements and schedules referred to herein and therein and the
Non-Disclosure Agreement constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, among or between any of
the parties with respect to the subject matter hereof and thereof. This
Agreement may be executed in several counterparts, each of which shall be deemed
an original and all of which shall constitute one and the same instrument, and
shall be governed in all respects by the laws of the State of Colorado as
applied to contracts entered into and to be performed entirely within Colorado
provided, however that matters of corporate governance involving Cortech and
BioStar shall be governed by the DGCL.
9.5 JURY WAIVER. The parties hereto hereby agree to waive their respective
rights to a trial by jury of any claim or cause of action based upon or arising
out of or related to this Agreement or the transactions contemplated thereby in
any action, proceeding or other litigation of any type brought by any party
against any other party with respect to contracts, claims, tort claims or
otherwise. The scope of this waiver is intended to be as broad as permitted by
law, covering all disputes that may be filed in any court that relate to the
subject matter of this Agreement, including tort claims, contract claims, claims
under common law, statutory claims and any action, counterclaim or other
proceeding which seeks in whole or in part to challenge the validity or
enforceability of this Agreement or the transactions contemplated thereby. This
waiver is irrevocable.
9.6 DISCLOSURE SCHEDULE. The BioStar Disclosure Schedule and the Cortech
Disclosure Schedule shall be arranged in separate parts corresponding to the
numbered and lettered sections contained in Sections 2 and 3, and the
information disclosed in any numbered or lettered part shall, together with any
other information in any other part or parts of the relevant Disclosure Schedule
which a reasonable Person would relate to such numbered or lettered part, be
deemed to relate to and to qualify the representation or warranty set forth in
the corresponding numbered or lettered section and shall otherwise not be deemed
to relate to or to qualify any other representation or warranty.
9.7 ATTORNEYS' FEES. In any action at law or suit in equity to enforce this
Agreement or the rights of any of the parties hereunder, the prevailing party in
such action or suit shall be entitled to receive a reasonable sum for its
attorneys' fees and all other reasonable costs and expenses incurred in such
action or suit.
9.8 ASSIGNABILITY. This Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and their
respective successors and assigns; provided, however, that neither this
Agreement nor any of the rights hereunder may be assigned by any party without
the prior written consent of the other party, and any attempted assignment of
this Agreement or any of such rights by a party without such consent shall be
void and of no effect. Except as set forth in Section 1.5 with respect to the
stockholders of BioStar or the holders of BioStar Options and BioStar Warrants,
and Section 5.6 with respect to the persons identified therein (with each of the
foregoing intended as a third party beneficiary of the corresponding referenced
Section of this Agreement), nothing in this Agreement, express or implied, is
intended to or shall confer upon any Person any right, benefit or remedy of any
nature whatsoever under or reason of this Agreement.
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9.9 NOTICES. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Cortech or Merger Sub:
Cortech, Inc.
6850 North Broadway
Denver, Colorado 80221
Attention: Kenneth R. Lynn
Phone: 303/650-1200
Fax: 303/650-5023
with a copy to:
Pillsbury Madison & Sutro LLP
101 W. Broadway, Suite 1800
San Diego, California 92101
Attention: David R. Snyder, Esq.
Phone: 619/234-5000
Fax: 619/236-1995
if to BioStar :
BioStar, Inc.
6655 Lookout Road
Boulder, Colorado 80301
Attention: Teresa W. Ayers
Phone: 303/530-6602
Fax: 303/530-6641
with a copy to:
Cooley Godward LLP
2595 Canyon Boulevard
Suite 250
Boulder, Colorado 80302
Attention: James H. Carroll, Esq.
Phone: 303/546-4000
Fax: 303/546-4099
9.10 COOPERATION. Each party agrees to cooperate fully with the other party
and to execute and deliver such further documents, certificates, agreements and
instruments and to take such other actions as may be reasonably requested by the
other party to evidence or reflect the transactions contemplated by this
Agreement and to carry out the intent and purposes of this Agreement.
9.11 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include masculine
and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words "without limitation."
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(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
CORTECH, INC.
By: /s/ KENNETH R. LYNN
----------------------------------
Kenneth R. Lynn
President/Chief Executive Officer
CORTECH MERGER SUB, INC.
By: /s/ KENNETH R. LYNN
----------------------------------
Kenneth R. Lynn
President/Chief Executive Officer
BIOSTAR, INC.
By: /s/ TERESA W. AYERS
----------------------------------
Teresa W. Ayers
President/ Chief Executive Officer
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EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal between Cortech and BioStar)
contemplating or otherwise relating to any Acquisition Transaction.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction or series of related transactions involving:
(a) any merger, consolidation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer, exchange
offer or other similar transaction (i) in which Cortech or BioStar is a
constituent corporation, (ii) in which a Person or "group" (as defined in
the Exchange Act and the rules promulgated thereunder) of Persons directly
or indirectly acquires Cortech or BioStar or more than 50% of Cortech's
business or BioStar's business or directly or indirectly acquires
beneficial or record ownership of securities representing more than 20% of
the outstanding securities of any class of voting securities of Cortech or
BioStar, or (iii) in which any of BioStar or Cortech issues securities
representing more than 20% of the outstanding securities of any class of
voting securities of BioStar or Cortech, respectively;
(b) any sale, lease, exchange, transfer, license, acquisition or
disposition of more than 50% of the assets of BioStar or Cortech; or
(c) any liquidation or dissolution of BioStar or Cortech.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached, as it may be amended from
time to time.
BEST OF KNOWLEDGE; KNOWLEDGE. Information shall be deemed to be known to
the "best of knowledge" or to the "knowledge" of a party if that information was
actually known or reasonably should have been known by an executive officer of
such party.
BIOSTAR COMMON STOCK. "BioStar Common Stock" shall mean the Common Stock,
$.0001 par value, of BioStar.
BIOSTAR CONTRACT. "BioStar Contract" shall mean any Contract: (a) to which
BioStar is a party; (b) by which BioStar or any asset of BioStar is or may
become bound or under which BioStar has, or may become subject to, any
obligation; or (c) under which BioStar has or may acquire any right or interest.
BIOSTAR DISCLOSURE SCHEDULE. "BioStar Disclosure Schedule" shall mean the
disclosure schedule that has been prepared by BioStar in accordance with the
requirements of Section 9.6 and that has been delivered by BioStar to Cortech on
the date of this Agreement and signed by the President of BioStar.
BIOSTAR OPTIONS. "BioStar Options" shall mean each unexpired and
unexercised option to purchase shares of BioStar Common Stock granted under the
1995 Equity Incentive Plan and stock option agreements of BioStar outside of the
1995 Equity Incentive Plan outstanding immediately prior to the Effective Time.
BIOSTAR PROPRIETARY ASSET. "BioStar Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to BioStar or otherwise used by BioStar.
BIOSTAR PREFERRED STOCK. "BioStar Preferred Stock" shall mean the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, $.0001
par value, of BioStar.
BIOSTAR RECORD DATE. "BioStar Record Date" shall mean the record date for
the BioStar Stockholders Meeting.
BIOSTAR TRIGGERING EVENT. A "BioStar Triggering Event" shall be deemed to
have occurred if: (i) the board of directors of BioStar shall have failed to
recommend, or shall for any reason have withdrawn or shall
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have amended or modified in a manner adverse to Cortech its unanimous
recommendation in favor of, the Merger or approval of this Agreement; (ii)
BioStar shall have failed to include in the Joint Proxy Statement the unanimous
recommendation of the board of directors of BioStar in favor of approval of this
Agreement and the Merger; (iii) the board of directors of BioStar fails to
unanimously reaffirm its recommendation in favor of approval of this Agreement
and the Merger within five business days after the Cortech requests in writing
that such recommendation be reaffirmed; (iv) the board of directors of BioStar
shall have approved, endorsed or recommended any Acquisition Proposal; (v)
BioStar shall have entered into any letter of intent or similar document or any
Contract relating to any Acquisition Proposal; (vi) BioStar shall have failed to
hold BioStar Stockholders' Meeting as promptly as practicable and in any event
within 45 days after the Form S-4 Registration Statement is declared effective
under the Securities Act; (vii) a tender or exchange offer relating to
securities of BioStar shall have been commenced and BioStar shall not have sent
to its security holders, within five business days after the commencement of
such tender or exchange offer, a statement disclosing that BioStar recommends
rejection of such tender or exchange offer; or (viii) an Acquisition Proposal is
publicly announced, and BioStar (A) fails to issue a press release announcing
its opposition to such Acquisition Proposal within five business days after such
Acquisition Proposal is announced or (B) otherwise fails to actively oppose such
Acquisition Proposal.
BIOSTAR WARRANTS. BioStar Warrants shall mean the outstanding warrants of
BioStar and the Contingent Instrument, as amended prior to the Effective Time
(other than those which expire as of the Effective Time if they remain
unexercised as of the Effective Time).
CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan or legally
binding commitment or undertaking of any nature.
CORTECH COMMON STOCK. "Cortech Common Stock" shall mean the Common Stock,
$0.002 par value per share, of Cortech.
CORTECH CONTRACT. "Cortech Contract" shall mean any Contract: (a) to which
any of the Cortech Corporations is a party; (b) by which any Cortech Corporation
or any asset of a Cortech Corporation may become bound or under which any
Cortech Corporation has, or may become subject to, any obligation; or (c) under
which any Cortech Corporation has or may acquire any right or interest.
CORTECH DISCLOSURE SCHEDULE. "Cortech Disclosure Schedule" shall mean the
disclosure schedule that has been prepared by Cortech in accordance with the
requirements of Section 9.6 and that has been delivered by Cortech to BioStar on
the date of this Agreement and signed by the President of Cortech.
CORTECH OPTIONS. "Cortech Options" shall mean stock options granted by
Cortech pursuant to the Amended and Restated 1986 Incentive Stock Option Plan,
1991 Non-employee Directors' Stock Option Plan, Amended and Restated 1992
Non-employee Directors' Stock Option Plan, and the 1993 Equity Incentive Plan
(collectively, the "Cortech Option Plans").
CORTECH PROPRIETARY ASSET. "Cortech Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to any of the Cortech Corporations or
otherwise used by any of the Cortech Corporations.
CORTECH RECORD DATE. "Cortech Record Date" shall mean the record date for
the Cortech Stockholders Meeting.
CORTECH TRIGGERING EVENT. A "Cortech Triggering Event" shall be deemed to
have occurred if: (i) the board of directors of the Cortech shall have failed to
recommend, or shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to BioStar its unanimous recommendation in favor
of, the Merger or approval of this Agreement; (ii) Cortech shall have failed to
include in the Joint Proxy Statement the unanimous recommendation of the board
of directors of Cortech in favor of approval of this
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Agreement and the Merger; (iii) the board of directors of Cortech fails to
unanimously reaffirm its recommendation in favor of approval of this Agreement
and the Merger within five business days after BioStar requests in writing that
such recommendation be reaffirmed; (iv) the board of directors of Cortech shall
have approved, endorsed or recommended any Acquisition Proposal; (v) Cortech
shall have entered into any letter of intent or similar document or any Contract
relating to any Acquisition Proposal; (vi) Cortech shall have failed to hold the
Cortech Stockholders' Meeting as promptly as practicable and in any event within
45 days after the Form S-4 Registration Statement is declared effective under
the Securities Act; (vii) a tender or exchange offer relating to securities of
Cortech shall have been commenced and Cortech shall not have sent to its
security holders, within five business days after the commencement of such
tender or exchange offer, a statement disclosing that Cortech recommends
rejection of such tender or exchange offer; or (viii) an Acquisition Proposal is
publicly announced, and Cortech (A) fails to issue a press release announcing
its opposition to such Acquisition Proposal within five business days after such
Acquisition Proposal is announced or (B) otherwise fails to actively oppose such
Acquisition Proposal.
COWEN. "Cowen" shall mean Cowen & Company, financial advisor to Cortech.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
ENVIRONMENTAL LAW. "Environmental Law" means any federal, state, local or
foreign Legal Requirement relating to pollution or protection of human health or
the environment (including ambient air, surface water, ground water, land
surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
FORM S-4 REGISTRATION STATEMENT. "Form S-4 Registration Statement" shall
mean the registration statement on Form S-4 to be filed with the SEC by Cortech
in connection with issuance of Cortech Common Stock in the Merger, as said
registration statement may be amended prior to the time it is declared effective
by the SEC.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, variance, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
JOINT PROXY STATEMENT. "Joint Proxy Statement" shall mean the joint proxy
statement/prospectus to be sent to BioStar's stockholders in connection with the
BioStar Stockholder's Meeting and to Cortech's stockholders in connection with
the Cortech Stockholders' Meeting.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
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examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
LEHMAN BROTHERS. "Lehman Brothers" shall mean Lehman Brothers Inc.,
financial advisor to BioStar.
MATERIAL ADVERSE EFFECT. An event, violation, inaccuracy, circumstance or
other matter will be deemed to have a "Material Adverse Effect" on BioStar if
such event, violation, inaccuracy, circumstance or other matter would have a
material adverse effect on (i) the business, financial condition,
capitalization, assets, liabilities, operations or financial performance of
BioStar, (ii) the ability of the company to consummate the Merger or any of the
other transactions contemplated by this Agreement or to perform obligations
under this Agreement, or (iii) Cortech's ability to vote, receive dividends with
respect to or otherwise exercise ownership rights with respect to the stock of
the Surviving Corporation. An event, violation, inaccuracy, circumstance or
other matter will be deemed to have a "Material Adverse Effect" on Cortech if
such event, violation, inaccuracy, circumstance or other matter would have a
material adverse effect on (i) the business, financial condition, assets,
liabilities, operations or financial performance of the Cortech Corporations
taken as a whole, (ii) the ability of Cortech to consummate the Merger or any of
the other transactions contemplated by this Agreement or to perform its
obligations under this Agreement, or (iii) the ability of BioStar's stockholders
to vote, receive dividends with respect to, or otherwise exercise ownership
rights with respect to the stock of Cortech received by them.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental Concern"
include chemicals, pollutants, contaminants, wastes, toxic substances, petroleum
and petroleum products and any other substance that is now or hereafter
regulated by any Environmental Law or that is otherwise a danger to health,
reproduction or the environment.
PENSION PLAN. "Pension Plan" shall mean any employee pension benefit plan
(as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), whether or not excluded from coverage under specific
Titles or Subtitles of ERISA).
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any material: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, source code, algorithm, invention, design,
blueprint, engineering drawing, proprietary product, technology, proprietary
right or other intellectual property right or intangible asset; or (b) right to
use or exploit any of the foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
SUBSIDIARY. An entity shall be deemed to be a "Subsidiary" of another
Person if such Person directly or indirectly owns, beneficially or of record, an
amount of voting securities or other interests in such Entity that is sufficient
to enable such Person to elect at least a majority of the members of such
Entity's board of directors or other governing body.
SUPERIOR OFFER. "Superior Offer" shall mean an unsolicited, bona fide
written Acquisition Proposal on terms that the board of directors of BioStar or
Cortech, as the case may be, determines in its reasonable
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judgment, after consultation with its financial advisor, to be more favorable to
BioStar's stockholders or Cortech's stockholders, as the case may be, than the
terms of the Merger.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
WELFARE PLAN. "Welfare Plan" shall mean an employee welfare benefit plan
(as defined in Section 3(1) of ERISA, whether or not excluded from coverage
under specific Titles or Subtitles of ERISA).
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EXHIBIT B
FORM OF BIOSTAR CHARTER AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
BIOSTAR, INC.
BioStar, Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:
FIRST: The name of the Corporation is BioStar, Inc.
SECOND: The original certificate of incorporation of the Corporation was
(i) filed with the Secretary of State of Delaware on May 21, 1992, and (ii) a
restated certificate of incorporation was filed on June 24, 1997 (the "Restated
Certificate").
THIRD: The board of directors of the Corporation, acting in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware, has adopted resolutions to amend the Certificate of Incorporation.
FOURTH: The Certificate of Incorporation shall be amended as follows:
1. Subsection 2(a) of Article IV shall be amended to read in full as
follows:
"a. In the event of a liquidation, dissolution or winding up of this
corporation, other than the Excluded Merger (as defined in subsection
5(a)(iv) below), either voluntary or involuntary:"
2. The following proviso shall be inserted at the end of subsection
5(a) of Article IV, immediately after subsection 5(a)(ii)(D):
"(iii) This Section 5 shall not apply to a merger of Cortech Merger Sub,
Inc., a wholly-owned subsidiary of Cortech, Inc., with and into the
Corporation (the "Excluded Merger") pursuant to the Agreement and Plan
of Merger and Reorganization dated as of December 19, 1997 among
Cortech, Inc., Cortech Merger Sub, Inc. and the Corporation, as such
agreement may be amended from time to time in accordance with the
provisions thereof (the "Reorganization Agreement").
3. The following subsection 5(g) shall be added to Article IV,
immediately following sub-section 5(f):
"g. Notwithstanding any other provision of this Restated Certificate, in
the event of the Excluded Merger no holder of Preferred Stock or Common
Stock shall be entitled to receive, as consideration for any of such
holder's Preferred Stock or Common Stock, any payment, consideration or
exchange of cash, securities or other property other than the
consideration set forth in the Reorganization Agreement."
FIFTH: Thereafter, pursuant to a resolution of the board of directors of
the Corporation, this Certificate of Amendment was submitted to the stockholders
of the Corporation for their approval in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its duly authorized officer this day of
, 1998.
BioStar, Inc.
By:
----------------------------------
Teresa W. Ayers
President/Chief Executive Officer
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EXHIBIT C
FORM OF AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is made and entered into as of
, 199 , by and among Cortech, Inc., a Delaware corporation
("Cortech"), BioStar, Inc., a Delaware corporation ("BioStar") and the
undersigned stockholder who may be deemed an affiliate ("Affiliate") of BioStar.
Capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Reorganization Agreement (as defined below).
RECITALS
A. BioStar, Cortech and Cortech Merger Sub, Inc., a Delaware corporation
and a wholly-owned subsidiary of Cortech ("Merger Sub"), have entered into an
Agreement and Plan of Reorganization (the "Reorganization Agreement") which
contemplates that BioStar and Merger Sub will execute a Certificate of Merger,
which Agreement and Certificate (collectively, the "Merger Agreements") provide
for the merger (the "Merger") of Merger Sub with and into BioStar. Pursuant to
the Merger, all outstanding capital stock of BioStar will be converted into
Common Stock of Cortech.
B. Affiliate is the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act of 1934, as amended (the "Exchange Act")) of such number of shares
of the outstanding BioStar capital stock as is indicated on the final page of
this Agreement, which shares shall be exchanged for shares of Cortech Common
Stock as a result of the Merger (for purposes of this Agreement, "Shares" means
shares of BioStar capital stock and the shares of Cortech Common Stock issued in
exchange therefor as a result of the Merger).
C. Affiliate understands that, since the Affiliate may be deemed to be an
"affiliate" of BioStar (within the meaning of Rule 145 ("Rule 145") promulgated
by the Securities and Exchange Commission ("SEC") under the Securities Act of
1933, as amended (the "Securities Act")), the Shares may only be disposed of in
conformity with the limitations described herein. Affiliate has been informed
that the treatment of the Merger as a tax-free reorganization under applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), is
dependent upon the accuracy of certain of the representations and warranties and
the compliance with certain of the agreements set forth herein. Affiliate
further understands that the representations, warranties and agreements set
forth herein will be relied upon by Cortech, BioStar and their respective
counsel and independent auditors.
NOW THEREFORE, the parties agree as follows:
1) New Shares. Affiliate agrees that any shares of capital stock of BioStar
that Affiliate purchases or with respect to which Affiliate otherwise acquires
beneficial ownership after the date of this Agreement and prior to the Effective
Time of the Merger ("New Shares") shall be subject to the terms and conditions
of this Agreement to the same extent as if they constituted Shares.
2) Tax Treatment; Rule 145. Affiliate understands and agrees that it is
intended that the Merger qualify as a "reorganization" under Section 368 of the
Code. Affiliate further understands and agrees that Affiliate may be deemed to
be an "affiliate" of BioStar within the meaning of Rule 145, although nothing
contained herein should be construed as an admission of such fact.
3) Reliance Upon Representations, Warranties and Covenants. Affiliate has
been informed that the treatment of the Merger as a reorganization for federal
income tax purposes requires that a sufficient number of former stockholders of
BioStar maintain a meaningful continuing equity ownership interest in Cortech
after the Merger. Affiliate understands that the representations, warranties and
covenants of Affiliate set forth herein will be relied upon by Cortech, BioStar
and their respective counsel and independent auditors.
4) Representations, Warranties and Covenants of Affiliate.
(a) Affiliate has full power and authority to execute this Agreement, to
make the representations, warranties and covenants herein contained and to
perform Affiliate's obligations hereunder.
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(b) Set forth below the signatures below is the number of shares of BioStar
capital stock owned by Affiliate, including all BioStar capital stock as to
which Affiliate has sole or shared voting or investment power and all rights,
options and warrants to acquire BioStar capital stock owned or held by
Affiliate.
(c) Except as may be specifically required by court order, Affiliate will
not sell, transfer, exchange, pledge or otherwise dispose of, or make any offer
or agreement relating to the foregoing with respect to, any shares of Cortech
Common Stock that Affiliate may acquire in connection with the Merger, or any
securities that may be paid as a dividend or otherwise distributed thereon or
with respect thereto or issued or delivered in exchange or substitution therefor
(all such shares and other securities of Cortech are sometimes collectively
referred to as "Restricted Securities"), or any option, right or other interest
with respect to any Restricted Securities, unless: (i) such transaction is
permitted pursuant to Rule 145(d) under the Securities Act; (ii) counsel
representing Affiliate, which counsel is reasonably satisfactory to Cortech,
shall have advised Cortech in a written opinion letter satisfactory to Cortech
and Cortech's legal counsel, and upon which Cortech and its legal counsel may
rely, that no registration statement under the Securities Act would be required
in connection with the proposed sale, transfer or other disposition; (iii) a
registration statement under the Securities Act covering the Cortech Common
Stock proposed to be sold, transferred or otherwise disposed of, describing the
manner and terms of the proposed sale, transfer or other disposition, and
containing a current prospectus, shall have been filed with the SEC and made
effective under the Securities Act; or (iv) an authorized representative of the
SEC shall have rendered written advice to Affiliate (sought by Affiliate or
counsel to Affiliate, with a copy thereof and all other related communications
delivered to Cortech) to the effect that the SEC would take no action, or that
the staff of the SEC would not recommend that the SEC take any action, with
respect to the proposed disposition if consummated.
(d) Affiliate has, and as of the Effective Time of the Merger will have, no
present plan or intent to engage in a sale, exchange, transfer, pledge,
disposition or any other transaction that results in a reduction in the risk of
ownership (collectively, a "Sale") with respect to more than % of the shares
of Cortech Common Stock to be acquired by the undersigned Affiliate upon
consummation of the Merger. Affiliate is not aware of, or participating in, any
present plan or intention (a "Plan") on the part of BioStar stockholders to
engage in Sales of shares of Cortech Common Stock to be issued in the Merger
such that the aggregate fair market value, as of the Effective Time of the
Merger, of the shares subject to such Sales would exceed % of the aggregate
fair market value of all shares of outstanding BioStar capital stock immediately
prior to the Merger. For purposes of the preceding sentence, shares of BioStar
capital stock (i) that are exchanged for cash in lieu of fractional shares of
Cortech capital stock, or (ii) with respect to which a pre-Merger sale occurs in
a Related Transaction (as defined below), shall be considered to be shares of
BioStar capital stock that are exchanged for Cortech Common Stock in the Merger
and then disposed of pursuant to a Plan. A Sale of Cortech Common Stock shall be
considered to have occurred pursuant to a Plan if, among other things, such Sale
occurs in a Related Transaction. For purposes of this Section 4(d), a "Related
Transaction" shall mean a transaction that is in contemplation of, or related or
pursuant to, the Merger or the Merger Agreements. If any of Affiliate's
representations in this subsection (d) cease to be true at any time prior to the
Effective Time of the Merger, Affiliate will deliver to each of BioStar and
Cortech, prior to the Effective Time of the Merger, a written statement to that
effect, signed by Affiliate.
5) Rules 144 and 145. From and after the Effective Time of the Merger and
for so long as is necessary in order to permit Affiliate to sell the Cortech
Common Stock held by Affiliate pursuant to Rule 145 and, to the extent
applicable, Rule 144 under the Securities Act ("Rule 144"), Cortech will use its
best efforts to file on a timely basis all reports required to be filed by it
pursuant to Section 13 of the Exchange Act referred to in paragraph (c)(1) of
Rule 144 under the Securities Act (or if applicable, Cortech will use its best
efforts to make publicly available the information regarding itself referred to
in paragraph (c)(2) of Rule 144), in order to permit Affiliate to sell the
Cortech Common Stock held by it pursuant to the terms and conditions of Rule 145
and the applicable provisions of Rule 144.
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6) Limited Resales. Affiliate understands that, in addition to the
restrictions imposed under Section 4 of this Agreement, the provisions of Rule
145 currently limit Affiliate's public resales of Restricted Securities, in the
manner set forth in subsections (a), (b) and (c) below:
(a) Unless and until the restriction "Cut-off" provisions of Rule
145(d)(2) or Rule 145(d)(3) set forth below become available, public
resales of Restricted Securities may only be made by Affiliate in
compliance with the requirements of Rule 145(d)(1). Rule 145(d)(1) permits
such resales only: (i) while Cortech meets the public information
requirements of Rule 144(c); (ii) in brokers' transactions or in
transactions with a market maker; and (iii) where the aggregate number of
Restricted Securities sold at any time, together with all sales of Cortech
Common Stock sold for Affiliate's account during the preceding three-month
period does not exceed the greater of (A) one percent (1%) of the Cortech
Common Stock outstanding or (B) the average weekly volume of trading in
Cortech Common Stock during the four (4) calendar weeks preceding the date
of receipt of the order to execute the sale.
(b) Affiliate may make unrestricted sales of Restricted Securities
pursuant to Rule 145(d)(2) if: (i) Affiliate has beneficially owned (within
the meaning of Rule 144(d)) the Restricted Securities for at least one (1)
year after the Effective Time of the Merger; (ii) Affiliate is not an
affiliate of Cortech; and (iii) Cortech meets the public information
requirements of Rule 144(c).
(c) Affiliate may make unrestricted sales of Restricted Securities
pursuant to Rule 145(d)(3) if: (i) Affiliate has beneficially owned (within
the meaning of Rule 144(d)) the Restricted Securities for at least two (2)
years and (ii) Affiliate is not, and has not been for at least three (3)
months, an affiliate of Cortech.
(d) Cortech acknowledges that the provisions of Section 4(c) of this
Agreement will be satisfied as to any sale by the undersigned of the
Restricted Securities pursuant to Rule 145(d), by a broker's letter and a
letter from the undersigned with respect to that sale stating that each of
the above-described requirements of Rule 145(d)(1) has been met or is
inapplicable by virtue of Rule 145(d)(2) or Rule 145(d)(3) (as such Rules
may in effect at such time); provided, however, that Cortech has no
reasonable basis to believe that such sales were not made in compliance
with such provisions of Rule 145(d).
7. Legends. Affiliate also understands and agrees that there will be placed
on the certificates evidencing the Restricted Securities a legend stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), APPLIES. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE REQUIREMENTS OF THE
SECURITIES ACT."
Cortech agrees to remove promptly such legend upon full compliance with
this Agreement by the undersigned, including, without limitation, a sale or
transfer of Cortech Common Stock permitted under Section 4(c) above.
8) Termination. This Agreement shall be terminated and shall be of no
further force or effect in the event of the termination of the Reorganization
Agreement pursuant to Article VIII of the Reorganization Agreement.
9) Partnership Distributions. Any other provisions of this Agreement
notwithstanding, if the undersigned Affiliate is organized as a partnership,
BioStar and Cortech hereby agree that such partnership shall be permitted to
make a distribution to its partners of shares of BioStar capital stock (if made
prior to the Effective Time of the Merger) or of shares of Cortech capital stock
received in the Merger so long as the undersigned Affiliate and its partnership
distributees provide assurances, acceptable to Cortech and BioStar in their
reasonable discretion, that such distributions (i) are permissible under Rule
145, and (ii) will not prevent the Merger from being treated as a tax-free
reorganization for federal income tax purposes.
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10) Miscellaneous.
(a) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
(b) Binding Agreement. This Agreement will inure to the benefit of and be
binding upon and enforceable against the parties and their successors and
assigns, including administrators, executors, representatives, heirs, legatees
and devisees of Affiliate and pledgees holding Restricted Securities as
collateral.
(c) Waiver. No waiver by any party hereto of any condition or of any breach
of any provision of this Agreement shall be effective unless in writing and
signed by each party hereto.
(d) Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
Delaware without giving effect to any choice or conflict of law provision or
rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Delaware.
(e) Attorneys' Fees. In the event of any legal action or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding results in
a final judgment.
(f) Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
(g) Third Party Reliance. Counsel to and independent auditors for the
parties shall be entitled to rely upon this Affiliate Agreement.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this Affiliate Agreement to be
duly executed on the day and year first above written.
CORTECH AFFILIATE
By: By:
------------------------------ --------------------------------
Name:
---------------------------- Affiliate's address for notice:
Title:
--------------------------- -----------------------------------
BIOSTAR -----------------------------------
By:
------------------------------ Shares beneficially owned:
Name: ____ shares of BioStar Common Stock
----------------------------
____ shares of BioStar Common Stock
Title: issuable upon exercise of
--------------------------- outstanding options and warrants
____ shares of BioStar Preferred
Stock
____ shares of BioStar Preferred
Stock issuable upon exercise
of outstanding options and
warrants
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APPENDIX B
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CORTECH, INC.
Cortech, Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Company"), does
hereby certify:
FIRST: That at a meeting of the Board of Directors of the Company,
resolutions were duly adopted setting forth proposed amendments of the
Certificate of Incorporation of the Company, declaring said amendments to be
advisable and calling a meeting of the stockholders of the Company for
consideration thereof. The resolutions setting forth the proposed amendments are
as follows:
RESOLVED, that a proposed amendment to the Certificate of
Incorporation of the Company effecting changes in Article II thereof is
hereby approved and adopted:
Article II is hereby amended to read in its entirety as follows:
The name of the Corporation is BioStar Holdings, Inc.
(hereinafter referred to as the "Corporation").
RESOLVED FURTHER, that a proposed amendment to the Certificate of
Incorporation of the Company effecting changes in Article V, Section 1
thereof is hereby approved and adopted:
Article V, Section 1 is hereby amended to read in its entirety as
follows:
Section 1. Authorized Shares.
The aggregate number of shares of capital stock which this
Corporation shall have the authority to issue shall be 52,000,000
shares, 50,000,000 of which shall be Common Stock, with a par value
of $0.002 per share (hereinafter referred to as "Common Stock"), and
2,000,000 of which shall be Preferred Stock, with a par value of
$0.002 per share (hereinafter referred to as "Preferred Stock").
Upon the amendment of this Section 1 of Article V to read as
herein set forth, each [ ( )] outstanding shares of Common
Stock are combined into one (1) share of Common Stock (without any
effect on the authorized number of such shares); provided, however,
that the Corporation shall issue no fractional shares, but shall
instead pay in cash to any stockholder who would be entitled to
receive a fractional share as the result of the action set forth in
this Section 1 of Article V the fair market value of such fractional
share as determined by the Board of Directors as of the effective
date of the Amendment of this Section 1 of Article V.
[SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a special meeting of the stockholders of the Company was duly called and held,
upon notice in accordance with Section 222 of the General Corporation law of the
State of Delaware, at which meeting the necessary number of shares as required
by statute were voted in favor of the amendments.]
[THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.]
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IN WITNESS WHEREOF, the Company has caused this certificate to be signed by
, its authorized officer, this day of , 1998.
CORTECH, INC.
By:
------------------------------------
Title:
------------------------------------
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APPENDIX C -- OPINION OF COWEN & COMPANY
December 22, 1997
Board of Directors
Cortech, Inc.
6859 North Broadway
Denver, CO 80221
Gentlemen:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to Cortech, Inc. (the "Company"), of the terms of the
Transaction (as hereinafter defined) with BioStar, Inc. ("BioStar"). For the
purposes of this opinion, the "Transaction" means the transaction described
below pursuant to that certain draft Agreement and Plan of Merger and
Reorganization among the Company, Cortech Merger Sub, Inc. ("Merger Sub") and
BioStar dated December 22, 1997 (the "Agreement").
As more specifically set forth in the Agreement, and subject to certain terms
and conditions thereof, Merger Sub shall be merged with and into BioStar (the
"Merger") with BioStar continuing as the surviving corporation, and (a) each
outstanding share of Common Stock, par value $0.0001 per share, of BioStar
("BioStar Common Stock") and each outstanding share of Preferred Stock, par
value of $0.0001 per share, of BioStar ("BioStar Preferred Stock") (other than
shares held by the Company or BioStar) shall be converted into the right to
receive the number of fully paid and nonassessable shares of Cortech Common
Stock (which number will reflect a one for four reverse stock split to be
effected immediately prior to the effective time of the Merger) equal to a
fraction the numerator of which is 28,500,000 and the denominator of which is
the number of shares of BioStar Common Stock and BioStar Preferred Stock
outstanding plus the number of shares of BioStar Common Stock and BioStar
Preferred Stock issuable upon exercise as of the effective time of all (i)
outstanding BioStar warrants and (ii) outstanding BioStar options; and (b) each
share of the common stock, $0.001 par value, of Merger Sub then outstanding
shall be converted into one share of common stock of the surviving corporation.
In the ordinary course of its services, Cowen & Company ("Cowen") is regularly
engaged in the valuation and pricing of businesses and their securities and in
advising corporate securities issuers on related matters.
In arriving at our opinion, Cowen has, among other things:
(1) reviewed the Company's financial statements for the fiscal years
ended December 31, 1994, 1995 and 1996 and for the quarters ended September
30, 1996 and September 30, 1997, respectively, certain publicly available
filings with the Securities and Exchange Commission and certain other
relevant financial and operating data of the Company;
(2) reviewed BioStar's financial statements for the fiscal years ended
December 31, 1994, 1995 and 1996 and for the quarters ended September 30,
1996 and September 30, 1997, respectively, and certain other relevant
financial and operating data of BioStar;
(3) reviewed a draft Agreement, dated December 22, 1997;
(4) held meetings and discussions with management and senior personnel
of the Company and BioStar to discuss the business, operations, historical
financial results and future prospects of the Company and BioStar;
(5) reviewed financial projections furnished to us by the management
of the Company, including, among other things, the capital structure,
sales, net income, cash flow, capital requirements and other data of the
Company we deemed relevant;
(6) reviewed financial projections furnished to us by the management
of BioStar, including, among other things, the capital structure, sales,
net income, cash flow, capital requirements and other data of BioStar we
deemed relevant;
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(7) reviewed the valuation of the Company and BioStar in comparison to
other similar publicly traded companies;
(8) analyzed the potential pro forma financial effects of the
Transaction; and
(9) conducted such other studies, analysis, inquiries and
investigations as we deemed appropriate.
Cowen was not requested to, and did not, solicit third party indications of
interest in acquiring all or substantially all of the stock or assets of the
Company.
On December 22, 1997, the closing price of the Common Stock of the Company in
the last transaction reported by Nasdaq National Market was $0.656 per share.
In rendering our opinion, we relied upon the Company's and BioStar's respective
managements with respect to the accuracy and completeness of the financial and
other information furnished to us as described above. We assumed that financial
forecasts, projections and estimates of operating efficiencies and potential
synergies reflected the best currently available estimates and judgments of the
Company's and BioStar's management as to the expected future financial
performance of their respective entities. We have not assumed any responsibility
for independent verification of such information, including financial
information, nor have we made an independent evaluation or appraisal of any of
the properties or assets of the Company or BioStar. We have visited the
headquarters of the Company. With respect to all legal matters relating to the
Company and BioStar, we have relied on the advice of legal counsel to the
Company.
Our opinion is necessarily based on general economic, market financial and other
conditions as they exist on, and can be evaluated as of, the date hereof, as
well as the information currently available to us. It should be understood that,
although subsequent developments may affect our opinion, we do not have any
obligation to update, revise or reaffirm our opinion. Our opinion does not
constitute a recommendation to any stockholder as how such stockholder should
vote on the proposed Transaction. Our opinion does not imply any conclusion as
to the likely trading range for the Company Common Stock following consummation
of the Transaction or otherwise, which may vary depending on numerous factors
that generally influence the price of securities. Our opinion is limited to the
fairness, from a financial point of view, of the terms of the Transaction. We
express no opinion with respect to any other reasons, legal, business or
otherwise, that may support the decision of the Board of Directors of the
Company to approve, or the Company's decision to consummate, the Transaction.
For purposes of rendering our opinion we have assumed in all respects material
to our analysis, that the representations and warranties of each party contained
in the Agreement are true and correct, that each party will perform all of the
covenants and agreements required to be performed by it under the Agreement and
that all conditions to the consummation of the Transaction will be satisfied
without waiver thereof. We have also assumed that all governmental, regulatory
or other consents and approvals contemplated by the Agreement will be obtained
and that in the course of obtaining any of those consents no restrictions will
be imposed or waivers made that would have an adverse effect on the contemplated
benefits of the Transaction.
We have acted as financial advisor to the Board of Directors of the Company in
connection with the Transaction and will receive a fee for our services, a
significant portion of which is contingent on the consummation of the
Transaction. We will also receive a fee for rendering this opinion. In addition,
in the ordinary course of its business, Cowen trades the debt and equity
securities of the Company for its own account and for the accounts of its
customers, and, accordingly, it may at any time hold a long or short position in
such securities.
On the basis of our review and analysis, as described above, it is our opinion
as investment bankers that, as of the date hereof, the financial terms of the
Transaction are fair, from a financial point of view, to the Company.
Very truly yours,
Cowen & Company
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APPENDIX D -- SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251 (other than a merger effected pursuant to
subsection (g) of Section 251 of this title), 252, 254, 257, 258, 263 or 264 of
this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
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of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise
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entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
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<PAGE> 246
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all of
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-4
<PAGE> 247
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law (the "Delaware
Code"), the Registrant has broad powers to indemnify its directors and officers
against liabilities they may incur in such capacities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). Generally,
the Registrant's Bylaws provide that the Registrant will indemnify each of its
directors and officers to the fullest extent not prohibited by Delaware law,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable cause
to believe his or her conduct was unlawful. With respect to a suit brought by or
in the right of the Registrant, indemnification will not be provided for
expenses incurred in connection with any claim, issue or matter as to which such
person shall have been adjudged liable to the Registrant unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery of the State of Delaware or such other court shall
deem proper. The Registrant's Bylaws also provide that the Company may indemnify
employees and other agents of the Company who are not directors or officers as
set forth in the Delaware Code.
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Reorganization Agreement provides that from and after the Effective
Time of the Merger, the Registrant shall and shall cause BioStar, to the fullest
extent permitted under applicable law, to indemnify, defend and hold harmless
each person who served as a director or officer of the Registrant or BioStar
prior to the Effective Time of the Merger against and from (i) any losses,
claims damages, expenses (including reasonable attorneys' fees and court costs),
liabilities or judgements and (ii) any amounts that are paid in settlement, with
the consent of the Registrant (which consent will not be unreasonably withheld),
of or in connection with any legal proceeding based directly or indirectly (in
whole or in part) on, or arising directly or indirectly (in whole or in part)
out of, the fact that such person is or was an officer or director of the
Registrant or BioStar, whether pertaining to any matter arising before or after
the Effective Time.
In addition, the Registrant will provide directors' and officers' insurance
to each of its directors and officers.
II-1
<PAGE> 248
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
2.1 -- Agreement and Plan of Merger and Reorganization dated as
of December 22, 1997 among Cortech, Inc., Cortech Merger
Sub, Inc. and BioStar, Inc. (attached as Appendix A to
Joint Proxy Statement/Prospectus).
3.1 -- Certificate of Incorporation of Cortech, Inc.(1)
3.2 -- Proposed Certificate of Amendment to Certificate of
Incorporation of Cortech, Inc. (see Appendix B).
3.3 -- Certificate of Designation for Series A Junior
Participating Preferred Stock.(12)
3.4 -- Amended and Restated Bylaws of Cortech, Inc.
4.1 -- Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 10.21,
10.22, 10.30, 10.34, 10.52, 10.71, 10.72, 10.73, 10.74,
10.75, 10.76, 10.77, 10.78, 10.79 and 10.81.
4.2 -- Specimen certificate for the Common Stock of Cortech,
Inc.(1)
5.1 -- Legal opinion of Pillsbury Madison & Sutro LLP.
8.1** -- Tax opinion of Pillsbury Madison & Sutro LLP.
8.2** -- Tax opinion of Cooley Godward LLP.
10.2 -- Lease Agreement dated April 2, 1992, as amended, between
Lyon-Stewart Associates and Cortech, Inc.(1)
10.3 -- Lease Agreement dated March 5, 1993, as amended, between
Lyon-Stewart Associates and Cortech, Inc.(5)
10.7 -- Lease Agreement dated May 14, 1993, as amended, between
Lyon-Stewart Associates and Cortech, Inc.(5)
10.13 -- Purchase and Sale Agreement (Vacant Land) dated February
16, 1994, between Cortech, Inc. and Golden West Equity
Properties, Inc. and Park Centre Limited Partnerships.(7)
10.14 -- Research Agreement dated June 30, 1987, as amended
through December 31, 1996, between HMRI,
successor-in-interest to Marion Merrell Dow Inc., and
Cortech, Inc.(1)
10.19 -- Fifth Amendment of Research Agreement dated January 14,
1994, between HMRI and Cortech, Inc.(6)
10.21 -- Warrant to Purchase dated June 30, 1998, between HMRI and
Cortech, Inc.(1)
10.22 -- Warrant to Purchase dated February 28, 1990, between HMRI
and Cortech, Inc.(1)
10.25 -- License Agreement dated June 30, 1987, between HMRI and
Cortech, Inc.(1)
10.27 -- Amended and Restated License Agreement dated as of May
28, 1993, between HMRI and Cortech, Inc.(3)
10.28 -- Sponsored Research and License Agreement dated February
13, 1987, between The John Hopkins University and
Cortech, Inc.(1)
10.29 -- License Agreement dated June 30, 1987, between the
Research Foundation of the State of New York and Cortech,
Inc.(1)
10.30 -- Stock Purchase Agreement dated July 8, 1994, between
Cortech, Inc. and the Research Foundation of State
University of New York.(9)
10.31 -- Royalty Buyout Agreement dated July 8, 1994, between
Cortech, Inc. and the Research Foundation of State
University of New York.(9)
</TABLE>
II-2
<PAGE> 249
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.32* -- Development Agreement dated May 2, 1994, between Cortech,
Inc. and Abbott Laboratories.(8)
10.34 -- Form of Warrant issued in connection with the CDC
offering.(1)
10.35 -- Purchase Option Agreement dated February 13, 1992,
between CDC and Cortech, Inc.(1)
10.36 -- Technology License Agreement dated February 13, 1992,
between CDC and Cortech, Inc.(1)
10.37 -- Research and Development Agreement dated February 13,
1992, between CDC and Cortech, Inc.(1)
10.38 -- Services Agreement dated February 13, 1992, between CDC
and Cortech, Inc.(1)
10.39 -- Amended and Restated Incentive Stock Option Plan of
Cortech, Inc.(1)
10.40 -- 1991 Non-employee Directors' Stock Option Plan of
Cortech, Inc.(2)
10.41 -- Amended and Restated 1992 Non-employee Directors' Stock
Option Plan of Cortech, Inc.(6)
10.42 -- 1993 Employee Stock Purchase Plan of Cortech, Inc.(4)
10.43 -- 1993 Equity Incentive Plan of Cortech, Inc.(6)
10.45 -- Resignation and Separation Agreement dated March 10,
1994, between Cortech, Inc. and David K. Crossen.(7)
10.47 -- Executive Officers' Severance Benefit Plan.(14)
10.48 -- Sixth Amendment of Research Agreement dated March 15,
1995, between HMRI and Cortech, Inc.(14)
10.50* -- Product Development and License Agreement dated November
1, 1995, between Cortech, Inc. and SmithKline
Beecham.(14)
10.51 -- Seventh Amendment of Research Agreement dated December
21, 1995, between HMRI and Cortech, Inc.(14)
10.52 -- Warrant to Purchase dated June 30, 1992, between HMRI and
Cortech, Inc.(14)
10.53 -- Rights Agreement drafted as of June 13, 1995, between
Cortech, Inc. and American Securities Transfer, Inc.(11)
10.54 -- Buy-Out Agreement dated September 9, 1996, between
Cortech, Inc. and HMRI.(13)
10.55 -- Amendment No. 1 to Executive Officers' Severance Benefit
Plan.(14)
10.57* -- Second Amendment of the Research, Development and License
Agreement dated April 23, 1997, between Ono and Cortech,
Inc.(15)
10.58+ -- Development Agreement between BioStar, Inc. and Asahi
Chemical Industry Co., Ltd. dated as of August 1, 1997.
10.59+ -- Technology License Agreement between BioStar, Inc. and
Asahi Chemical Industry Co., Ltd. dated as of August 1,
1997.
10.60+ -- Diagnostic Development and Commercialization Agreement
between BioStar, Inc. and Biota Scientific Management Pty
Ltd dated May 23, 1997.
10.61+ -- Distribution Agreement between BioStar, Inc. and Murex
Diagnostics, Inc. dated as of January 1, 1997, as
amended.
10.62+ -- Distribution Agreement between BioStar, Inc. and Wyntek
Diagnostics, Inc. dated as of July 1, 1997, as amended.
</TABLE>
II-3
<PAGE> 250
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.63 -- Notice of Grant Award to BioStar, Inc. from the National
Institutes of Health issued September 29, 1995.
10.64 -- Notice of Grant Award to BioStar, Inc. from the National
Institutes of Health issued September 30, 1997.
10.65 -- Subordinated Security Agreement between BioStar, Inc. and
Comdisco, Inc. dated May 3, 1995, as amended by Amendment
to Subordinated Security Agreement dated as of March 20,
1996.
10.66 -- Subordination Agreement between BioStar, Inc. and
Comdisco, Inc. dated as of May 3, 1995.
10.67 -- Subordinated Promissory Note payable by BioStar, Inc. to
Comdisco, Inc. dated March 20, 1996.
10.68 -- Form of Convertible Subordinated Promissory Note issued
by BioStar, Inc. on March 20, 1996 and April 15, 1996 to
certain investors.
10.69 -- Form of Subordinated Promissory Note issued by BioStar,
Inc. on June 20, 1997 to certain investors.
10.70 -- Loan and Security Agreement between BioStar, Inc. and
Venture Lending dated as of May 1, 1997.
10.71 -- Warrant to Purchase Shares of Series B Preferred Stock of
BioStar, Inc. issued to Dominion Ventures, Inc. dated
November 2, 1992.
10.72 -- Warrant Agreement to Purchase Shares of the Series E
Preferred Stock of BioStar, Inc. issued to Comdisco, Inc.
dated May 3, 1995.
10.73 -- Warrant Agreement to Purchase Shares of the Series E
Preferred Stock of BioStar, Inc. issued to Comdisco, Inc.
dated May 3, 1995.
10.74 -- Warrant to Purchase Shares of Series E Preferred Stock of
BioStar, Inc. issued to Dominion Ventures, Inc. dated
February 18, 1994.
10.75 -- Warrant to Purchase Shares of Series E Preferred Stock of
BioStar, Inc. issued to Silicon Valley Bank dated
September 15, 1995.
10.76 -- Warrant to Purchase Shares of Series E Preferred Stock of
BioStar, Inc. issued to Venture Lending dated May 1,
1997.
10.77 -- Warrant to Purchase Shares of Common Stock of BioStar,
Inc. issued to Silicon Valley Bank dated October 28,
1996.
10.78 -- Form of Warrant to Purchase Shares of Common Stock of
BioStar, Inc. issued to the Convertible Subordinated
Noteholders.
10.79 -- Form of Warrant to Purchase Shares of Series F Preferred
Stock of BioStar, Inc. issued to the Subordinated
Noteholders.
10.80 -- Restated Investors' Rights Agreement among BioStar, Inc.
and the investors named therein dated as of November 14,
1994, as amended.
10.81 -- Restated Investors' Rights Agreement among BioStar, Inc.
and the investors named therein dated as of ,
1998.
10.82 -- Master Lease Agreement between BioStar, Inc. and
Comdisco, Inc. dated May 3, 1995.
10.83 -- Dominion Ventures Master Lease Agreement between BioStar,
Inc. and Dominion Ventures, Inc. dated November 2, 1992.
10.84 -- Net Lease Agreement between BioStar, Inc. and Nationwide
Life Insurance Company dated as of September 10, 1992, as
amended by an amendment thereto dated as of February 13,
1993.
</TABLE>
II-4
<PAGE> 251
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.85 -- Amendment to Leases between Clear Creek II, L.P. and
Cortech, Inc. dated September 8, 1997.
10.86 -- Employment Agreement between Teresa W. Ayers and BioStar,
Inc. dated as of February 10, 1997.
10.87 -- Employment Agreement between Kim Stebbings and BioStar,
Inc. dated as of February 10, 1997.
10.88 -- Employment Agreement between Noel T. Doheny and BioStar,
Inc. dated as of February 10, 1997.
10.89 -- Employment Agreement between Edward C. Pritchard and
BioStar, Inc. dated as of September 1, 1997.
10.90 -- Employment Agreement between Lyndal K. Hesterberg and
BioStar, Inc. dated as of February 10, 1997.
10.91 -- Consulting Service Agreement between Alexander E. Barkas,
Ph.D. and BioStar, Inc. dated as of October 1, 1997.
10.92 -- Amended and Restated Consulting Services Agreement
between Thomas A. Bologna and BioStar, Inc. dated as of
August 31, 1997.
10.93 -- 1995 Equity Incentive Plan of BioStar, Inc.
10.94 -- Executive Compensation and Benefits Continuation
Agreement between Cortech, Inc. and Kenneth R. Lynn,
dated October 14, 1997, as amended February 12, 1998.
10.95 -- Agreement, dated February 12, 1998, between Cortech, Inc.
and Diarmuid F. Boran.
11.1 -- Statement re: computation of earnings per share.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of Pillsbury Madison & Sutro LLP (included in
opinion filed as Exhibit 5.1).
23.4 -- Consent of Pillsbury Madison & Sutro LLP regarding tax
matters (included in opinion filed as Exhibit 8.1).
23.5 -- Consent of Cooley Godward LLP regarding tax matters
(included in opinion filed as Exhibit 8.2).
24.1 -- Power of Attorney (See page II-9).
27.1 -- Financial Data Schedule.
99.1 -- Proxy Card of Cortech, Inc.
99.2 -- Proxy Card of BioStar, Inc.
</TABLE>
- ---------------
(1) Filed as an exhibit to Cortech, Inc.'s Registration Statement on Form S-1,
filed October 13, 1992, file number 33-53244, or amendments thereto and
incorporated herein by reference.
(2) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the
year ended December 31, 1992, and incorporated herein by reference.
(3) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended March 31, 1993, and incorporated herein by reference.
(4) Filed as an exhibit to Cortech, Inc.'s Registration Statement on Form S-8,
filed March 29, 1993, file number 33-60242, or amendments thereto, and
incorporated herein by reference.
(5) Filed as an exhibit to Cortech, Inc.'s Registration Statement on Form S-1,
filed September 27, 1993, file number 33-69402, or amendments thereto and
incorporated herein by reference.
II-5
<PAGE> 252
(6) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the
year ended December 31, 1993, and incorporated herein by reference.
(7) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended March 31, 1994, and incorporated herein by reference.
(8) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended June 30, 1994, and incorporated herein by reference.
(9) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended September 30, 1994, and incorporated herein by reference.
(10) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended March 31, 1995, and incorporated herein by reference.
(11) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended June 30, 1995, and incorporated herein by reference.
(12) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the
year ended December 31, 1995, and incorporated herein by reference.
(13) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended September 30, 1996, and incorporated herein by reference.
(14) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the
year ended December 31, 1996, and incorporated herein by reference.
(15) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended June 30, 1997, and incorporated herein by reference.
* Subject to Confidential Treatment Order.
** To be filed by amendment.
+ The Registrant has applied for confidential treatment with respect to
portions of this exhibit.
(b) Financial Statement Schedules.
Schedules not listed have been omitted because they are not required, are
not applicable, or the information is included in the consolidated financial
statements, management's discussion and analysis or notes thereto.
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-6
<PAGE> 253
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(2) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(3) That every prospectus: (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) Insofar as the indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(5) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
II-7
<PAGE> 254
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, County of Denver,
State of Colorado, on the 13th day of February, 1998.
CORTECH, INC.
By: /s/ KENNETH R. LYNN
------------------------------------
Kenneth R. Lynn
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kenneth R. Lynn his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, hereby ratifying and confirming his signature as it may
be signed by his said attorney to any and all amendments to said Registration
Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ KENNETH R. LYNN President, Chief Executive February 13, 1998
- ----------------------------------------------------- Officer and Chairman of
Kenneth R. Lynn the Board, Acting Chief
Financial Officer and
Director (principal
executive officer and
principal financial and
accounting officer)
/s/ DONALD KENNEDY, PH.D. Director February 13, 1998
- -----------------------------------------------------
Donald Kennedy, Ph.D.
/s/ ALLEN MISHER, PH.D. Director February 13, 1998
- -----------------------------------------------------
Allen Misher, Ph.D.
/s/ BERT FINGERHUT Director February 13, 1998
- -----------------------------------------------------
Bert Fingerhut
/s/ CHARLES COHEN, PH.D. Director February 13, 1998
- -----------------------------------------------------
Charles Cohen, Ph.D.
</TABLE>
II-8
<PAGE> 255
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
2.1 -- Agreement and Plan of Merger and Reorganization dated as
of December 22, 1997 among Cortech, Inc., Cortech Merger
Sub, Inc. and BioStar, Inc. (attached as Appendix A to
Joint Proxy Statement/Prospectus).
3.1 -- Certificate of Incorporation of Cortech, Inc.(1)
3.2 -- Proposed Certificate of Amendment to Certificate of
Incorporation of Cortech, Inc. (see Appendix B).
3.3 -- Certificate of Designation for Series A Junior
Participating Preferred Stock.(12)
3.4 -- Amended and Restated Bylaws of Cortech, Inc.
4.1 -- Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 10.21,
10.22, 10.30, 10.34, 10.52, 10.71, 10.72, 10.73, 10.74,
10.75, 10.76, 10.77, 10.78, 10.79 and 10.81.
4.2 -- Specimen certificate for the Common Stock of Cortech,
Inc.(1)
5.1 -- Legal opinion of Pillsbury Madison & Sutro LLP.
8.1** -- Tax opinion of Pillsbury Madison & Sutro LLP.
8.2** -- Tax opinion of Cooley Godward LLP.
10.2 -- Lease Agreement dated April 2, 1992, as amended, between
Lyon-Stewart Associates and Cortech, Inc.(1)
10.3 -- Lease Agreement dated March 5, 1993, as amended, between
Lyon-Stewart Associates and Cortech, Inc.(5)
10.7 -- Lease Agreement dated May 14, 1993, as amended, between
Lyon-Stewart Associates and Cortech, Inc.(5)
10.13 -- Purchase and Sale Agreement (Vacant Land) dated February
16, 1994, between Cortech, Inc. and Golden West Equity
Properties, Inc. and Park Centre Limited Partnerships.(7)
10.14 -- Research Agreement dated June 30, 1987, as amended
through December 31, 1996, between HMRI,
successor-in-interest to Marion Merrell Dow Inc., and
Cortech, Inc.(1)
10.19 -- Fifth Amendment of Research Agreement dated January 14,
1994, between HMRI and Cortech, Inc.(6)
10.21 -- Warrant to Purchase dated June 30, 1998, between HMRI and
Cortech, Inc.(1)
10.22 -- Warrant to Purchase dated February 28, 1990, between HMRI
and Cortech, Inc.(1)
10.25 -- License Agreement dated June 30, 1987, between HMRI and
Cortech, Inc.(1)
10.27 -- Amended and Restated License Agreement dated as of May
28, 1993, between HMRI and Cortech, Inc.(3)
10.28 -- Sponsored Research and License Agreement dated February
13, 1987, between The John Hopkins University and
Cortech, Inc.(1)
10.29 -- License Agreement dated June 30, 1987, between the
Research Foundation of the State of New York and Cortech,
Inc.(1)
10.30 -- Stock Purchase Agreement dated July 8, 1994, between
Cortech, Inc. and the Research Foundation of State
University of New York.(9)
10.31 -- Royalty Buyout Agreement dated July 8, 1994, between
Cortech, Inc. and the Research Foundation of State
University of New York.(9)
10.32* -- Development Agreement dated May 2, 1994, between Cortech,
Inc. and Abbott Laboratories.(8)
10.34 -- Form of Warrant issued in connection with the CDC
offering.(1)
</TABLE>
<PAGE> 256
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
10.35 -- Purchase Option Agreement dated February 13, 1992,
between CDC and Cortech, Inc.(1)
10.36 -- Technology License Agreement dated February 13, 1992,
between CDC and Cortech, Inc.(1)
10.37 -- Research and Development Agreement dated February 13,
1992, between CDC and Cortech, Inc.(1)
10.38 -- Services Agreement dated February 13, 1992, between CDC
and Cortech, Inc.(1)
10.39 -- Amended and Restated Incentive Stock Option Plan of
Cortech, Inc.(1)
10.40 -- 1991 Non-employee Directors' Stock Option Plan of
Cortech, Inc.(2)
10.41 -- Amended and Restated 1992 Non-employee Directors' Stock
Option Plan of Cortech, Inc.(6)
10.42 -- 1993 Employee Stock Purchase Plan of Cortech, Inc.(4)
10.43 -- 1993 Equity Incentive Plan of Cortech, Inc.(6)
10.45 -- Resignation and Separation Agreement dated March 10,
1994, between Cortech, Inc. and David K. Crossen.(7)
10.47 -- Executive Officers' Severance Benefit Plan.(14)
10.48 -- Sixth Amendment of Research Agreement dated March 15,
1995, between HMRI and Cortech, Inc.(14)
10.50* -- Product Development and License Agreement dated November
1, 1995, between Cortech, Inc. and SmithKline
Beecham.(14)
10.51 -- Seventh Amendment of Research Agreement dated December
21, 1995, between HMRI and Cortech, Inc.(14)
10.52 -- Warrant to Purchase dated June 30, 1992, between HMRI and
Cortech, Inc.(14)
10.53 -- Rights Agreement drafted as of June 13, 1995, between
Cortech, Inc. and American Securities Transfer, Inc.(11)
10.54 -- Buy-Out Agreement dated September 9, 1996, between
Cortech, Inc. and HMRI.(13)
10.55 -- Amendment No. 1 to Executive Officers' Severance Benefit
Plan.(14)
10.57* -- Second Amendment of the Research, Development and License
Agreement dated April 23, 1997, between Ono and Cortech,
Inc.(15)
10.58+ -- Development Agreement between BioStar, Inc. and Asahi
Chemical Industry Co., Ltd. dated as of August 1, 1997.
10.59+ -- Technology License Agreement between BioStar, Inc. and
Asahi Chemical Industry Co., Ltd. dated as of August 1,
1997.
10.60+ -- Diagnostic Development and Commercialization Agreement
between BioStar, Inc. and Biota Scientific Management Pty
Ltd dated May 23, 1997.
10.61+ -- Distribution Agreement between BioStar, Inc. and Murex
Diagnostics, Inc. dated as of January 1, 1997, as
amended.
10.62+ -- Distribution Agreement between BioStar, Inc. and Wyntek
Diagnostics, Inc. dated as of July 1, 1997, as amended.
10.63 -- Notice of Grant Award to BioStar, Inc. from the National
Institutes of Health issued September 29, 1995.
10.64 -- Notice of Grant Award to BioStar, Inc. from the National
Institutes of Health issued September 30, 1997.
10.65 -- Subordinated Security Agreement between BioStar, Inc. and
Comdisco, Inc. dated May 3, 1995, as amended by Amendment
to Subordinated Security Agreement dated as of March 20,
1996.
</TABLE>
<PAGE> 257
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.66 -- Subordination Agreement between BioStar, Inc. and
Comdisco, Inc. dated as of May 3, 1995.
10.67 -- Subordinated Promissory Note payable by BioStar, Inc. to
Comdisco, Inc. dated March 20, 1996.
10.68 -- Form of Convertible Subordinated Promissory Note issued
by BioStar, Inc. on March 20, 1996 and April 15, 1996 to
certain investors.
10.69 -- Form of Subordinated Promissory Note issued by BioStar,
Inc. on June 20, 1997 to certain investors.
10.70 -- Loan and Security Agreement between BioStar, Inc. and
Venture Lending dated as of May 1, 1997.
10.71 -- Warrant to Purchase Shares of Series B Preferred Stock of
BioStar, Inc. issued to Dominion Ventures, Inc. dated
November 2, 1992.
10.72 -- Warrant Agreement to Purchase Shares of the Series E
Preferred Stock of BioStar, Inc. issued to Comdisco, Inc.
dated May 3, 1995.
10.73 -- Warrant Agreement to Purchase Shares of the Series E
Preferred Stock of BioStar, Inc. issued to Comdisco, Inc.
dated May 3, 1995.
10.74 -- Warrant to Purchase Shares of Series E Preferred Stock of
BioStar, Inc. issued to Dominion Ventures, Inc. dated
February 18, 1994.
10.75 -- Warrant to Purchase Shares of Series E Preferred Stock of
BioStar, Inc. issued to Silicon Valley Bank dated
September 15, 1995.
10.76 -- Warrant to Purchase Shares of Series E Preferred Stock of
BioStar, Inc. issued to Venture Lending dated May 1,
1997.
10.77 -- Warrant to Purchase Shares of Common Stock of BioStar,
Inc. issued to Silicon Valley Bank dated October 28,
1996.
10.78 -- Form of Warrant to Purchase Shares of Common Stock of
BioStar, Inc. issued to the Convertible Subordinated
Noteholders.
10.79 -- Form of Warrant to Purchase Shares of Series F Preferred
Stock of BioStar, Inc. issued to the Subordinated
Noteholders.
10.80 -- Restated Investors' Rights Agreement among BioStar, Inc.
and the investors named therein dated as of November 14,
1994, as amended.
10.81 -- Restated Investors' Rights Agreement among BioStar, Inc.
and the investors named therein dated as of ,
1998.
10.82 -- Master Lease Agreement between BioStar, Inc. and
Comdisco, Inc. dated May 3, 1995.
10.83 -- Dominion Ventures Master Lease Agreement between BioStar,
Inc. and Dominion Ventures, Inc. dated November 2, 1992.
10.84 -- Net Lease Agreement between BioStar, Inc. and Nationwide
Life Insurance Company dated as of September 10, 1992, as
amended by an amendment thereto dated as of February 13,
1993.
10.85 -- Amendment to Leases between Clear Creek II, L.P. and
Cortech, Inc. dated September 8, 1997.
10.86 -- Employment Agreement between Teresa W. Ayers and BioStar,
Inc. dated as of February 10, 1997.
10.87 -- Employment Agreement between Kim Stebbings and BioStar,
Inc. dated as of February 10, 1997.
10.88 -- Employment Agreement between Noel T. Doheny and BioStar,
Inc. dated as of February 10, 1997.
10.89 -- Employment Agreement between Edward C. Pritchard and
BioStar, Inc. dated as of September 1, 1997.
</TABLE>
<PAGE> 258
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.90 -- Employment Agreement between Lyndal K. Hesterberg and
BioStar, Inc. dated as of February 10, 1997.
10.91 -- Consulting Service Agreement between Alexander E. Barkas,
Ph.D. and BioStar, Inc. dated as of October 1, 1997.
10.92 -- Amended and Restated Consulting Services Agreement
between Thomas A. Bologna and BioStar, Inc. dated as of
August 31, 1997.
10.93 -- 1995 Equity Incentive Plan of BioStar, Inc.
10.94 -- Executive Compensation and Benefits Continuation
Agreement between Cortech, Inc. and Kenneth R. Lynn,
dated October 14, 1997, as amended February 12, 1998.
10.95 -- Agreement, dated February 12, 1998, between Cortech, Inc.
and Diarmuid F. Boran.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of Pillsbury Madison & Sutro LLP (included in
opinion filed as Exhibit 5.1).
23.4 -- Consent of Pillsbury Madison & Sutro LLP regarding tax
matters (included in opinion filed as Exhibit 8.1).
23.5 -- Consent of Cooley Godward LLP regarding tax matters
(included in opinion filed as Exhibit 8.2).
24.1 -- Power of Attorney (See page II-9).
27.1 -- Financial Data Schedule.
99.1 -- Proxy Card of Cortech, Inc.
99.2 -- Proxy Card of BioStar, Inc.
</TABLE>
- ---------------
(1) Filed as an exhibit to Cortech, Inc.'s Registration Statement on Form S-1,
filed October 13, 1992, file number 33-53244, or amendments thereto and
incorporated herein by reference.
(2) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the
year ended December 31, 1992, and incorporated herein by reference.
(3) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended March 31, 1993, and incorporated herein by reference.
(4) Filed as an exhibit to Cortech, Inc.'s Registration Statement on Form S-8,
filed March 29, 1993, file number 33-60242, or amendments thereto, and
incorporated herein by reference.
(5) Filed as an exhibit to Cortech, Inc.'s Registration Statement on Form S-1,
filed September 27, 1993, file number 33-69402, or amendments thereto and
incorporated herein by reference.
(6) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the
year ended December 31, 1993, and incorporated herein by reference.
(7) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended March 31, 1994, and incorporated herein by reference.
(8) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended June 30, 1994, and incorporated herein by reference.
(9) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended September 30, 1994, and incorporated herein by reference.
(10) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended March 31, 1995, and incorporated herein by reference.
(11) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended June 30, 1995, and incorporated herein by reference.
<PAGE> 259
(12) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the
year ended December 31, 1995, and incorporated herein by reference.
(13) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended September 30, 1996, and incorporated herein by reference.
(14) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the
year ended December 31, 1996, and incorporated herein by reference.
(15) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended June 30, 1997, and incorporated herein by reference.
* Subject to Confidential Treatment Order.
** To be filed by amendment.
+ The Registrant has applied for confidential treatment with respect to
portions of this exhibit.
<PAGE> 1
EXHIBIT 3.4
BYLAWS OF
CORTECH, INC.
ARTICLE 1
OFFICES
SECTION 1.1 REGISTERED OFFICE. The registered office of the
Corporation shall be in Wilmington, Delaware.
SECTION 1.2 CORPORATE OFFICE. The Corporation may have its
office or offices at such place or places as the board of directors, in its
discretion, may from time to time determine.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
SECTION 2.1 TIME AND PLACE. Any meeting of the stockholders may
be held at such time and such place, either within or without the State of
Delaware, as shall be designated from time to time by resolution of the board
of directors or as shall be stated in a duly authorized notice of the meeting.
SECTION 2.2 ANNUAL MEETING. The annual meeting of the
stockholders shall be held on the date and at the time fixed, from time to
time, by the board of directors; provided, however, that the first annual
meeting shall be held within thirteen months after the organization of the
Corporation, and each succeeding annual meeting shall be held within thirteen
months after the last preceding annual meeting. The annual meeting shall be
for the purpose of electing a board of directors and transacting such other
business as may properly be brought before the meeting.
SECTION 2.3 SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the certificate of incorporation, may be called by the president
or the board of directors and shall be called by the president or secretary at
the written request of stockholders owning a majority in amount of the capital
stock of the Corporation issued and outstanding and entitled to vote. Such
request shall state the purpose or purposes of the proposed meeting.
SECTION 2.4 NOTICES. Written notice stating the place, date and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is
<PAGE> 2
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, except as otherwise required by statute or the certificate
of incorporation, either personally or by mail, prepaid telefax, telegram,
telex, cablegram, or radiogram, to each stockholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be given when
deposited in the official government mail of the United States or any other
country, postage prepaid, addressed to the stockholder at his address as it
appears on the stock records of the Corporation. If given personally or
otherwise than by mail, such notice shall be deemed to be given when either
handed to the stockholder or delivered to the stockholder's address as it
appears on the stock records of the Corporation.
SECTION 2.5 RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting, or
at any adjournment of a meeting, of stockholders; or entitled to receive
payment of any dividend or other distribution or allotment of any rights; or
entitled to exercise any rights in respect of any change, conversion, or
exchange of stock; or for the purpose of any other lawful action; the board of
directors may fix, in advance, a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the board of directors. The record date for determining the stockholders
entitled to notice of or to vote at any meeting of the stockholders or any
adjournment thereof shall not be more than sixty nor less than ten days before
the date of such meeting. The record date for determining the stockholders
entitled to consent to corporate action in writing without a meeting shall not
be more than ten days after the date upon which the resolution fixing the
record date is adopted by the board of directors. The record date for any
other action shall not be more than sixty days prior to such action. If no
record date is fixed, (i) the record date for determining stockholders entitled
to notice of or to vote at any meeting shall be at the close of business on the
day next preceding the day on which notice is given or, if notice is waived by
all stockholders, at the close of business on the day next preceding the day on
which the meeting is held; (ii) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the board of directors is required, shall be the first
date on which a signed written consent setting forth the action taken or to be
taken is delivered to the Corporation and, when prior action by the board of
directors is required, shall be at the close of business on the day on which
the board of directors adopts the resolution taking such prior action; and
(iii) the record date for determining stockholders for any other purpose shall
be at the close of business on the day on which the board of directors adopts
the resolution relating to such other purpose. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.
SECTION 2.6 VOTING LIST. The secretary shall prepare and make,
at least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order
and showing the address and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held (which place shall be specified in the
notice of the meeting) or, if
-2-
<PAGE> 3
not so specified, at the place where the meeting is to be held. The list shall
be produced and kept at the place of the meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 2.7 QUORUM. The holders of a majority of the stock
issued and outstanding and entitled to vote at the meeting, present in person
or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except as otherwise provided by
statute or by the certificate of incorporation. If, however, such a quorum
shall not be present at any meeting of stockholders, the stockholders entitled
to vote, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice if the time and place are
announced at the meeting, until a quorum shall be present. At such adjourned
meeting at which a quorum shall be present, any business may be transacted
which might have been transacted at the original meeting. If the adjournment
is for more than thirty days or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
SECTION 2.8 VOTING AND PROXIES. At every meeting of the
stockholders, each stockholder shall be entitled to one vote, in person or by
proxy, for each share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three years from its date
unless the proxy provides for a longer period. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which, by express
provision of the relevant statutes or of the certificate of incorporation, a
different vote is required, in which case such express provision shall govern.
SECTION 2.9 WAIVER. Attendance of a stockholder of the
Corporation, either in person or by proxy, at any meeting, whether annual or
special, shall constitute a waiver of notice of such meeting, except where a
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A written waiver of notice of any
such meeting signed by a stockholder or stockholders entitled to such notice,
whether before, at or after the time for notice or the time of the meeting,
shall be equivalent to notice. Neither the business to be transacted at, nor
the purpose of, any meeting need be specified in any written waiver of notice.
ARTICLE 3
DIRECTORS
SECTION 3.1 NUMBER. The number of directors shall be one or
more, as fixed from time to time by resolution of the board of directors;
provided, however, that the number of directors shall not be reduced so as to
shorten the tenure of any director at the time in office. The initial number
of directors shall be one.
-3-
<PAGE> 4
SECTION 3.2 ELECTIONS. Except as provided in Section 3.3 of
this Article 3, the board of directors shall be elected at the annual meeting
of the stockholders or at a special meeting called for that purpose. Each
director shall hold such office until his successor is elected and qualified or
until his earlier resignation or removal.
SECTION 3.3 VACANCIES. Any vacancy occurring on the board of
directors and any directorship to be filled by reason of an increase in the
board of directors may be filled by the affirmative vote of a majority of the
remaining directors, although less than a quorum, or by a sole remaining
director. Such newly elected director shall hold such office until his
successor is elected and qualified or until his earlier resignation or removal.
SECTION 3.4 MEETINGS. The first meeting of each newly elected
board of directors elected at the annual meeting of stockholders shall be held
immediately after, and at the same place as, the annual meeting of the
stockholders, provided a quorum is present, and no notice of such meeting shall
be necessary in order to legally constitute the meeting. The board of
directors may, by resolution, establish a place and time for regular meetings
which may thereafter be held without call or notice.
SECTION 3.5 NOTICE OF SPECIAL MEETINGS. Special meetings may be
called by the president or any two members of the board of directors. Notice
of special meetings shall be given to each member of the board of directors:
(i) by mail by the secretary, the president or the members of the board calling
the meeting by depositing the same in the official government mail of the
United States or any other country, postage prepaid, at least seven days before
the meeting, addressed to the director at the last address he has furnished to
the Corporation for this purpose, and any notice so mailed shall be deemed to
have been given at the time when mailed; or (ii) in person, by telephone or by
prepaid telefax, telegram, telex, cablegram or radiogram addressed as stated
above at least forty-eight hours before the meeting, and such notice shall be
deemed to have been given when such personal or telephone conversation occurs
or at the time when such telefax, telegram, telex, cablegram or radiogram is
delivered to such address.
SECTION 3.6 QUORUM. At all meetings of the board, a majority of
the total number of directors shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directors, except as
otherwise specifically required by statute, the certificate of incorporation or
these bylaws. If less than a quorum is present, the director or directors
present may adjourn the meeting from time to time without further notice.
Voting by proxy is not permitted at meetings of the board of directors.
SECTION 3.7 WAIVER. Attendance of a director at a meeting of
the board of directors shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A written waiver of notice signed
by a director or directors entitled to such notice, whether before, at or after
the time for notice or the time of the meeting, shall be equivalent to the
giving of such notice.
-4-
<PAGE> 5
SECTION 3.8 ACTION WITHOUT MEETING. Any action required or
permitted to be taken at a meeting of the board of directors may be taken
without a meeting if a consent in writing setting forth the action so taken
shall be signed by all of the directors and filed with the minutes of
proceedings of the board of directors. Any such consent may be in counterparts
and shall be effective on the date of the last signature thereon unless
otherwise provided therein.
SECTION 3.9 ATTENDANCE BY TELEPHONE. Members of the board of
directors may participate in a meeting of such board by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at such meeting.
ARTICLE 4
OFFICERS
SECTION 4.1 ELECTION. The Corporation shall have such officers,
with such titles and duties, as the board of directors may determine by
resolution, which may include a chairman of the board, president, one or more
vice presidents, a secretary, a treasurer and one or more assistants to such
officers. The officers shall in any event have such titles and duties as shall
enable the Corporation to sign instruments and stock certificates complying
with Sections 103(a)(2) and 158 of the Delaware General Corporation Law, and
one of the officers shall have the duty to record the proceedings of the
stockholders and the directors in a book to be kept for that purpose. The
officers shall be elected by the board of directors; provided, however, that
the president may appoint one or more assistant secretaries and assistant
treasurers and such other subordinate officers as he deems necessary, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as are prescribed in the bylaws or as may be determined from time
to time by the board of directors or the president. Any two or more offices
may be held by the same person, except the offices of president and secretary.
SECTION 4.2 REMOVAL AND RESIGNATION. Any officer elected or
appointed by the board of directors may be removed at any time by the
affirmative vote of a majority of the board of directors. Any officer
appointed by the president may be removed at any time by the board of directors
or the president. Any officer may resign at any time by giving written notice
of his resignation to the president or to the secretary, and acceptance of such
resignation shall not be necessary to make it effective unless the notice so
provides. Any vacancy occurring in any office of chairman of the board,
president, vice president, secretary or treasurer shall be filled by the board
of directors. Any vacancy occurring in any other office may be filled by the
president.
SECTION 4.3 CHAIRMAN OF THE BOARD. The chairman of the board
shall preside at all meetings of the stockholders and of the board of
directors. He shall have such additional
-5-
<PAGE> 6
authority, powers and duties as are appropriate and customary for the office of
chairman as the board of directors may from time to time prescribe.
SECTION 4.4 PRESIDENT. The president shall be chief executive
officer of the Corporation. Subject to the direction and control of the board
of directors, he shall have responsibility for the general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the board of directors are carried into effect. He may
negotiate for, approve and execute such contracts, deeds and other instruments
on behalf of the Corporation as are necessary and appropriate in the general
management of the business of the Corporation or as are approved by the board
of directors or any committee designated by the board of directors. He shall
perform such additional functions and duties as the board of directors may from
time to time prescribe.
SECTION 4.5 VICE PRESIDENT. The vice president or, if there is
more than one, the vice presidents in the order determined by the board of
directors or, in lieu of such determination, in the order determined by the
president, shall be the officer or officers next in seniority after the
president. Each vice president shall also perform such duties and exercise
such powers as are appropriate and such as are prescribed by the board of
directors or, in lieu of or in addition to such prescription, such as are
prescribed by the president from time to time. Upon the death, absence or
disability of the president, the vice president or, if there is more than one,
the vice presidents in the order determined by the board of directors or, in
lieu of such determination, in the order determined by the president, shall
perform the duties and exercise the powers of the president.
SECTION 4.6 ASSISTANT VICE PRESIDENT. The assistant vice
president, if any, or, if there is more than one, the assistant vice presidents
shall, under the supervision of the president or a vice president, perform such
duties and have such powers as are prescribed by the board of directors, the
president or a vice president from time to time.
SECTION 4.7 SECRETARY. The secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
board of directors, keep the minutes of such meetings, have charge of the
corporate seal and stock records, be responsible for the maintenance of all
corporate files and records and the preparation and filing of reports to
governmental agencies (other than tax returns), have authority to affix the
corporate seal to any instrument requiring it (and, when so affixed, attest it
by his signature), and perform such other duties and have such other powers as
are appropriate and such as are prescribed by the board of directors or the
president from time to time.
SECTION 4.8 ASSISTANT SECRETARY. The assistant secretary, if
any, or, if there is more than one, the assistant secretaries in the order
determined by the board of directors or, in lieu of such determination, by the
president or the secretary shall, in the absence or disability of the secretary
or in case such duties are specifically delegated to him by the board of
directors, the president, or the secretary, perform the duties and exercise the
powers of the secretary and shall, under the supervision of the secretary,
perform such other duties and have such other powers as are prescribed by the
board of directors, the president, or the secretary from time to time.
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<PAGE> 7
SECTION 4.9 TREASURER. The treasurer shall have control of the
funds and the care and custody of all the stocks, bonds and other securities of
the Corporation and shall be responsible for the preparation and filing of tax
returns. He shall receive all moneys paid to the Corporation and shall have
authority to give receipts and vouchers, to sign and endorse checks and
warrants in its name and on its behalf, and give full discharge for the same.
He shall also have charge of the disbursement of the funds of the Corporation
and shall keep full and accurate records of the receipts and disbursements. He
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as shall be designated by the
board of directors and shall perform such other duties and have such other
powers as are appropriate and such as are prescribed by the board of directors
or the president from time to time.
SECTION 4.10 ASSISTANT TREASURER. The assistant treasurer, if
any, or, if there is more than one, the assistant treasurers in the order
determined by the board of directors or, in lieu of such determination, by the
president or the treasurer shall, in the absence or disability of the treasurer
or in case such duties are specifically delegated to him by the board of
directors, the president or the treasurer, perform the duties and exercise the
powers of the treasurer and shall, under the supervision of the treasurer,
perform such other duties and have such other powers as are prescribed by the
board of directors, the president or the treasurer from time to time.
SECTION 4.11 COMPENSATION. Officers shall receive such
compensation, if any, for their services as may be authorized or ratified by
the board of directors. Election or appointment as an officer shall not of
itself create a right to compensation for services performed as such officer.
ARTICLE 5
COMMITTEES
SECTION 5.1 DESIGNATION OF COMMITTEES. The board of directors
may establish committees for the performance of delegated or designated
functions to the extent permitted by law, each committee to consist of one or
more directors of the Corporation. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the board of directors to act at the
meeting in the place of such absent or disqualified member.
SECTION 5.2 COMMITTEE POWERS AND AUTHORITY. The board of
directors may provide, by resolution or by amendment to these bylaws, that a
committee may exercise all the power and authority of the board of directors in
the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that a committee may not exercise the power or
authority of the board of directors in reference to amending the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or
-7-
<PAGE> 8
resolutions providing for the issuance of shares of stock adopted by the board
of directors, pursuant to Section 4 of Article V of the certificate of
incorporation, fix the designations and any of the preferences or rights of
shares of preferred stock relating to dividends, redemption, dissolution, any
distribution of property or assets of the Corporation, or the conversion into,
or the exchange of shares for, shares of any other class or classes or any
other series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease, or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending these bylaws; and, unless the
resolution expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
SECTION 5.3 COMMITTEE PROCEDURES. To the extent the board of
directors or the committee does not establish other procedures for the
committee, each committee shall be governed by the procedures established in
Section 3.4 (except as they relate to an annual meeting of the board of
directors) and Sections 3.5, 3.6, 3.7, 3.8 and 3.9 of these bylaws, as if the
committee were the board of directors.
ARTICLE 6
INDEMNIFICATION
SECTION 6.1 EXPENSES FOR ACTIONS OTHER THAN BY OR IN THE RIGHT
OF THE CORPORATION. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director or officer of the
Corporation, or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, association or
other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with which action, suit or proceeding, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
SECTION 6.2 EXPENSES FOR ACTIONS BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify any person who was or is a party
or is threatened to be made a
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<PAGE> 9
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact
that he is or was a director or officer of the Corporation, or, while a
director or officer of the Corporation, is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, association or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the Corporation unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery of the State of Delaware or such other
court shall deem proper.
SECTION 6.3 SUCCESSFUL DEFENSE. To the extent that any person
referred to in the preceding two sections of this Article 6 has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to in such sections, or in defense of any claim issue, or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
SECTION 6.4 DETERMINATION TO INDEMNIFY. Any indemnification
under the first two sections of this Article 6 (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth
therein. Such determination shall be made (i) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (ii) if such quorum is not obtainable or, even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders.
SECTION 6.5 EXPENSE ADVANCES. Expenses incurred by an officer
or director in defending any civil or criminal action, suit or proceeding may
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized in
this Article 6.
SECTION 6.6 PROVISIONS NONEXCLUSIVE. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other sections
of this Article 6 shall not be deemed exclusive of any other rights to which
any person seeking indemnification or advancement of expenses may be entitled
under the certificate of incorporation or under any other bylaw, agreement,
insurance policy, vote of stockholders or disinterested directors, statute or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
-9-
<PAGE> 10
SECTION 6.7 INSURANCE. By action of the board of directors,
notwithstanding any interest of the directors in the action, the Corporation
shall have power to purchase and maintain insurance, in such amounts as the
board of directors deems appropriate, on behalf of any person who is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, association or other
enterprise, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not he is
indemnified against such liability or expense under the provisions of this
Article 6 and whether or not the Corporation would have the power or would be
required to indemnify him against such liability under the provisions of this
Article 6 or of the Delaware General Corporation Law or by any other applicable
law.
SECTION 6.8 SURVIVING CORPORATION. The board of directors may
provide by resolution that references to "the Corporation" in this Article 6
shall include, in addition to this Corporation, all constituent corporations
absorbed in a merger with this Corporation so that any person who was a
director or officer of such a constituent corporation or is or was serving at
the request of such constituent corporation as a director, employee or agent of
another corporation, partnership, joint venture, trust, association or other
entity shall stand in the same position under the provisions of this Article 6
with respect to this Corporation as he would if he had served this Corporation
in the same capacity or is or was so serving such other entity at the request
of this Corporation, as the case may be.
SECTION 6.9 INUREMENT. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article 6 shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors, and administrators of such person.
SECTION 6.10 EMPLOYEES AND AGENTS. To the same extent as it may
do for a director or officer, the Corporation may indemnify and advance
expenses to a person who is not and was not a director or officer of the
Corporation but who is or was an employee or agent of the Corporation or who is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
association or other enterprise.
ARTICLE 7
STOCK
SECTION 7.1 CERTIFICATES. Every holder of stock in the
Corporation represented by certificates and, upon request, every holder of
uncertificated shares shall be entitled to have a certificate, signed by or in
the name of the Corporation by the chairman of the board of directors, or the
president or a vice president, and by the secretary or an assistant secretary,
or the treasurer or an assistant treasurer of the Corporation, certifying the
number of shares owned by him in the Corporation.
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<PAGE> 11
SECTION 7.2 FACSIMILE SIGNATURES. Where a certificate of stock
is countersigned (i) by a transfer agent other than the Corporation or its
employee or (ii) by a registrar other than the Corporation or its employee, any
other signature on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature or
signatures have been placed upon, any such certificate shall cease to be such
officer, transfer agent or registrar, whether because of death, resignation or
otherwise, before such certificate is issued, the certificate may nevertheless
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
SECTION 7.3 TRANSFER OF STOCK. Transfers of shares of stock of
the Corporation shall be made on the books of the Corporation only upon
presentation of the certificate or certificates representing such shares
properly endorsed or accompanied by a proper instrument of assignment, except
as may otherwise be expressly provided by the laws of the State of Delaware or
by order by a court of competent jurisdiction. The officers or transfer agents
of the Corporation may, in their discretion, require a signature guaranty
before making any transfer.
SECTION 7.4 LOST CERTIFICATES. The board of directors may
direct that a new certificate of stock be issued in place of any certificate
issued by the Corporation that is alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate to be lost, stolen, or destroyed. When authorizing such issue
of a new certificate, the board of directors may, in its discretion and as a
condition precedent to the issuance of a new certificate, require the owner of
such lost, stolen, or destroyed certificate, or his legal representative, to
give the Corporation a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against the Corporation on account
of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 7.5 REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to treat the person in whose name any shares of stock are registered
on its books as the owner of such shares for all purposes and shall not be
bound to recognize any equitable or other claim or interest in such shares on
the part of any other person, whether or not the Corporation shall have notice
of such claim or interest, except as expressly provided by the laws of
Delaware.
ARTICLE 8
SEAL
The board of directors may adopt and provide a seal which shall be
circular in form and shall bear the name of the Corporation and the words
"SEAL" and "DELAWARE," and which, when adopted, shall constitute the corporate
seal of the Corporation. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or manually reproduced.
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<PAGE> 12
ARTICLE 9
FISCAL YEAR
The board of directors, by resolution, may adopt a fiscal year for the
Corporation.
ARTICLE 10
AMENDMENT
These bylaws may at any time and from time to time be amended, altered
or repealed by the board of directors, but the stockholders may make additional
bylaws and may alter and repeal any bylaws whether adopted by them or
otherwise.
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<PAGE> 1
EXHIBIT 5.1
[Pillsbury, Madison & Sutro LLP Letterhead]
February 13, 1998
Cortech, Inc.
6850 N. Broadway, Suite G
Denver, CO 80221
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
Cortech, Inc., a Delaware corporation (the "Company"), has filed a
Registration Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
relating to the issuance of up to a maximum of 28,500,000 shares of the
Company's common stock, par value $.002 per share (the "Common Stock"). The
Common Stock is issuable upon the effectiveness of the merger (the "Merger") of
a wholly-owned subsidiary of the Company ("Merger Sub") with and into BioStar,
Inc., a Delaware corporation ("BioStar"), pursuant to the terms of that certain
Agreement and Plan of Merger and Reorganization dated December 22, 1997 by and
among the Company, BioStar and Merger Sub (the "Merger Agreement").
Based upon the foregoing, it is our opinion that the shares of Common
Stock which are the subject of the Registration Statement, when issued and sold
in accordance with the terms of the Merger Agreement, will be legally issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as Exhibit 5.1 to the Registration Statement.
Very truly yours,
/s/ Pillsbury Madison & Sutro LLP
<PAGE> 1
DEVELOPMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of August,
1997, by and between BIOSTAR, INC., a Delaware corporation, having its
principal place of business at 6655 Lookout Road, Boulder, Colorado 80301, USA
("BioStar") and ASAHI CHEMICAL INDUSTRY CO., LTD., a corporation organized
under the laws of Japan, having its principal place of business at 1-2,
Yurakucho 1-chome, Chiyoda-ku, Tokyo 100, Japan ("Asahi"). BioStar and Asahi
may be referred to herein as a "Party" or together as "Parties".
WHEREAS, Biostar and Asahi have concluded simultaneous with this
Agreement a Technology License Agreement on August 1, 1997 ("License
Agreement") under which Asahi is granted an exclusive license to develop,
manufacture, have manufactured, import, improve, use and sell any Instrumented
Products for use in Field I under the BioStar Technology in the Territory; and
WHEREAS, Asahi is interested in the commercialization of Instrumented
Product for testing [ * ] and
WHEREAS, BioStar is willing to undertake to develop the Subject
Product in accordance with the terms and conditions under this Agreement and
the License Agreement;
NOW, THEREFORE,in consideration of the foregoing and the covenants and
obligations set forth below, the Parties agree as follows:
1. DEFINITIONS
1.1 "BEAR PROGRAM" shall mean the program to develop the
Subject Product under this Agreement, details of which are as specified in
Exhibit A hereto.
1.2 "DEVELOPMENT KNOW-HOW" shall mean any Technical
Information developed by either Party or the Outside Vendors, either alone or
jointly, during the course of conducting the BEAR Program.
1.3 "DEVELOPMENT PATENTS" shall mean any and all patent
applications that claim the Development Know-How or any aspect thereof, and any
divisionals, continuations, continuations-in-part of any such applications, any
patents that issue from any of the foregoing application, and all
substitutions, extensions, reissues, renewals, supplementary protection
certificates and inventors' certificates with respect to any of such issued
patents.
1.4 "DEVELOPMENT TERM" shall mean the period during which
the BEAR Program is conducted under this Agreement.
1.
* CERTAIN CONFIDENTIAL MATERIAL CONTAINED IN
THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES ACT OF 1933, AS AMENDED
<PAGE> 2
1.5 "DMC" shall mean the Development Management Committee
formed by the Parties pursuant to Paragraph 2.2 hereof.
1.6 "EFFECTIVE DATE" shall mean the date on which both of
this Agreement and the License Agreement have been fully executed by the
Parties hereto.
1.7 "OIA(R) TECHNOLOGY" shall mean the optical
immunoassay technology owned by BioStar.
1.8 "OUTSIDE VENDOR" shall mean BioStar's subcontractors
with which BioStar shall contract in accordance with Article 3 hereof.
1.9 "STAGE 1 CRITERIA" shall mean the technical criteria
set forth on Exhibit B.
1.10 "STAGE 2 CRITERIA" shall mean the technical criteria
set forth on Exhibit C.
1.11 "STAGE 3 CRITERIA" shall mean the technical criteria
set forth on Exhibit D.
1.12 "SUBJECT PRODUCT" shall mean an instrumented point of
care product that can provide invitro diagnostic test results for quantitative
and/or qualitative infectious disease assays for testing [ * ].
The Subject Product shall consist of "Instrument" and "Cartridge" and the
specifications of the Subject Product are described in Exhibit H.
1.13 The terms defined in the License Agreement shall have
the same meanings in this Agreement.
2. DEVELOPMENT PROGRAM
2.1 BEAR PROGRAM
BioStar and Asahi agree to undertake and conduct the
Development Program named "BEAR Program" pursuant to the terms and conditions
of this Agreement. The BEAR Program shall be conducted in three stages. The
initial stage, referred to herein as "Stage 1," shall be devoted to BioStar's
efforts to [ * ] primarily using BioStar's OIA(R)
Technology. The second stage of the BEAR Program, referred to herein as "Stage
2," shall be devoted to BioStar's efforts to [ * ]. The third
stage of the BEAR Program, referred to herein as "Stage 3," shall be devoted to
BioStar's efforts to [ * ]. The goal of the BEAR Program is to
develop the Subject Product resulting from the BEAR Program. The general tasks
under Stage 1 to Stage 3 of the BEAR Program are as set forth in Exhibit A
attached hereto, which may be amended from time to time by the DMC in accordance
with Paragraph 2.3 below. Each Party agrees to devote commercially reasonable
efforts to accomplishing its obligations under the BEAR Program.
2.2 DEVELOPMENT MANAGEMENT COMMITTEE (DMC)
Promptly after the Effective Date, the Parties shall form the
DMC, to be comprised of a total of four (4) members, two (2) appointed by each
of Asahi and BioStar.
2.
<PAGE> 3
Each Party shall have the right to substitute different representatives as the
members of the DMC as needed from time to time. Each such member shall have
appropriate technical credentials, knowledge and ongoing familiarity with the
BEAR Program. The Chairperson of the DMC shall be named by Asahi from among the
DMC members. The DMC shall meet at least quarterly at such times and at such
meeting places as shall be mutually agreed upon by the Parties. The DMC
meetings may be held by telephone, if agreed by the DMC members. Each Party
will designate an individual to serve as the liaison between the Parties to
undertake and coordinate any day-to-day communications as may be required
between the Parties relating to the BEAR Program.
2.3 DUTY AND AUTHORITY OF THE DMC
The DMC shall have the following duties and responsibilities
during the Development Term: (a) to define the specific development objectives
of the Parties under the BEAR Program, as summarized in Exhibit A; (b) to
coordinate and monitor the progress of the BEAR Program; (c) to review the
results of the BEAR Program and to evaluate whether the development progress
meets Stage 1 Criteria, Stage 2 Criteria and Stage 3 Criteria at the end of the
respective Stage; (d) to select the candidates of the Outside Vendors; and (e)
to make appropriate modifications to the general plan for the BEAR Program set
forth in Exhibit A, including determining to accelerate the timing of the
completion of the BEAR Program from [ * ] and any
corresponding budget changes, as well as determining to extend the time periods
for any of Stages l, 2, or 3. Any modification of the specifications, criteria,
activities or budget set forth in Exhibits B through E shall require the full
written agreement of the Parties.
2.4 BEAR PROGRAM REPORTS AND REVIEW
At least semi-annually, and more often if so requested by the
DMC, but not more frequently than quarterly, BioStar shall prepare a report
summarizing all results, developments, and Technical Information created or
resulting from its activities under the BEAR Program. Upon request by the DMC
or Asahi, all Technical Information generated or developed by BioStar pursuant
to the BEAR Program will be provided to the DMC and Asahi. The DMC will review
the results of the BEAR Program at the end of each milestone period as set
forth in Exhibit A and will propose appropriate changes to the BEAR Program
based upon such results. Any such approved changes to the general plan for the
BEAR Program shall be attached as amendments to Exhibit A hereto.
2.5 BIOSTAR'S DEVELOPMENT DURING STAGE 1 TO STAGE 3
2.5.1 Stage 1 Development
Promptly after the Effective Date, BioStar shall conduct
development efforts under the BEAR Program with the goal to [ * ]
which means [ * ]
3.
<PAGE> 4
[
*
]
2.5.2 STAGE 2 DEVELOPMENT
After completing Stage 1 Development, BioStar shall conduct
development efforts under the BEAR Program with the goal to [ * ]
which means [
*
]
[ * ] Biostar will supply [ *
] to Asahi as shown in Stage 2 Criteria.
2.5.3 STAGE 3 DEVELOPMENT
After completing Stage 2 Development, BioStar shall conduct
development efforts under the BEAR Program with the goal to [ * ]
which means [ *
] and [
*
] BioStar will supply [
*
] to Asahi as
shown in Stage 3 Criteria.
2.6 EXCLUSIVITY
During the Development Term, BioStar shall not conduct or have
conducted any development, manufacturing or commercialization activity of any
Instrumented Products in the Territory, except pursuant to this Agreement.
3. OUTSIDE VENDOR
3.1 BioStar may, at its expense and responsibility, have
Outside Vendors develop and/or manufacture the Cartridges and the Instrument,
subject to Paragraph 3.2 and Article 5.
3.2 After DMC has selected the candidates of the Outside
Vendors pursuant to Paragraph 2.3 (d), BioStar shall notify Asahi in writing of
the name of each potential Outside Vendor before engaging in definitive
negotiations with such Outside Vendor. Asahi will notify BioStar in writing
within fifteen (15) days of receiving such notice if such Outside Vendor is not
acceptable to Asahi. Otherwise, BioStar shall negotiate terms and present the
terms of a proposed agreement with the Outside Vendor to Asahi for review prior
to executing any agreement. If the terms are acceptable, Asahi shall execute a
Consent Form attached as Exhibit G approving the agreement and agreeing to bear
all outside Vendor costs under the agreement as provided in Paragraph 5.2.2.
Unless
4.
<PAGE> 5
otherwise specified in the Consent Form, in any event, Asahi shall own all
Development Know-How and all intellectual property rights therein. BioStar
shall make Outside Vendors agree to assign to Asahi any Development Know-How
which the Outside Vendors have acquired in the course of the development and/or
manufacture of the Cartridges and the Instrument.
4. ASAHI'S PERSONNEL
Asahi may have Asahi's personnel dispatched by Asahi at its own
expense participate in the BEAR Program at BioStar's facilities during the
Development Term. Detailed program of such dispatch shall be mutually agreed
upon by both Parties. BioStar will provide without charge office space, office
equipment and other necessary facilities.
5. ASAHI'S FUNDING
5.1 In consideration of BioStar's performance as herein
set forth, Asahi shall pay development cost (including the Outside Vendors'
cost) to BioStar by telegraphic transfer to BioStar's designated bank account.
The estimated development cost is described in Exhibit E.
5.2 Asahi shall pay to BioStar in advance at the
beginning of each quarterly period the expected cost which shall be reported by
BioStar to Asahi at least forty-five (45) days before the beginning of the
following quarter. BioStar shall fully account for its spending on a quarterly
basis and make adjustments to subsequent amounts as appropriate. Payment of the
initial quarter prorated development cost of US [ * ] will be made within
thirty (30) days from the Effective Date (pursuant to Exhibit E).
5.2.1 With respect to BioStar's inside cost, on a
cumulative basis, Asahi's obligation to pay BioStar shall not exceed the sum of
the estimated cost and contingency amounts (equal to [ * ] of
BioStar's inside development cost except the cost of technology transfer) as
specified in Exhibit E (i.e., US [ * ]
BioStar costs in excess of the sum of the estimated cost and contingency amounts
shall be fully absorbed by BioStar.
5.2.2 With respect to the Outside Vendors' cost,
BioStar shall make its best efforts to minimize the amounts to pay to the
Outside Vendors. In the event that the Outside Vendors' cost should exceed the
estimated cost (i.e., US [ * ]) despite such BioStar's efforts, Asahi
shall bear the Outside Vendor's cost including the amounts in excess of the
estimated cost only if BioStar informs Asahi of the reasonable grounds for such
cost increase in advance and receives Asahi's prior written consent thereof.
5.
<PAGE> 6
5.3 Notwithstanding the foregoing, in no event shall
Asahi's annual total payment to BioStar for first [ * ] exceed annual
estimated cost as set forth in Exhibit E and [ * ] contingency
amounts. (Asahi's payment for first year shall not exceed US [
* ] and for second year shall not exceed US [
* ]
5.4 BioStar shall maintain all BEAR Program funds
provided by Asahi in a separate account and shall keep accurate financial
records relating to the BEAR Program and will make such records available to
Asahi or its authorized representatives during normal business hours upon
reasonable notice. BioStar shall expend such funds for wages, supplies,
equipment, travel and other operational expenses only in connection with the
BEAR Program.
6. INTELLECTUAL PROPERTY
6.1 OWNERSHIP OF INVENTIONS
Asahi shall own all Development Know-How and all intellectual
property rights therein, including without limitation any Development Patents
claiming such Development Know-How. BioStar agrees to assign to Asahi any
Development Know-How which BioStar has acquired in the course of the BEAR
Program.
6.2 PATENT PROSECUTION
Asahi shall have the right, but not the obligation, to file,
prosecute and maintain Development Patents claiming particular inventions
within Development Know-How in any countries. In the event that Asahi elects
not to file, prosecute or maintain a particular Development Patent, or to
abandon prosecuting a particular patent application, or to cease paying the
maintenance fees for a particular Development Patent, Asahi shall give BioStar
sixty (60) day's notice before any relevant deadline, and BioStar shall have
the right to pursue, at its own expense, outside the Territory prosecution of
such patent application or maintenance of such patent. Each Party agrees to
cooperate with the other and take all reasonable additional actions as may be
reasonably required to achieve the intent of this Paragraph 6.2, including,
without limitation, the execution of necessary and appropriate instruments and
documents. Asahi shall provide drafts of all patent filings to BioStar for
review and comment at least ten (10) days prior to the filing and shall
promptly provide copies of all patent correspondence to BioStar. Asahi agrees
to take BioStar's comments into account in good faith, particularly with
respect to countries outside the Territory, but the final decision as to filing
and/or prosecution matters shall rest with Asahi.
6.
<PAGE> 7
6.3 PATENT ENFORCEMENT
(1) BioStar and Asahi shall each give immediate
notice to the other of any infringement of the Development Patents by a third
party outside the Territory which may come to its attention.
(2) BioStar shall have the first right, but not
the obligation, to institute and conduct any legal action outside the Territory
against such third party infringers of the Development Patents, and may enter
into settlement agreements with the approval of Asahi not to be unreasonably
withheld. Any amounts recovered by BioStar as a result of an infringement action
based on the Development Patents, shall be retained solely by BioStar.
(3) In the event that BioStar decides not to
commence actions or proceedings against an infringer pursuant to Paragraph 6.3
(2) above, Asahi at Asahi's expense shall have the right to initiate and pursue
such action provided, however, that BioStar shall cooperate with and assist
Asahi in such action, at BioStar's expense, to the extent that such cooperation
and assistance are reasonably available. Any amounts recovered by Asahi shall be
retained solely by Asahi.
6.4 LICENSE TO BIOSTAR
Unless this Agreement is terminated by Asahi under Paragraph
12.2.1.2 due to an uncured material breach by BioStar, Asahi shall grant to
BioStar the exclusive, royalty-free license with the right to sublicense, under
Development Know-How and Development Patents, to develop, make, have made,
import, improve, use and sell any product in Fields I, II and III outside the
Territory.
7. WARRANTIES
7.1 Each Party hereby warrants that it has full corporate
power and authority to enter into this Agreement and to carry out the
provisions hereunder.
7.2 Each Party further warrants that it shall not, during
the term of this Agreement, enter into any agreement with any other Party which
would be inconsistent with any terms or conditions of this Agreement.
8. INDEMNIFICATION
8.1 INDEMNIFICATION BY BIOSTAR
BioStar hereby agrees to indemnify, hold harmless and defend
Asahi and its officers, directors and employees against any and all liability,
damages, judgments, awards or costs of defense (including without limitation
reasonable attorneys' fees, expenses to
7.
<PAGE> 8
defend and amounts paid in settlement of any action) directly resulting from
any claim or claims against any of the foregoing to the extent that such claim
or claims are based on the negligence or wilful misconduct of BioStar or any of
its employees or agents, or such claim or claims arise out of the manufacture,
use or sale of any product by BioStar which is made using the Development
Know-How under the license as granted in Paragraph 6.3.
8.2 INDEMNIFICATION BY ASAHI
Asahi hereby agrees to indemnify, hold harmless and defend
BioStar and its officers, directors and employees against any and all
liability, damages, judgments, awards or costs of defense (including without
limitation reasonable attorneys' fees, expenses to defend and amounts paid in
settlement of any action) directly resulting from any claim or claims against
any of the foregoing to the extent that such claim or claims are based on the
negligence or wilful misconduct of Asahi or any of its employees or agents, or
such claim or claims arise out of the manufacture, use or sale of any product
by Asahi which is made using the Development Know-How.
8.3 NOTICE AND PROCEDURES
In all cases where one Party seeks indemnification by the
other under this Article 8, the Party seeking indemnification shall promptly
notify the indemnifying Party of receipt of any claim or lawsuit covered by
such indemnification obligation and shall cooperate fully with the indemnifying
Party in connection with the investigation and defense of such claim or
lawsuit. The indemnifying Party shall have the right to control the defense,
with counsel of its choice, provided that the non-indemnifying Party shall have
the right to be represented by advisory counsel at its own expense. The
indemnifying Party shall not settle or dispose of the matter in any manner
which could negatively and materially affect the right or liability of the non-
indemnifying Party without the non-indemnifying Party's prior written consent,
which shall not be unreasonably withheld.
9. CONFIDENTIALITY
9.1 ASAHI'S OBLIGATION
During the term of the License Agreement, and for a period of
five (5) years thereafter, Asahi shall maintain in confidence all the OIA(R)
Technology or other Technical Information, including the Development Know-How,
disclosed to Asahi by BioStar. Asahi will not use, disclose or grant the use of
such information except as expressly licensed or permitted under this
Agreement. To the extent that disclosure is authorized by this Agreement, Asahi
will obtain prior agreement from its employees, agents or consultants to whom
disclosure is to be made to hold in confidence and not make use of
8.
<PAGE> 9
such information for any purpose other than those permitted by this Agreement.
Asahi will use at least the same standard of care as it uses to protect its own
trade secrets or proprietary information to ensure that such employees, agents
and consultants do not disclose or make any unauthorized use of such
information. Asahi will promptly notify BioStar upon discovery of any
unauthorized use or disclosure of such information. Nothing in this Paragraph
shall prevent Asahi from filing patent applications pursuant to Paragraph 6.2
hereof.
9.2 BIOSTAR'S OBLIGATION
During the term of the License Agreement, and for a period of
five (5) years thereafter, BioStar shall maintain in confidence all the
Development Know-How and other Technical Information disclosed to BioStar by
Asahi. BioStar will not use, disclose or grant the use of such information
except as expressly licensed or permitted under this Agreement. To the extent
that disclosure is authorized by this Agreement, BioStar will obtain prior
agreement from its employees, agents or consultants to whom disclosure is to be
made to hold in confidence and not make use of such information for any purpose
other than those permitted by this Agreement. BioStar will use at least the
same standard of care as it uses to protect its own trade secrets or
proprietary information to ensure that such employees, agents and consultants
do not disclose or make any unauthorized use of such information. BioStar will
promptly notify Asahi upon discovery of any unauthorized use or disclosure of
such information.
9.3 EXCEPTIONS
The obligations of confidentiality contained in this Article 9
will not apply to the extent that it can be established by the receiving Party
by competent written proof that such information: (a) was already known to the
receiving Party, other than under an obligation of confidentiality, at the time
of disclosure by the other Party; (b) was generally available to the public or
otherwise part of the public domain at the time of its disclosure to the other
Party; (c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or omission
of the receiving Party in breach of this Agreement; or (d) was disclosed to the
receiving Party, other than under an obligation of confidentiality, by a third
party, who had no obligation to the other Party not to disclose such
information to others.
9.4 PUBLIC ANNOUNCEMENT
The Party desiring to make any public announcement or other
disclosure regarding the content of this Agreement shall inform the other Party
of the proposed announcement or disclosure in reasonably sufficient time prior
to public release, and shall provide the other Party with a written copy
thereof, in order to allow such other Party to comment upon such announcement
or disclosure. Once any such public announcement or
9.
<PAGE> 10
disclosure has been approved by such other Party in accordance with this
Paragraph, then the desiring Party may appropriately communicate information
contained in such permitted announcement or disclosure. Notwithstanding the
foregoing, either Party shall have the right to make such disclosure of this
Agreement as is required under any applicable laws, including the rules and
regulations of the Securities and Exchange Commission.
10. DISPUTE RESOLUTION
This Agreement is made on the basis of mutual confidence and good
faith between the Parties. If a dispute should arise between the Parties out of
or relating to this Agreement or to a breach thereof, including as to the
interpretation, performance or termination of this Agreement, the Parties shall
initially seek to resolve amicably by negotiation. If the Parties fail to
resolve the matter by good faith negotiation within a period of sixty (60)
days, then either Party may institute binding arbitration of the dispute. The
arbitration shall be conducted in New York, New York, USA, in English, under
the Commercial Arbitration Rules of the American Arbitration Association.
Judgment on the award rendered by the arbitrator shall be final and may be
entered in any court having jurisdiction thereof. The expense of the
arbitration (including without limitation, the award of attorney's fees to the
prevailing Party) shall be paid as the arbitrator determines. Notwithstanding
the foregoing, nothing in this Article shall be construed as limiting in any
way the right of a Party to seek injunctive relief with respect to any actual
or threatened breach of this Agreement, which breach would cause irreparable
harm to the Party seeking such relief, from a court of competent jurisdiction.
11. FORCE MAJEURE
No Party hereto shall be liable for damages or held in default
hereunder for any non-performance or delay resulting from causes beyond its
control, including failure of usual sources of supply, fire, accident, riot,
war, flood, earthquake, storm or Acts of God, action or inaction of
governmental authorities or agencies, or the similar causes which cannot be
controlled by a Party. In case of occurrence of a force majeure event, the
Party which is the victim of such event shall immediately notify the other
Party of the event giving the full particulars of the cause, its expected
duration and the anticipated effects thereof.
12. TERM AND TERMINATION
10.
<PAGE> 11
12.1 This Agreement shall commence on the Effective Date
and shall remain in force for [ * ] thereafter, unless the
Parties agree in writing to the extension of this Agreement.
12.2 EARLY TERMINATION
12.2.1 TERMINATION BY EITHER PARTY
BioStar or Asahi may terminate this Agreement upon
giving notice thereof to the other Party:
12.2.1.1 In the event that the other Party
files a petition in bankruptcy, or in the event that all or part of
the other Party's assets are assigned to a trustee or receiver, or if an
involuntary petition is filed by a third party and the other Party does not
resolve such petition in its favour within sixty (60) days after filing and
notice thereof, or
12.2.1.2 In the event of a material breach
of this Agreement not remedied by the other Party in breach within sixty
(60) days after receipt of notice by the terminating Party specifying such
breach and requesting that it be remedied, unless the Party allegedly in breach
submits the issue to arbitration within said sixty (60) day period. In the
event that such Party submits the issue to arbitration, then diligent
compliance with the arbitration decision shall be a cure for such breach, and,
in the event of such a cure, this Agreement may not be so terminated, unless
determined by the arbitrator.
12.2.1.3 In the event that any involuntary
petition is filed as set forth in Paragraph 12.2.1.1 above, then
the Party having the right to terminate this Agreement may suspend its
performance hereunder until the resolution of such petition. If one Party so
suspends its performance, then the other Party shall be entitled to suspend its
performance until the original suspending Party resumes performance.
12.2.2 TERMINATION BY ASAHI
12.2.2.1 In the event BioStar does not
achieve (a) Stage 1 Criteria during the [ * ] period from the
Effective Date, or (b) Stage 2 Criteria during the [ * ]
period from the Effective Date, in both cases, subject to any extensions of
such time periods as the DMC may determine, Asahi may terminate this Agreement
upon written notice to BioStar, which notice shall be dispatched within sixty
(60) days from the end of the above respective period or extension thereof.
12.2.2.2 In addition to the above, Asahi may
terminate this Agreement at any time for any reason. Asahi shall notify BioStar
in writing of its desire to terminate and shall specify the effective date of
termination which will be no earlier than ninety (90) days following the date
of such notice.
12.3 EFFECT OF TERMINATION
12.3.1 In the event that this Agreement is
terminated by Asahi pursuant to Paragraph 12.2.1, (a) Asahi shall retain its
rights to the Development Know-How and Development
11.
<PAGE> 12
Patents under this Agreement and the License Agreement shall continue in full
force and effect and Asahi may develop and commercialize the Subject Product
independent of BioStar, and (b) BioStar's licenses and rights granted under
Paragraph 6.4 hereof shall remain in effect. In addition, if Asahi so
terminates this Agreement pursuant to this Paragraph 12.3.1, and Asahi
independently develops the Instrumented Product, Asahi and BioStar shall
negotiate in good faith for a possible reduction in the running royalty set
forth in Paragraph 4.2 of the License Agreement on the Instrumented Product,
depending upon the results achieved in the course of the BEAR Program at the
time of such termination.
12.3.2 In the event that this Agreement is
terminated by BioStar pursuant to Paragraph 12.2.1, (a) Asahi's rights under
this Agreement shall terminate and Asahi shall assign and transfer all
Development Know-How and Development Patents to BioStar, and (b) the License
Agreement shall continue in full force and effect and Asahi may develop and
commercialize the Instrumented Product independent of BioStar.
12.3.3 In the event that this Agreement is
terminated by Asahi in accordance with Paragraph 12.2.2.1, (a) Asahi may, at
its option, obtain an exclusive license to manufacture and distribute Ver. 2
Manual Product for [ * ] and [ * ] and
[ * ] in [ * ] in accordance with the terms and conditions as set
forth in Exhibit F attached hereto, (b) Asahi shall retain its rights to the
Development Know-How and Development Patents and (c) the License Agreement
shall continue in full force and effect and Asahi may develop and commercialize
the Instrumented Product independent of BioStar. If Asahi terminates this
Agreement pursuant to Paragraph 12.2.2.1 and Asahi independently develops the
Instrumented Product, Asahi and BioStar shall negotiate in good faith for a
possible reduction in the running royalty set forth in Paragraph 4.2 of the
License Agreement on the Instrumented Product, depending upon the results
achieved in the course of the BEAR Program at the time of such termination.
12.3.4 In the event that this Agreement is
terminated by Asahi in accordance with Paragraph 12.2.2.2, Asahi's rights under
this Agreement and the License Agreement shall terminate and all of the
Development Know-How and Development Patents shall be assigned to BioStar,
provided, however, that, Asahi may, without any further payment to BioStar
except that specified in Exhibit F, obtain an exclusive license to manufacture
and distribute Ver. 2 Manual Product for [ * ] and [
* ] and [ * ] in [ * ] in accordance with the terms and
conditions as set forth in Exhibit F attached hereto.
12.4 EFFECT OF EXPIRATION
Upon the expiration of this Agreement as set forth in
Paragraph 12.1 above, (a) Asahi shall retain its rights to the Development
Know-How and Development Patents under this Agreement and (b) the License
Agreement shall continue to be effective. If
12.
<PAGE> 13
BioStar does not achieve Stage 3 Criteria upon expiration hereof, in addition
to the above, (c) Asahi may, at its option, obtain an exclusive license to
manufacture and distribute Ver. 2 Manual Product for [ * ] and
[ * ] and [ * ] in [ * ] in accordance with the
terms and conditions as set forth in Exhibit F attached hereto and (d) Asahi
may develop and commercialize the Instrumented Product independent of BioStar.
In case where Asahi independently develops the Instrumented Product, Asahi and
BioStar shall negotiate in good faith for a possible reduction in the running
royalty set forth in Paragraph 4.2 of the License Agreement on the Instrumented
Product, depending upon the results achieved in the course of the BEAR Program
at the time of such termination.
12.5 SURVIVAL
Any expiration or termination of this Agreement under
Paragraph 12.1 or 12.2 above shall not relieve any Party from any obligations
hereunder which have accrued on or before the effective date of such expiration
or termination, including Asahi's obligation to pay development cost then due,
nor affect the provisions set forth in Articles 6, 8, 9 and 10 and Paragraphs
12.13-12.6, 13.3 and 13.7; except as expressly provided otherwise in Paragraph
12.3 or 12.4, if applicable.
12.6 NO-EXCLUSIVE REMEDY
The right of any Party to terminate this Agreement under
Paragraph 12.2.1.2 above is not an exclusive remedy, and any Party shall be
entitled, if the circumstances warrant, alternatively or cumulatively, to
damages for breach of this Agreement, to an order requiring performance of the
obligations of this Agreement or to any other legally available remedy.
13. MISCELLANEOUS PROVISIONS
13.1 RELATIONSHIP OF THE PARTIES
Neither Party is, nor shall be deemed to be, an agent or legal
representative of the other Party for any purpose. Neither Party shall be
entitled to enter into any contracts in the name of or on behalf of the other
Party, and neither Party shall be entitled to pledge the credit of the other
Party in any way or hold itself out as having authority to do so. No Party
shall incur any debts or make any commitments for the other, except to the
extent, if at all, specifically provided herein.
13.2 ASSIGNMENT.
This Agreement may not be assigned by either Party, nor may
either Party, transfer its rights under this Agreement to any third party,
without prior written consent of
13.
<PAGE> 14
the other Party, which consent will not be unreasonably withheld.
Notwithstanding the foregoing, however, either Party shall be entitled to
assign this Agreement, and all rights and obligations hereunder, to a successor
to all or substantially all of its assets, whether by sale, merger, or
otherwise, provided that either Party indicating such assignment shall provide
the other Party with, where possible, thirty (30) days prior written notice or
such shorter time as is possible, subject to any contractual restrictions on
disclosure of such information prior to such assignment, and cause such
assignee to be bound by this Agreement. This Agreement shall be binding upon
the successors and assignees of the Parties hereof. In the event of assignment
of this Agreement by either Party, the license granted by such assigning Party
to the other Party shall not cover any intellectual property of such assignee
which was not controlled by the assigning Party prior to the effective date of
such assignment.
13.3 NOTICES
All notices and communications hereunder shall be in writing
and shall be deemed given if delivered personally or by confirmed facsimile
transmission, telexed, mailed by registered or certified mail, postage prepaid,
or sent by express courier service, to the Parties at the addresses set forth
in the first paragraph of this Agreement (or as such other address for a Party
as shall be specified by like notice to the other Party).
13.4 AMENDMENT
No amendment, modification or supplement of any provision of
this Agreement shall be valid or effective unless made in writing and signed by
a duly authorized officer of each Party.
13.5 WAIVER
No provision of this Agreement shall be waived by any act,
omission or knowledge of a Party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by a duly
authorized officer of the waiving Party.
13.6 COUNTERPARTS
This Agreement may be executed in counterparts.
13.7 GOVERNING LAW
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, applicable to contracts
executed and performed wholly within the State of New York.
13.8 SEVERABILITY
14.
<PAGE> 15
Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such provision or invalidity, without invalidating the remainder of this
Agreement.
13.9 ENTIRE AGREEMENT OF THE PARTIES
This Agreement and License Agreement will constitute and
contain the complete, final and exclusive understanding and agreement of the
Parties and cancels and supersedes any and all prior negotiations,
correspondence, understandings and agreements, whether oral or written, between
the Parties respecting the subject matter hereof.
15.
<PAGE> 16
IN WITNESS WHEREOF, the Parties have as of the day and year first
above written duly executed this Agreement.
BIOSTAR, INC. ASAHI CHEMICAL INDUSTRY CO., LTD.
By: /s/ Teresa W. Ayers By: /s/ Tadashi Ikegami
---------------------------- ----------------------------
Title: President/CEO Title: Board Director
---------------------------- ----------------------------
<PAGE> 17
EXHIBIT A
[
*
]
<PAGE> 18
EXHIBIT B
STAGE 1
PROGRAM MONTH [*] - MONTH [*]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
MONTH
ACTIVITY MILESTONE (LAST DAY)
- -------------------------------------------------------------------------------------------------------------
TESTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. [ * ] 1 [*]
[ * ]
[ * ]
- -------------------------------------------------------------------------------------------------------------
2. [ * ] 2 [*]
[ * ]
[ * ]
- -------------------------------------------------------------------------------------------------------------
3. [ * ] 3 [*]
[ * ]
- -------------------------------------------------------------------------------------------------------------
4. [ * ] 4+ tol [*]
[ * ]
- -------------------------------------------------------------------------------------------------------------
5. [ * ] 4+ tol [*]
[ * ]
- -------------------------------------------------------------------------------------------------------------
BOR UNIT AND CARTRIDGE
1. [ * ] - [*]
[ * ]
- -------------------------------------------------------------------------------------------------------------
CARTRIDGE/INSTRUMENT
1. [ * ] 5 [*]
[ * ]
[ * ]
[ * ]
- -------------------------------------------------------------------------------------------------------------
2. [ * ] 5 [*]
[ * ]
[ * ]
- -------------------------------------------------------------------------------------------------------------
3. [ * ] 5 [*]
[ * ]
- -------------------------------------------------------------------------------------------------------------
o All instrument data generated will be with the BOR unit
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 19
EXHIBIT C
STAGE 2
PROGRAM MONTH [*] - MONTH [*]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
MONTH
ACTIVITY MILESTONE (LAST DAY)
- -------------------------------------------------------------------------------------------------------------
TESTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. [ * ] - [*]
[ * ]
- -------------------------------------------------------------------------------------------------------------
INSTRUMENT/CARTRIDGE
- -------------------------------------------------------------------------------------------------------------
1. [ * ] 6/7 [*]
[ * ]
- -------------------------------------------------------------------------------------------------------------
2. [ * ] 8/9 [*]
[ * ]
- -------------------------------------------------------------------------------------------------------------
3. [ * ] 8/9 [*]
[ * ]
[ * ]
[ * ]
- -------------------------------------------------------------------------------------------------------------
4. [ * ] 8 [*]
[ * ]
- -------------------------------------------------------------------------------------------------------------
5. [ * ] 8/10 [*]
[ * ]
[ * ]
[ * ]
[ * ]
- ------------------------------------------------------------------------------------------------------------
6. [ * ] - [*]
- -------------------------------------------------------------------------------------------------------------
7. [ * ] - [*]
[ * ]
- -------------------------------------------------------------------------------------------------------------
o Supply Asahi with [ * ] instruments.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
F-T = Flow Through
[ * ]
Bear 1.0 = [ * ]
Bear 2.0 = [ * ]
Bear 3.0 = [ * ]
Bear 4.0 = [ * ]
<PAGE> 20
EXHIBIT D
STAGE 3
PROGRAM MONTH [*] - MONTH [*]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
MONTH
ACTIVITY MILESTONE (LAST DAY)
- -------------------------------------------------------------------------------------------------------------
INSTRUMENT/SYSTEM INTEGRATION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. [ * ] 11/12 [*]
[ * ]
[ * ]
- -------------------------------------------------------------------------------------------------------------
2. [ * ] -/13 [*]
[ * ]
- -------------------------------------------------------------------------------------------------------------
3. [ * ] -/13 [*]
[ * ]
Note: [ * ]
[ * ]
- -------------------------------------------------------------------------------------------------------------
4. [ * ] - [*]
[ * ]
[ * ]
- -------------------------------------------------------------------------------------------------------------
5. [ * ] [*]
[ * ]
[ * ]
- -------------------------------------------------------------------------------------------------------------
6. [ * ] [*]
- -------------------------------------------------------------------------------------------------------------
7. [ * ] [*]
[ * ]
- -------------------------------------------------------------------------------------------------------------
o Milestones 11-12 occur in month [*]; Milestone 13 occurs during month [*].
o BioStar will supply [ * ]
and [ * ]
o BioStar will provide [ *
]
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 21
EXHIBIT E
BEAR PROGRAM BUDGET
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
MONTHS [ * ] MONTHS [ * ] MONTHS [ * ] TOTAL
- -------------------------------------------------------------------------------------------------------------
BIOSTAR FEES/COSTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BioStar Inside/Costs
Processor/Reader [ * ]
Cartridge [ * ]
Reagents [ * ]
Technology Transfer [ * ]
- -------------------------------------------------------------------------------------------------------------
Total Payments to BioStar [ * ]
- -------------------------------------------------------------------------------------------------------------
OUTSIDE RESOURCE COSTS
- -------------------------------------------------------------------------------------------------------------
Cartridge [ * ]
Processor/Reader [ * ]
- -------------------------------------------------------------------------------------------------------------
Total Payments to Outside [ * ]
Resource*
- -------------------------------------------------------------------------------------------------------------
TOTAL BEAR PROGRAM [ * ]
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Based on range or estimates from [ * ]
o All estimates in US dollars.
o BioStar Inside Costs (other than Technology Transfer) will be committed
at contract signing, based on budget payments agreed 90 days in
advance. Savings from budgeted amounts will reduce actual payments to
BioStar.
o BioStar Inside Costs do not include contingency of [*] of budget amount
associated with processor/reader, cartridge, and reagent.
o Asahi Internal Costs not included.
o BioStar headcount costs will be calculated on a basis of [ *
]
<PAGE> 22
EXHIBIT F
BASIC TERMS AND CONDITIONS OF
VER.2 MANUAL PRODUCT LICENSE AGREEMENT
1. LICENSE GRANT
1.1 BioStar shall grant to Asahi an exclusive license with the
right to sublicense others subject to the approval of BioStar, not to be
unreasonably withheld, to manufacture, have manufactured, import, improve, use
and sell [ * ] and [ * ]
Ver.2 Manual Product ("Manual Product") under the BioStar Technology and Patent
Rights in [ * ]
1.2 During the term of the Manual Product License Agreement,
BioStar shall not assert any of the BioStar Technology or the Patent Rights
against the sale or use of the Manual Product in Japan by Asahi's distributors
or customers including, without limitation, hospitals, doctors, dealers and
agents.
1.3 Asahi shall have the right to register "Senyo Jisshiken" to be
granted under the Manual Product License Agreement in the Japanese Patent
Office.
1.4 PRODUCT REGISTRATION
Asahi shall have sole responsibility for diligently conducting
all preclinical and clinical trials and shall diligently make all regulatory
submissions necessary for the approval of the right to market the Manual
Product in Japan, at Asahi's sole expense, and BioStar shall cooperate with
Asahi for such trials and regulatory submissions upon reasonable request by
Asahi.
2. TRANSFER OF TECHNOLOGY
2.1 Within ten (10) days after the effective date of the Manual
Product License Agreement, BioStar shall deliver to Asahi without any charge to
Asahi those technical documents which will be sufficient for Asahi to launch on
a commercial production and sale of the Manual Product.
3. CONSIDERATION
3.1 In consideration of the right and license stipulated in 1
above, Asahi shall pay to BioStar running royalties of [ * ] on
the Net Sales Value of the Manual Product manufactured and sold by Asahi or its
sublicensees to their first sale customers in Japan and invoiced (with
invoicing to be made contemporaneously with delivery) to such customers during
the term of the Manual Product License Agreement.
1.
<PAGE> 23
3.2 All withholding taxes imposed by Japanese Tax Laws on the
amounts of consideration payable by Asahi to BioStar under the Manual Product
License Agreement shall be borne by [ * ] In this connection, Asahi shall
withhold such taxes to the Japanese tax authority. When Asahi so withholds,
Asahi shall forward to BioStar a tax payment certificate of the Japanese tax
authority for the amount so withheld.
4. EXCHANGE OF IMPROVEMENT
Both parties shall discuss and decide how to carry out exchanges of
their respective improvements at the time of the conclusion of the Manual
Product License Agreement.
5. TERM
The Manual Product License Agreement shall remain in force, until
expiration, revocation or invalidation of the last to expire patent within the
Patent Rights which BioStar owns as of the effective date of the Technology
License Agreement.
Upon expiration of the full term of the Manual Product License
Agreement, each party thereto shall have and retain irrevocable, paid-up
licenses granted by the other party thereto thereunder, and shall be entitled
to manufacture, use and sell in any country of the world any product using or
incorporating the BioStar Technology, Patent Rights and Asahi Improvement
disclosed and licensed by the other thereunder.
6. APPLICATION OF TECHNOLOGY LICENSE AGREEMENT
The terms defined and used in the Technology License Agreement and all
provisions thereof which are not provided for hereinabove shall apply mutatis
mutandis to this Exhibit and the Manual Product License Agreement unless the
context clearly requires otherwise.
2.
<PAGE> 24
EXHIBIT G
OUTSIDE VENDOR CONSENT FORM
Outside Vendor: __________________________________
Product or Service: _____________________________
Attached to this Consent Form is a proposed agreement or set of terms between
the vendor named above (the "Vendor") and BioStar, Inc. (the "Vendor
Agreement"). Asahi Chemical Industry Co., Ltd. hereby approves the Vendor
Agreement for the provision of the above product or service to be used by
BioStar in connection with the BEAR Program under the Development Agreement
between BioStar and Asahi dated _______________, 1997 ("Development
Agreement").
Asahi agrees to pay all estimated amounts due to the Vendor as set forth in the
Vendor Agreement. Asahi further agrees to bear any excess amounts that may
become due to the Vendor under the Vendor Agreement, provided that BioStar
informs Asahi of the reasonable grounds for such cost increase in advance and
receives Asahi's prior written consent to such increase, as provided in the
Development Agreement.
BIOSTAR, INC. ASAHI CHEMICAL INDUSTRY CO., LTD.
By: By:
------------------------- -----------------------
Title: Title:
--------------------- ---------------------
Date: Date:
---------------------- -----------------------
<PAGE> 25
EXHIBIT H
ASSAY SPECIFICATIONS
FOR SUBJECT PRODUCT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CLINICAL DATA
- -------------------------------------------------------------------------------------------------------------
ASSAY OPTIMUM MINIMUM ACCEPTABLE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[
*
]
- -------------------------------------------------------------------------------------------------------------
[
*
]
- -------------------------------------------------------------------------------------------------------------
[
*
]
- -------------------------------------------------------------------------------------------------------------
[
*
]
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ANALYTICAL DATA
SENSITIVITY
- -------------------------------------------------------------------------------------------------------------
<S> <C>
[ *
]
- -------------------------------------------------------------------------------------------------------------
SPECIFICITY
- -------------------------------------------------------------------------------------------------------------
[ * ]
- -------------------------------------------------------------------------------------------------------------
ASSAY REPRODUCIBILITY [ * ]
- -------------------------------------------------------------------------------------------------------------
INSTRUMENT REPREDUCIBILITY [ * ]
(W/CALIBRATION STDS)
- -------------------------------------------------------------------------------------------------------------
RELIABILITY/HOOK EFFECT [ * ]
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* [ * ]
** [ * ]
<PAGE> 26
BEAR SYSTEM: CAPABILITIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INSTRUMENT OPTIMUM MINIMUM ACCEPTABLE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[
*
]
- -------------------------------------------------------------------------------------------------------------
[ *
]
- -------------------------------------------------------------------------------------------------------------
[ *
]
- -------------------------------------------------------------------------------------------------------------
[
*
]
- -------------------------------------------------------------------------------------------------------------
[
*
]
- -------------------------------------------------------------------------------------------------------------
[
*
]
- -------------------------------------------------------------------------------------------------------------
[ * ]
- -------------------------------------------------------------------------------------------------------------
[
*
]
- -------------------------------------------------------------------------------------------------------------
[ * ]
- -------------------------------------------------------------------------------------------------------------
[ * ]
- -------------------------------------------------------------------------------------------------------------
[ * ]
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
TO BE
CARTRIDGE OPTIMUM DETERMINED MINIMUM ACCEPTABLE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Size [ * ]
- -------------------------------------------------------------------------------------------------------------
Functional Areas [
*
]
- -------------------------------------------------------------------------------------------------------------
Lot Configuration [
*
]
- -------------------------------------------------------------------------------------------------------------
Programming Card [
*
]
- -------------------------------------------------------------------------------------------------------------
Test Capacity [
*
]
- -------------------------------------------------------------------------------------------------------------
Stability [ *
]
- -------------------------------------------------------------------------------------------------------------
Cost [ *
]
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
MINIMUM
INSTRUMENT OPTIMUM TO BE DETERMINED ACCEPTABLE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Size [ * ]
- -------------------------------------------------------------------------------------------------------------
Weight [ * ]
- -------------------------------------------------------------------------------------------------------------
Color [ * ]
- -------------------------------------------------------------------------------------------------------------
Form/Shape [ * ]
- -------------------------------------------------------------------------------------------------------------
Keyboard [
*
]
- -------------------------------------------------------------------------------------------------------------
Barcode reader [ * ]
- -------------------------------------------------------------------------------------------------------------
Printer [
*
]
- -------------------------------------------------------------------------------------------------------------
Power requirements [ *
]
- -------------------------------------------------------------------------------------------------------------
Operatory range [ * ]
- -------------------------------------------------------------------------------------------------------------
Display [
*
]
- -------------------------------------------------------------------------------------------------------------
Battery-backed memory [ *
]
- -------------------------------------------------------------------------------------------------------------
Approvals [ *
]
- -------------------------------------------------------------------------------------------------------------
Relative Humidity [ * ]
- -------------------------------------------------------------------------------------------------------------
Interface [ * ]
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
TECHNOLOGY LICENSE AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of August, 1997,
by and between BIOSTAR, INC., a Delaware corporation, having its principal
place of business at 6655 Lookout Road, Boulder, Colorado 80301, USA
("BioStar") and ASAHI CHEMICAL INDUSTRY CO., LTD., a corporation organized
under the laws of Japan, having its principal place of business at 1-2,
Yurakucho 1-chome, Chiyoda-ku, Tokyo 100, Japan ("Asahi"). BioStar and Asahi
may be referred to herein as a "Party" or together as "Parties."
WHEREAS, BioStar owns certain proprietary technology and related know-how
in the field of point of care in vitro diagnostic testing; and
WHEREAS, Asahi is engaged in the diagnostic reagent business; and
WHEREAS, BioStar granted Asahi an option to obtain an exclusive license to
BioStar's proprietary technology by concluding a Technology Option Agreement
dated February 7, 1997 ("Option Agreement"); and
WHEREAS, Asahi has exercised such option,
NOW, THEREFORE, in consideration of the foregoing and the covenants and
obligations set forth below, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "ASAHI IMPROVEMENT" shall mean and include all Technical Information
owned by Asahi and which is developed by or on behalf of Asahi during the ten
(10) year period following the Effective Date, which constitutes improvements
to and is based upon Asahi's or its affiliate's use of the Patent Rights or the
BioStar Technology in Fields I, II, or III and which is used in the
development, manufacture, use or sale of the Instrumented Product. Asahi
improvements shall also include technology obtained from other party or parties
which Asahi has the right to pass on to BioStar without incurring any financial
liability to such other party or parties.
1.2 "BIOSTAR TECHNOLOGY" shall mean all Technical Information, including
the Technical Information that relates to the discovery, design, synthesis,
delivery, development, testing, use, manufacture or sale of diagnostic test
kits for infectious diseases based on the optical immunoassay, which are owned
by BioStar or which BioStar otherwise has the right to license as of the
Effective Date and during the ten (10) year period thereafter, to the extent
such Technical Information is necessary or useful for Asahi to develop,
manufacture, improve, use and sell any Instrumented Products.
EPO consists of the following nations: Austria, Belgium, Switzerland,
Germany, Netherlands, Luxembourg, Spain, France, Italy, UK, Sweden.
Canada and Japan honor PCT/EPO filings with independent review.
1.
* CERTAIN CONFIDENTIAL MATERIAL CONTAINED IN THIS DOCUMENT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE> 2
1.3 "DEVELOPMENT AGREEMENT" shall mean an agreement to be executed
simultaneous with this Agreement under which BioStar undertakes to develop
Instrumented Product for testing [ * ]
1.4 "EFFECTIVE DATE" shall mean the date on which both of this Agreement
and Development Agreement have been fully executed by the Parties.
1.5 "FIELD I" shall mean the use of instrumented diagnostic tests for the
following [ * ] infectious diseases:
[ *
]
1.6 "FIELD II" shall mean the use of instrumented diagnostic tests for
pneumonia, which consists of [ *
], and [ * ].
1.7 "FIELD III" shall mean the use of instrumented diagnostic tests for
all of the infectious diseases other than Field I and Field II, including, but
not limited to, [ * ], and
including [ * ] based
detection of the infectious diseases.
1.8 "INSTRUMENTED PRODUCT" shall mean an instrument point of care product
that can provide in vitro diagnostic test results for quantitative and/or
qualitative infectious disease assays which may include any results developed
under the Development Agreement. Instrumented Products will include
instruments and cartridges. (The cartridges which are part of the Instrumented
Products within the scope of BioStar Technology or the Patent Rights are
hereinafter referred to as "Cartridge.") As used herein, the term "point of
care" shall mean, in present clinical practice, in vitro diagnostic tests
performed on a single sample using compact analyzers (desktop or portable hand
held) devices that produce test results on a rapid basis and do not require a
laboratory specialist.
1.9 "KEY PATENTS" shall mean the following three (3) Japanese patent
applications of BioStar to be filed and already filed and any patent which may
be granted under such applications:
(A) Method and devices for [ * ]
(BioStar's file reference: [ * ];
(B) [ * ] using enzyme-labeled reagents
[ * ];
(C) Devices and methods for [ * ] based upon [
* ].
1.10 "NET SALES VALUE" shall mean the gross invoice price of the
Cartridges billed to the unaffiliated distributors or customers by Asahi or its
sublicensees, less packaging expenses, transportation expenses, insurance
premiums, trade commission to the sales agent, credit for the
2.
<PAGE> 3
Cartridges actually returned, allowance, quantity and cash discounts or
rebates, customs duties and direct tax to be levied on the Cartridges and their
sales, if any, and paid by Asahi.
1.11 "PATENT RIGHTS" shall mean patents and patent applications in the
Territory, including the Key Patents, which are owned or controlled by BioStar
as of the Effective Date and during the ten (10) year period thereafter in the
sense of having the right to grant licenses thereunder without making payment
therefor to others and which would be infringed by Asahi's conduct to develop,
manufacture, import, improve, use and sell any Instrumented Products in the
Territory and Field(s) licensed to Asahi under this Agreement and shall include
all patents which may be granted under said applications. The Patent Rights as
of the Effective Date are listed in Appendix A attached hereto and made part
hereof.
1.12 "TECHNICAL INFORMATION" shall mean all technology, inventions,
information, data, know-how, compounds and materials (whether or not patented
or patentable).
1.13 "TERRITORY" shall mean [
*
]
1.14 "VER.2 MANUAL PRODUCT" shall mean a manual point of care product
that can provide in vitro diagnostic test results for qualitative infectious
disease assays using flow through and visual optical immunoassay based on the
BioStar Technology.
ARTICLE 2
DISCLOSURE OF BIOSTAR TECHNOLOGY
Within thirty (30) days after the Effective Date, BioStar shall furnish
Asahi in documentary form with BioStar Technology which is listed in Appendix B
attached hereto and made part hereof. In addition, BioStar shall conduct
BioStar Technology assimilation programs in Boulder for the purpose of carrying
out the disclosure of BioStar Technology to Asahi and/or consultation with
respect to BioStar Technology, provided that the time, duration and the number
of Asahi's personnel to be sent at Asahi's expense shall be mutually agreed
upon by the Parties.
ARTICLE 3
GRANT OF RIGHTS
3.1 LICENSE GRANT. Subject to the payment of royalties under Paragraphs
4.2 through 4.9 during the term of this Agreement, BioStar hereby grants Asahi
an exclusive license with the right to sublicense others, subject to the
approval of BioStar, not to be unreasonably withheld, (a) to develop,
manufacture, have manufactured, import, improve, use and sell any Instrumented
Products for use in Field I under the BioStar Technology and the Patent Rights
in the Territory, and (b) to use the BioStar Technology and the Patent Rights
for the purposes of development of any Instrumented Products in Field II and/or
Field III in the Territory, which may include any regulatory submissions for
the approval provided for in Paragraph 3.4 prior to Asahi's exercise of the
option provided for in Paragraph 3.6.
3.
<PAGE> 4
3.2 NON-ASSERTION. During the term of this Agreement, BioStar shall not
assert any of the BioStar Technology or the Patent Rights against the sale or
use of the Instrumented Products in the Field(s) licensed to Asahi under this
Agreement within the Territory by Asahi's distributors or customers including,
without limitation, hospitals, doctors, dealers and agents.
3.3 REGISTRATION OF RIGHTS. Asahi shall have the right to register the
license granted hereunder in the patent office or other appropriate
governmental offices in the Territory. This right shall include registration
as "Senyo Jisshiken" in Japan. BioStar shall cooperate with Asahi in
registering such license.
3.4 PRODUCT REGISTRATION. Asahi shall have sole responsibility for
diligently conducting all preclinical and clinical trials for the Instrumented
Product and shall diligently make all regulatory submissions necessary for the
approval of the right to sell each Instrumented Product in the licensed Fields
in each country in the Territory, at Asahi's sole expense, and BioStar shall
cooperate with Asahi for such trials and regulatory submissions upon reasonable
request by Asahi.
3.5 MARKETING EFFORTS. If Asahi fails to make regulatory submission for
the approval of the right to sell each Instrumented Product in certain country
in the Territory except Japan within four (4) years after obtaining the
approval from the Japanese Ministry of Health and Welfare, or if Asahi fails to
commence commercial sale of such Instrumented Product within two (2) years
after obtaining the above-mentioned approval, an exclusive license with respect
to such Instrumented Product granted to Asahi hereunder shall be converted to a
non-exclusive license in such country. The above time period shall be extended
as appropriate in the event BioStar does not approve an Asahi proposed
sublicensee and Asahi experiences delays in identifying another sublicensee.
3.6 EXCLUSIVE OPTION. During a four (4) year period following the
Effective Date, Asahi shall be granted exclusive options to obtain the same
license and right with respect to any Instrumented Products for use in Field II
and/or Field III as granted in Field I hereunder upon payment of the following
amounts:
First Exercised Option
[ * ] License Fee for any and all disease applications in either
Field II or Field III.
Second Exercised Option
[ * ] License Fee for all of applications in the remaining Field
not exercised previously.
The payments shall be due when the option is exercised.
Paragraphs 4.2 through 4.9 shall apply to the Cartridges for which any of
the above-mentioned options has been exercised.
4.
<PAGE> 5
3.7 DISTRIBUTION OF VER.2 MANUAL PRODUCT IN JAPAN. During the five (5)
year period following the Effective Date, BioStar shall not offer the right to
distribute any Ver.2 Manual Product in Fields I or II to any party other than
Asahi in Japan. After such five (5) year period, with respect to a Ver.2
Manual Product in Fields I or II, and from the Effective Date with respect to
Ver.2 Manual Product in Field III, Asahi shall be granted the following right
of first refusal with respect to exclusive distribution of any Ver.2 Manual
Product in Japan. BioStar shall notify Asahi if it intends to enter into any
agreement to distribute any Ver.2 Manual Product in Japan and offer Asahi the
right to enter into such an agreement on terms substantially similar to those
offered to the third party. If Asahi fails to accept such offer within
forty-five (45) days of receipt of the offer, BioStar may make the proposed
offer to a third party, provided that BioStar must not offer third parties
terms and conditions which are more favorable to the distributor than those
offered to Asahi without first offering such alternative terms to Asahi.
ARTICLE 4
CONSIDERATION
In consideration of the right and license granted and BioStar Technology
disclosed to Asahi under this Agreement, Asahi shall pay to BioStar the
following:
4.1 INITIAL LICENSE FEE. Asahi shall pay an initial amount of [
* ] payable in full within thirty (30) days after the
Effective Date. [ * ] which Asahi has
already paid to BioStar as an option period extension fee under the Option
Agreement shall be credited against the above initial license fee.
4.2 RUNNING ROYALTY. Asahi shall pay to BioStar a running royalty equal
to the following percentages of the Net Sales Value of all the Cartridges
manufactured and sold by Asahi or its sublicenses under this Agreement to their
first sale distributors or customers, domestic or foreign, and invoiced (with
invoicing to be made contemporaneously with delivery) to such distributors or
customers during the term of this Agreement.
<TABLE>
<CAPTION>
TOTAL CUMULATIVE NET SALES VALUE OF CARTRIDGES
MANUFACTURED AND SOLD BY ASAHI AND ITS SUBLICENSEES ROYALTY RATE
--------------------------------------------------- ------------
<S> <C>
0-US$10,000,000 [*]
US$10,000,000-US$20,000,000 [*]
Over US$20,000,000 [*]
</TABLE>
If any Cartridges are sold by Asahi to BioStar for resale by BioStar, such
sale of the Cartridges shall be royalty- free but the Net Sales Value of
Cartridges so sold shall be counted for determining said applicable royalty
rate as if they had been sold to other customers and such Net Sales Value of
the Cartridges shall be counted for computing the amount of the Net Sales
Value.
5.
<PAGE> 6
4.3 REDUCTION IN ROYALTIES.
(a) If it becomes definite that all of the Key Patents are invalidated
by the Japanese Patent Office, the rates of running royalties according to
cumulative Net Sales Value mentioned in Paragraph 4.2 shall be reduced by [
* ] after such definite invalidation.
(b) The rates of running royalties may be reduced in case where
Paragraph 12.3.1, 12.3.3 or 12.4 of the Development Agreement is applicable.
4.4 CURRENCY CONVERSION. For the purpose of this Article 4, the Net Sales
Value obtained for a certain royalty calculation period, as specified in
Paragraph 4.6, in currency other than the United States Dollars shall be
converted into the amounts of the United States Dollars, using the exchange
rate for selling the United States Dollar by telegraphic transfer quoted by the
Bank of Tokyo or such other first class bank in Japan mutually agreed to by
both Parties on the last day of such royalty calculation period.
4.5 ROYALTY PAYABLE. The running royalty shall become payable to BioStar
on the day on which the distributor or customer is billed by Asahi.
4.6 ROYALTY CALCULATION PERIOD AND PAYMENT TIME. The running royalty
shall be calculated for each quarter after the start of production for
commercial sale of any applicable products by or for Asahi and shall be paid to
BioStar within forty-five (45) days after the end of such quarter. At the time
of each royalty payment, Asahi shall submit to BioStar a royalty statement
which shows in reasonable detail the calculation basis of the running royalty
amount covered by such payment including the calculation of the Net Sales
Value.
4.7 RECORDS AND INSPECTION. For a period of five (5) years after the
payment of each running royalty is due under this Article 4, Asahi shall make
and keep true, accurate and complete records, files and books of account
containing all the data required for calculation and verification of such
running royalty amounts paid by Asahi and of the information given in the
royalty statements.
Asahi shall, during normal business hours of Asahi, permit certified public
accountants or other designated representative appointed by BioStar to whom
Asahi has no reasonable objections to audit and inspect such records, files and
books for the sole purpose of verifying the royalty amounts paid by Asahi.
BioStar shall bear the cost of such audit and inspection, except if an
underpayment of 5% or more with respect to any quarter is found, in which case
Asahi shall reimburse BioStar for such cost and any underpayment within thirty
(30) days of its receipt of BioStar's invoice therefor.
4.8 PAYMENT MANNER. All the payments due to BioStar under this Agreement
shall be made in the United States currency by telegraphic transfer remittance
to the BioStar account at a bank in the U.S.A. designated by BioStar.
4.9 WITHHOLDING TAXES. All withholding taxes imposed by Japanese Tax Laws
on the amounts of consideration payable by Asahi to BioStar under this
Agreement shall be borne by [ * ]. In this connection, Asahi shall withhold
such taxes to the Japanese tax authority.
6.
<PAGE> 7
When Asahi so withholds, Asahi shall forward to BioStar a tax payment
certificate of the Japanese tax authority for the mount so withheld.
ARTICLE 5
EXCHANGE OF IMPROVEMENTS
5.1 UPDATING OF BIOSTAR TECHNOLOGY. BioStar shall disclose to Asahi,
during the ten (10) year period following the Effective Date, all BioStar
Technology promptly after BioStar has acquired or developed it. In the event
that BioStar elects not to file, prosecute or maintain a particular patent
claiming such BioStar Technology, or to abandon prosecuting a particular patent
application, or to cease paying the maintenance fees for a particular patent in
the Territory, BioStar shall give Asahi sixty (60) day's notice before any
relevant deadline, and Asahi shall have the right to pursue, at its own expense
in the Territory, prosecution of such patent application or maintenance of such
patent. Each Party agrees to cooperate with the other and take all reasonable
additional actions as may be reasonably required to achieve the intent of this
Paragraph 5.1, including, without limitation, the execution of necessary and
appropriate instruments and documents.
5.2 ASAHI IMPROVEMENT. During the ten (10) year period following the
Effective Date, Asahi shall disclose to BioStar all Asahi Improvements promptly
after Asahi has acquired or developed. Asahi hereby grants to BioStar an
exclusive license to use the Asahi Improvements in Fields I, II, and III
outside the Territory without requiring BioStar to make any payment therefor.
In the event that Asahi elects not to file, prosecute or maintain a particular
patent claiming such Asahi Improvement outside the Territory, or to abandon
prosecuting a particular patent application, or to cease paying the maintenance
fees for a particular patent, Asahi shall give BioStar sixty (60) days notice
before any relevant deadline, and BioStar shall have the right to pursue, at
its own expense, outside the Territory, prosecution of such patent application
or maintenance of such patent. Each Party agrees to cooperate with the other
and take all reasonable additional actions as may be reasonably required to
achieve the intent of this Paragraph 5.2, including, without limitation, the
execution of necessary and appropriate instruments and documents.
5.3 TECHNOLOGY TRANSFER MEETINGS. In order to facilitate the transfer to
Asahi and BioStar of the BioStar Technology and the Asahi Improvements, the
Parties agree to designate one or more representatives who will meet from time
to time, upon request of either Party but not more frequently than quarterly,
either at alternating offices of the Parties or telephonically, to discuss the
latest developments to the BioStar Technology and the Asahi Improvements.
ARTICLE 6
PATENT PROSECUTION AND ENFORCEMENT
6.1 PATENT PROSECUTION. BioStar shall apply for and seek prompt issuance
of, and upon issuance, maintain all of the Key Patents and all substitutions,
extensions, reissues, renewals, divisions, continuations or
continuations-in-part thereof or therefor in the Territory. Further, unless,
after good faith discussions with Asahi, BioStar reasonably determines that it
7.
<PAGE> 8
would not be cost effective to do so, BioStar shall apply for and seek prompt
issuance of, and upon issuance, maintain all Patent Rights (except the Key
Patents) to be licensed to Asahi hereunder and all substitutions, extensions,
reissues, renewals, divisions, continuations or continuations-in-part thereof
or therefor in the Territory. BioStar hereby agrees to apply for patents,
under Patent Cooperation Treaty or respective national rules as may be
applicable, immediately after the Effective Date with respect to "Method and
devices for [ * ] (BioStar's file reference:
[ * ] in [ *
]. Further, upon
reasonable request of Asahi, BioStar shall file at BioStar's expense patent
applications within the Patent Rights as of the Effective Date in any specific
countries within the Territory. Asahi shall cooperate with BioStar and provide
reasonable assistance to BioStar in the filing and prosecution of such patent
applications.
6.2 PATENT ENFORCEMENT.
(a) BioStar and Asahi shall each give immediate notice to the other of
any infringement of the Patent Rights, BioStar Technology or Asahi Improvements
by a third party which may come to its attention.
(b) Asahi shall have the first right, but not the obligation, to
institute and conduct any legal action in the Territory against such third
party infringers of the Patent Rights or BioStar Technology, and may enter into
settlement agreements with the approval of BioStar not to be unreasonably
withheld. Any amounts recovered by Asahi as a result of an infringement action
based on the BioStar Technology or the Patent Rights shall be allocated as
follows: (a) Asahi shall first be paid 200% of its costs incurred in
conducting such legal action, and (b) any remaining amounts shall be deemed to
be Net Sales Value earned in the quarter in which such recovered amounts were
paid and subject to the running royalty set forth in Paragraph 4.2.
(c) In the event that Asahi decides not to commence actions or
proceedings against an infringer pursuant to Paragraph 6.2(b) above, BioStar,
at BioStar's expense, shall have the right to initiate and pursue such action;
provided, however, that Asahi shall cooperate with and assist BioStar in such
action, at Asahi's expense, to the extent that such cooperation and assistance
are reasonably available. Any amounts recovered by BioStar as a result of such
legal action shall be used first to pay to BioStar 200% of its costs incurred
in conducting such legal action and any remaining amounts shall be shared
equally by the Parties.
(d) BioStar shall have the first right, but not the obligation, to
institute and conduct any legal action outside the Territory against any third
party infringers of the Asahi Improvements and may enter into settlement
agreements with the approval of Asahi, not to be unreasonably withheld. Any
amounts recovered by BioStar as a result of such infringement shall be retained
solely by BioStar.
(e) In the event that BioStar decides not to commence actions or
proceedings against an infringer pursuant to Paragraph 6.2(d) above, Asahi, at
Asahi's expense, shall have the right to initiate and pursue such action;
provided, however, that BioStar shall cooperate with and assist Asahi in such
action, at BioStar's expense, to the extent that such cooperation and
8.
<PAGE> 9
assistance are reasonably available. Any amounts recovered by Asahi as a
result of such legal action shall be retained solely by Asahi.
ARTICLE 7
WARRANTIES
BioStar hereby warrants to Asahi that BioStar has the full corporate power
and authority to enter into this Agreement and to license and transfer the
BioStar Technology as herein contemplated, and that nothing in this Agreement
violates any agreement by which BioStar is bound.
Asahi hereby warrants to BioStar that Asahi has the full corporate power
and authority to enter into this Agreement and to license and transfer Asahi
Improvement as herein contemplated, and that nothing in this Agreement violates
any agreement by which Asahi is bound.
Each Party further warrants that it shall not, during the life of this
Agreement, enter into any agreement with any other party which would be
inconsistent with any terms or conditions of this Agreement.
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNIFICATION BY BIOSTAR. BioStar hereby agrees to indemnify, hold
harmless and defend Asahi and its officers, directors and employees against any
and all liability, damages, judgments, awards or costs of defense (including
without limitation reasonable attorneys' fees, expenses to defend and amounts
paid in settlement of any action) directly resulting from any claim or claims
against any of the foregoing to the extent that such claim or claims are based
on the negligence or willful misconduct of BioStar or any of its employees or
agents or such claim or claims arise out of the manufacture, use or sale of any
product by BioStar which is made using the Asahi Improvement.
8.2 INDEMNIFICATION BY ASAHI. Asahi hereby agrees to indemnify, hold
harmless and defend BioStar and its officers, directors and employees against
any and all liability, damages, judgments, awards or costs of defense
(including without limitation reasonable attorneys' fees, expenses to defend
and amounts paid in settlement of any action) directly resulting from any claim
or claims against any of the foregoing to the extent that such claim or claims
are based on the negligence or willful misconduct of Asahi or any of its
employees or agents or such claim or claims arise out of the manufacture, use
or sale of Instrumented Product by Asahi or its sublicensees.
8.3 NOTICE AND PROCEDURES. In all cases where one Party seeks
indemnification by the other under this Article 8, the Party seeking
indemnification shall promptly notify the indemnifying Party of receipt of any
claim or lawsuit covered by such indemnification obligation and shall cooperate
fully with the indemnifying Party in connection with the investigation and
defense of such claim or lawsuit. The indemnifying Party shall have the right
to control the defense, with counsel of its choice, provided that the
non-indemnifying Party shall have the right
9.
<PAGE> 10
to be represented by advisory counsel at its own expense. The indemnifying
Party shall not settle or dispose of the matter in any manner which could
negatively and materially affect the right or liability of the non-indemnifying
Party without the non-indemnifying Party's prior written consent, which shall
not be unreasonably withheld.
ARTICLE 9
CONFIDENTIALITY
9.1 UNDERSTANDING OF THE PARTIES. Each Party acknowledges that the
information disclosed in connection with any transactions contemplated
hereunder contains the confidential information and trade secrets of BioStar
and Asahi, and is the property of the disclosing Party. Such information,
including, but not limited to, BioStar Technology, Asahi Improvement, shall be
referred to collectively, for purposes of this Article 9, as "Confidential
Information."
9.2 CONFIDENTIALITY. During the term of this Agreement, and for a period
of five (5) years thereafter, each Party hereto shall maintain in confidence
all Confidential Information disclosed to it by the other Party hereto.
Neither Party will use, disclose or grant the use of such Confidential
Information except as expressly licensed or permitted under this Agreement.
Each Party is, however, authorized to disclose Confidential Information to its
employees, agents, consultants, sublicensees or subcontractors to the extent
such disclosure is reasonably necessary, for carrying out their duties and
responsibilities. To the extent that disclosure is authorized by this
Agreement, the disclosing Party will obtain prior agreement from its employees,
agents, consultants, sublicensees or subcontractors to whom disclosure is to be
made to hold in confidence and not make use of such information for any purpose
other than those permitted by this Agreement. Each Party will use at least the
same standard of care as it uses to protect its own trade secrets or
proprietary information to ensure that such employees, agents, consultants,
sublicensees and subcontractors do not disclose or make any unauthorized use of
such Confidential Information. Each Party will promptly notify the other upon
discovery of any unauthorized use or disclosure of the Confidential
Information.
9.3 EXCEPTIONS. The obligations of confidentiality contained in Article
9.2 will not apply to the extent that it can be established by the receiving
Party by competent written proof that such Confidential Information: (a) was
already known to the receiving Party, other than under an obligation of
confidentiality, at the time of disclosure by the other Party; (b) was
generally available to the public or otherwise part of the public domain at the
time of its disclosure to the other Party; (c) became generally available to
the public or otherwise part of the public domain after its disclosure and
other than through any act or omission of the receiving Party in breach of this
Agreement; (d) was disclosed to the receiving Party, other than under an
obligation of confidentiality, by a third party who had no obligation to the
other Party not to disclose such information to others; or (e) is independently
developed by the receiving Party without using any of the other Party's
Confidential Information.
9.4 PUBLIC ANNOUNCEMENT. The Party desiring to make any public
announcement or other disclosure regarding the content of this Agreement shall
inform the other Party of the proposed announcement or disclosure in reasonably
sufficient time prior to public release, and shall provide the other Party with
a written copy thereof, in order to allow such other Party to
10.
<PAGE> 11
comment upon such announcement or disclosure. Once any such public
announcement or disclosure has been approved by such other Party in accordance
with this Paragraph, then the desiring Party may appropriately communicate
information contained in such permitted announcement or disclosure.
Notwithstanding the foregoing, either Party shall have the right to make such
disclosure of this Agreement as is required under any applicable laws,
including the rules and regulations of the Securities and Exchange Commission.
ARTICLE 10
DISPUTE RESOLUTION
This Agreement is made on the basis of mutual confidence and good faith
between the Parties. If a dispute should arise between the Parties out of or
relating to this Agreement or to a breach thereof, including as to the
interpretation, performance or termination of this Agreement, the Parties shall
initially seek to resolve such dispute amicably by negotiation. If the Parties
fail to resolve the matter by good faith negotiation within a period of sixty
(60) days, then either Party may institute binding arbitration of the dispute.
The arbitration shall be conducted in New York, New York, USA, in English,
under the Commercial Arbitration Rules of the American Arbitration. Judgment
on the award rendered by the arbitrator shall be final and may be entered in
any court having jurisdiction thereof. The expense of the arbitration
(including without limitation, the award of attorney's fees to the prevailing
Party) shall be paid as the arbitrator determines. Notwithstanding the
foregoing, nothing in this Article shall be construed as limiting in any way
the right of a Party to seek injunctive relief with respect to any actual or
threatened breach of this Agreement, which breach would cause irreparable harm
to the Party seeking such relief, from a court of competent jurisdiction.
ARTICLE 11
FORCE MAJEURE
No Party hereto shall be liable for damages or held in default hereunder
for any non-performance or delay resulting from causes beyond its control,
including failure of usual sources of supply, fire, accident, riot, war, flood,
earthquake, storm or Acts of God, action or inaction of governmental
authorities or agencies, or the similar causes which cannot be controlled by a
Party. In case of occurrence of a force majeure event, the Party which is the
victim of such event shall immediately notify the other Party of the event
giving the full particulars of the cause, its expected duration and the
anticipated effects thereof.
ARTICLE 12
TERM AND TERMINATION
12.1 TERM
(a) The term of this Agreement shall commence on the Effective
Date and shall remain in force, until expiration, revocation or invalidation of
the last to expire patent within the Patent Rights listed in Appendix A, unless
terminated earlier under Paragraph 12.2.
11.
<PAGE> 12
(b) Upon expiration of the full term of this Agreement, each Party
shall retain the licenses granted to such Party under this Agreement on the
terms set forth herein, except that all such licenses shall be irrevocable and
paid-up.
12.2 EARLY TERMINATION. BioStar or Asahi may terminate this Agreement
upon giving notice thereof to the other Party:
(a) In the event that the other Party files a petition in
bankruptcy, or in the event that all or part of the other Party's assets are
assigned to a trustee or receiver, or if an involuntary petition is filed by a
third party and the other Party does not resolve such petition in its favor
within sixty (60) days after filing and notice thereof, or
(b) In the event of a material breach of this Agreement not
remedied by the other Party in breach within sixty (60) days after receipt of
notice by the terminating Party specifying such breach and requesting that it
be remedied, unless the Party allegedly in breach submits the issue to
arbitration within said sixty (60) day period. In the event that such Party
submits the issue to arbitration, then diligent compliance with the arbitration
decision shall be a cure for such breach, and, in the event of such a cure,
this Agreement may not be so terminated unless determined by the arbitrator. A
breach of either Party under the Development Agreement shall in no way be
deemed to be a breach by such Party under this Agreement.
In the event that any involuntary petition is filed as set forth in
Paragraph (a) above, then the Party having the right to terminate this
Agreement may suspend its performance hereunder until the resolution of such
petition. If one Party so suspends its performance, then the other Party shall
be entitled to suspend its performance until the original suspending Party
resumes performance.
12.3 SURVIVAL. Any expiration or termination of this Agreement under
Paragraph 12.1 or 12.2 above shall not relieve any Party from any obligations
hereunder which have accrued on or before the effective date of such expiration
or termination, nor affect the provisions set forth in Articles 8, 9 and 10,
and Paragraphs 4.7, 12.1(b), 12.3 through 12.8, 13.3 and 13.7 hereof, all of
which are intended by the Parties to survive such expiration or termination.
12.4 TERMINATION BY ASAHI. In the event that this Agreement is
terminated by Asahi pursuant to Paragraph 12.2, Asahi shall retain the licenses
and rights granted to it under Article 3 hereof, subject to the payment of the
running royalty under Paragraph 4.2. In addition, in such event, BioStar shall
immediately cease to have the licenses and rights granted to it under Article
5. Further, in such event Asahi shall have the right to terminate the
Development Agreement and such termination will have the consequences set forth
in Paragraph 12.3.1 of the Development Agreement.
12.5 TERMINATION BY BIOSTAR. In the event that this Agreement is
terminated by BioStar pursuant to Section 12.2, BioStar shall retain the
licenses and rights granted to it under Article 5 hereof, and BioStar shall
have the licenses and rights set forth in Paragraph 12.1 above on and after the
date of the expiration of full term of this Agreement. In addition, in such
event, Asahi shall immediately cease to have the licenses and rights granted to
it under Article 3. Further, in such event BioStar shall have the right to
terminate the Development Agreement if it
12.
<PAGE> 13
is still in effect at such time, and Asahi shall assign and transfer to BioStar
all Development Know-How and Development Patents. If such termination of this
Agreement by BioStar occurs after the expiration of the Development Agreement,
each Party shall retain such rights as it then possesses thereunder at the time
of such termination.
12.6 RETURN OF CONFIDENTIAL INFORMATION. In the event of termination
for cause under Paragraph 12.2, the Party which loses its licenses and rights
hereunder shall promptly return all Confidential Information with respect to
the affected products of the non-breaching Party, including copies thereof, and
shall cease using the same as quickly as commercially feasible but in no case
more than sixty (60) days after the effective date of such termination. The
breaching Party shall certify to the non-breaching Party in writing compliance
with this Paragraph 12.7 upon the return of such materials.
12.7 NO-EXCLUSIVE REMEDY. The right of any Party to terminate this
Agreement under Paragraph 12.2 above is not an exclusive remedy, and any Party
shall be entitled, if the circumstances warrant, alternatively or cumulatively,
to damages for breach of this Agreement, to an order requiring performance of
the obligations of this Agreement or to any other legally available remedy.
12.8 ASAHI'S RIGHTS IN BANKRUPTCY. All rights and licenses granted
under or pursuant to this Agreement by BioStar to Asahi are, and shall
otherwise be deemed to be, for purposes of Section 365(n) of the U.S.
Bankruptcy Code, licenses of right to "intellectual property" as defined under
Section 101 of the U.S. Bankruptcy Code. The Parties agree that Asahi as a
licensee of such rights under this Agreement, shall retain and may fully
exercise all of its rights and elections under the U.S. Bankruptcy Code. The
Parties further agree that, in the event commencement of a bankruptcy
proceeding by or against BioStar under the U.S. Bankruptcy Code, BioStar shall
give Asahi an immediate written notice and Asahi shall be entitled to a
complete duplicate of (or complete access to, as appropriate) any such
intellectual property and all embodiments of such intellectual property, and
the same, if not already in its procession, shall be promptly delivered to
Asahi (a) upon any such commencement of a bankruptcy proceeding upon written
request therefor by Asahi, unless BioStar elects to continue to perform all of
its obligations under this Agreement, or (b) if not delivered under (a) above,
upon the rejection to perform its obligations under this Agreement by or on
behalf of BioStar upon written request therefor by Asahi.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 RELATIONSHIP OF THE PARTIES. Neither Party is, nor shall be
deemed to be, an agent or legal representative of the other Party for any
purpose. Neither Party shall be entitled to enter into any contracts in the
name of or on behalf of the other Party, and neither Party shall be entitled to
pledge the credit of the other Party in any way or hold itself out as having
authority to do so. No Party shall incur any debts or make any commitments for
the other, except to the extent, if at all, specifically provided herein.
13.
<PAGE> 14
13.2 ASSIGNMENT. This Agreement may not be assigned by either Party,
nor may either Party transfer its rights under this Agreement to any third
party, without prior written consent of the other Party, which consent will not
be unreasonably withheld. Notwithstanding the foregoing, however, either Party
shall be entitled to assign this Agreement, and all rights and obligations
hereunder, to a successor to all or substantially all of its assets, whether by
sale, merger, or otherwise, provided that either Party desiring to make such an
assignment shall provide the other Party with, where possible, thirty (30) days
prior written notice of such assignment or such shorter time as is possible,
subject to any contractual restrictions or disclosure of such information prior
to such assignment, and cause such assignee to be bound by this Agreement.
This Agreement shall be binding upon the successors and assignees of the
parties hereof. In the event of assignment of this Agreement by either Party,
the license granted by such assigning Party to the other Party shall not cover
any intellectual property of such assignee which was not controlled by the
assigning Party prior to the effective date of such assignment.
13.3 NOTICES. All notices and communications hereunder shall be in
writing and shall be deemed given if delivered personally or by confirmed
facsimile transmission, telexed, mailed by registered or certified mail,
postage prepaid, or sent by express courier service, to the Parties at the
addresses set forth in the first paragraph of this Agreement (or as such other
address for a Party as shall be specified by like notice to the other Party).
13.4 AMENDMENT. No amendment, modification or supplement of any
provision of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each Party.
13.5 WAIVER. No provision of this Agreement shall be waived by any
act, omission or knowledge of a Party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by a duly
authorized officer of the waiving Party.
13.6 COUNTERPARTS. This Agreement may be executed in counterparts.
13.7 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York, applicable to
contracts executed and performed wholly within the State of New York.
13.8 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such provision or invalidity, without invalidating the remainder
of this Agreement.
13.9 ENTIRE AGREEMENT OF THE PARTIES. This Agreement and Development
Agreement will constitute and contain the complete, final and exclusive
understanding and agreement of the Parties and cancels and supersedes any and
all prior negotiations, correspondence, understandings and agreements, whether
oral or written, between the Parties respecting the subject matter hereof.
14.
<PAGE> 15
IN WITNESS WHEREOF, the Parties have as of the day and year first above
written duly executed this Agreement.
BIOSTAR, INC. ASAHI CHEMICAL INDUSTRY CO., LTD.
By: /s/ Teresa W. Ayers By: /s/ Tadashi Ikegami
----------------------- -----------------------------
Title: President/CEO Title: Board Director
-------------------- --------------------------
15.
<PAGE> 16
APPENDIX A
TABLE OF CONTENTS:
BOOK ONE: US ISSUED PATENTS
<TABLE>
PATENT NUMBER TOPIC
<S> <C> <C>
1) US [ * ] [ * ]
Corresponds to: EPO [ * ]; Issued [ * ]
JP [ * ]; Issued [ * ]
DE [ * ]; Issued [ * ]
CA [ * ]; Issued [ * ]
2) US [ * ] [ * ]
Corresponds to: EPO [ * ]; Issued [ * ]
JP [ * ]; Issued [ * ]
DE [ * ]; Issued [ * ]
DENMARK [ * ]; Issued [ * ]
3) US [ * ] [ * ]
Corresponds to: EPO [ * ]; Abandoned
JP [ * ]; Pending
DE [ * ]; Abandoned
CA [ * ]; Issued [ * ]
4) US [ * ] [ * ]
Corresponds to: EOP [ * ]; Abandoned
JP [ * ]; Pending
DE [ * ]; Issued [ * ]
CA [ * ]; Issued [ * ]
5) US [ * ] [ * ]
Corresponds to: WO [ * ]; Pending
JP [ * ]; Pending
</TABLE>
EPO consists of the following nations: Austria, Belgium, Switzerland,
Germany, Netherlands, Luxembourg, Spain, France, Italy, UK, Sweden.
Canada and Japan honor PCT/EPO filings with independent review.
1.
<PAGE> 17
<TABLE>
<CAPTION>
PATENT NUMBER TOPIC
<S> <C> <C>
6) US [ * ] [ * ]
[ * ]
[ * ]
[ * ]
Corresponds to: WO [ * ]; Pending
JP[ * ]; Pending
EPO [ * ]; Issued [ * ]
DE [ * ]; Issued [ * ]
JP [ * ]; Pending
EP [ * ]; Issued
DE [ * ]; Issued
JP [ * ]; Pending
WO [ * ]; Pending
JP [ * ]; Pending
EPO [ * ]; Pending
7) US [ * ] [ * ]
Corresponds to: WO [ * ]; Pending
JP [ * ]; Pending
8) US [ * ] [ * ]
Corresponds to: EPO [ * ]; Pending
9) US [ * ] [ * ]
Corresponds to: WO [ * ]; Pending
JP [ * ]; Pending
10) US [ * ] [ * ]
Corresponds to: JP [ * ]; Pending
EPO [ * ]; Issued [ * ]
DE [ * ]; Issued [ * ]
EP [ * ]; Issued
DE [ * ]; Issued
JP [ * ]; Pending
WO [ * ]; Pending
JP [ * ]; Pending
EPO [ * ]; Pending
</TABLE>
2.
<PAGE> 18
<TABLE>
<CAPTION>
PATENT NUMBER TOPIC
<S> <C> <C>
11) US [ * ] [ * ]
Corresponds to: WO [ * ]; Pending
JP [ * ]; Pending
12) US [ * ] [ * ]
Corresponds to: WO [ * ]; Pending
JP [ * ]; Pending
*13) US [ * ] [ * ]
Corresponds to: WO [ * ]; Pending
JP [ * ]; Pending
*14) US [ * ] [ * ]
Corresponds to: WO [ * ]; Pending
JP [ * ]; Pending
**15) US [ * ] [ * ]
Corresponds to: EP [ * ]; Issued
DE [ * ]; Issued
JP [ * ]; Pending
</TABLE>
* Provided to Dr. I. Fukawa 7/25/97
** Mailed to Dr. I. Fukawa 7/31/97
3.
<PAGE> 19
BOOK TWO: ISSUED INTERNATIONAL
<TABLE>
<CAPTION>
PATENT NUMBER TOPIC
<S> <C> <C>
16) JP [ * ]; ISSUED [ * ] [ * ]
GB [ * ]; ISSUED [ * ]
EPO [ * ]; ISSUED [ * ]
DE [ * ]; ISSUED [ * ]
Corresponds to: US [ * ]
US [ * ]
</TABLE>
<TABLE>
<CAPTION>
PATENT NUMBER TOPIC
<S> <C> <C>
17) EPO [ * ]; ISSUED [ * ] [ * ]
JP [ * ]; ISSUED [ * ]
DE [ * ]; ISSUED [ * ]
CA [ * ]; ISSUED [ * ]
Corresponds to: US [ * ]
18) EPO [ * ]; ISSUED [ * ] [ * ]
JP [ * ]; ISSUED [ * ]
DE [ * ]; ISSUED [ * ]
DENMARK [ * ]; ISSUED [ * ]
Corresponds to: US [ * ]
19) EPO [ * ]; ABANDONED [ * ]
JP [ * ]; PENDING
DE [ * ]; ABANDONED
CA [ * ]; ISSUED [ * ]
Corresponds to: US [ * ]
20) EPO [ * ]; ABANDONED [ * ]
JP [ * ]; PENDING
DE [ * ]; ISSUED [ * ]
CA [ * ]; ISSUED [ * ]
Corresponds to: US [ * ]
21) EPO [ * ]; ISSUED [ * ] [ * ]
DE [ * ]; ISSUED [ * ]
JP [ * ]; PENDING
Corresponds to: US [ * ]
US [ * ]
</TABLE>
4.
<PAGE> 20
BOOK THREE: PENDING INTERNATIONAL
<TABLE>
<CAPTION>
PATENT NUMBER TOPIC
<S> <C> <C>
22) JP [ * ]; PENDING [ * ]
EPO [ * ]; Issued
DE [ * ]; Issued
Corresponds to: US [ * ]
US [ * ]
US [ * ]
23) WO [ * ]; PENDING [ * ]
JP [ * ]; PENDING
EPO [ * ]; PENDING
Corresponds to: US [ * ]
US [ * ]
24) WO [ * ]; PENDING [ * ]
JP [ * ]; PENDING
Corresponds to: US [ * ]; PENDING
25) EPO [ * ]; PENDING [ * ]
JP [ * ]; PENDING
Corresponds to: US [ * ]; PENDING
26) WO [ * ]; PENDING [ * ]
JP [ * ]; PENDING
Corresponds to: US [ * ]
US [ * ] US [ * ]
US [ * ] US [ * ]
US [ * ] US [ * ]
US [ * ]; PENDING
27) EPO [ * ]; PENDING [ * ]
Corresponds to: US [ * ]
</TABLE>
5.
<PAGE> 21
BOOK FOUR: US PENDING
<TABLE>
<CAPTION>
PATENT NUMBER TOPIC
<S> <C> <C>
28) [ * ] [ * ]
Corresponds to: EPO [ * ]; Issued
JP [ * ]; Issued
GB [ * ]; Issued
DE [ * ]; Issued
29) [ * ] [ * ]
Corresponds to: EPO [ * ]
JP [ * ]; Issued
GB [ * ]; Issued
DE [ * ]; Issued
30) [ * ]; Allowed [ * ]
Corresponds to: WO [ * ]; Pending
JP [ * ]; Pending
</TABLE>
6.
<PAGE> 22
BOOK FIVE: US PENDING
<TABLE>
<CAPTION>
PATENT NUMBER TOPIC
<S> <C> <C>
31) [ * ] [ * ]
Corresponds to: WO [ * ]; Pending
EPO [ * ]; Pending
JP [ * ]; Pending
JP [ * ]; Pending
32) [ * ] [ * ]
International to be made
</TABLE>
7.
<PAGE> 23
APPENDIX B
BIOSTAR METHODS
- -- Methods for culture/storage of microorganisms on the FDA-cleared [ * ]
Package Insert and the [ * ]
- -- Historical screening methods for [ * ]
- -- Historical screening methods for [ * ]
- -- Historical screening methods for [ *
] and [ *
]
- -- Method for Cross-reactivity study
- -- Method for Interference study
- -- [ * ] attachment method
- -- [ * ] conjugation methods
- -- Conjugate diluent formulations [ * ]
- -- Analytical methods to evaluate [ *
]
- -- [ * ] for [ * ]
- -- Methods for [ * ] surfaces
- -- Specifications for [ * ] (vendor specifications)
- -- Extraction reagent formulations
- -- Assay protocols
- -- A copy of SOPs (Standard Operating Procedures), MPs (Manufacturing
Procedures), QCPs (Quality Control Procedures)
- -- A copy of Product Development Guidelines
- -- Copies of BioStar Sales Training Manuals (includes customer training
procedure)
- -- Specifications for injection molded Version 1 plastic case
<PAGE> 1
--------------------------------
Dated 1997
DIAGNOSTIC DEVELOPMENT AND
COMMERCIALISATION AGREEMENT
BIOTA SCIENTIFIC MANAGEMENT PTY LTD ("BIOTA")
AND
BIOSTAR, INC. ("BIOSTAR")
MALLESONS STEPHEN JAQUES
SOLICITORS
RIALTO
525 COLLINS STREET
MELBOURNE VIC 3000
TELEPHONE (03) 9619 0619
FAX (03) 9614 1329
DX I01 MELBOURNE
REF: D NICHOLSON
MEL_CORP/0050360.01
* CERTAIN CONFIDENTIAL MATERIAL CONTAINED IN THIS DOCUMENT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. INTERPRETATION...........................................................................................2
2. DEVELOPMENT PROJECT......................................................................................9
3. FUNDING OF DEVELOPMENT PROJECT..........................................................................10
4. FDA CLEARANCE...........................................................................................11
5. MANUFACTURE OF DIAGNOSTIC...............................................................................11
6. SUPPLY OF COMPOUNDS.....................................................................................15
7. MARKETING, SALE AND DISTRIBUTION OF DIAGNOSTIC..........................................................15
8. MARKETING/TRADE DRESS...................................................................................17
9. SECOND GENERATION DIAGNOSTIC............................................................................18
10. PROFITS.................................................................................................18
11. BIOTA IP................................................................................................19
12. FOREGROUND IP...........................................................................................21
13. BIOSTAR IP..............................................................................................22
14. PUBLICATION OF DEVELOPMENT PROJECT RESULTS AND OTHER INFORMATION........................................24
15. CONFIDENTIALITY.........................................................................................24
16. TERM AND TERMINATION....................................................................................26
17. INDEMNITY...............................................................................................28
18. FURTHER COLLABORATION...................................................................................29
19. TAXATION................................................................................................29
20. RELATIONSHIP OF PARTIES.................................................................................30
21. NOTICES.................................................................................................30
22. ASSIGNMENT..............................................................................................31
23. WAIVER AND VARIATION....................................................................................31
24. REMEDIES CUMULATIVE.....................................................................................31
25. FURTHER ASSURANCES......................................................................................31
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
26. SUPERVENING LEGISLATION.................................................................................32
27. SEVERABILITY............................................................................................32
28. ENTIRE AGREEMENT........................................................................................32
29. GOVERNING LAW...........................................................................................32
30. ARBITRATION OF PAYMENTS.................................................................................32
31. PUBLICITY...............................................................................................33
SCHEDULE 1.......................................................................................................34
SCHEDULE 2.......................................................................................................38
SCHEDULE 3.......................................................................................................40
SCHEDULE 4.......................................................................................................44
SCHEDULE 5.......................................................................................................45
SCHEDULE 6.......................................................................................................46
SCHEDULE 7.......................................................................................................47
SCHEDULE 8.......................................................................................................49
SCHEDULE 9.......................................................................................................50
</TABLE>
ii.
<PAGE> 4
DIAGNOSTIC DEVELOPMENT AND
COMMERCIALISATION AGREEMENT
DATE: This Agreement is made on 23 May, 1997.
PARTIES: BIOTA SCIENTIFIC MANAGEMENT PTY LTD a company incorporated in the
State of Victoria and having its registered office at Level 4,
616 St. Kilda Road, Melbourne, Victoria, Australia ("Biota").
BIOSTAR, INC. a company incorporated in the State of Delaware,
United States of America, and having its principal place of
business at 6655 Lookout Road, Boulder, Colorado 80301, United
States of America ("BioStar").
RECITALS: A. Biota possesses skill and expertise and has information in
relation to influenza treatment and diagnosis, structure
based anti-viral drug design and discovery, Compounds
(defined in clause 1.1) and related chemistries having
diagnostic and therapeutic applications and other Biota
business, financial and technical activities.
B. BioStar possesses skill and expertise in the development,
manufacturing, commercialization and marketing of diagnostic
products and has information in relation to technologies
with diagnostic applications for point of care use, in
particular its Optical Immunoassay Technology (defined in
clause 1.1) and antibody know-how.
C. Biota and BioStar entered into a Diagnostic Project Research
Agreement as of 9 September 1996 (the "Diagnostic Project
Research Agreement") pursuant to which the parties agreed to
collaborate in carrying out a project to determine whether
BioStar's proprietary technologies with diagnostic
applications could be used in conjunction with the Compounds
and Biota's proprietary chemistries for the detection of
influenza (the "Project").
D. The goals of the Project described in schedule 1 of the
Diagnostic Project Research Agreement have been met and
Biota now wishes to further develop and commercialize a
Diagnostic in accordance with the goals and specifications
set out in schedule 3.
E. The parties have agreed to collaborate in carrying out a
Development Project to further develop the Diagnostic and in
the event of the success of that work to commercialize the
Diagnostic in accordance with the terms and conditions of
this Agreement.
1.
<PAGE> 5
OPERATIVE PROVISIONS
1. INTERPRETATION
1.1 In this Agreement, unless a contrary intention appears:
AGREEMENT means this agreement including the recitals, schedules and
annexures attached hereto, which are deemed to be incorporated into this
agreement.
ANTIBODY means any antibody developed or used in the course of carrying out
the Project or the Development Project which could be used in the capture or
detection of the influenza virus.
BIOSTAR DISTRIBUTION ALLOWANCE means a percentage of BioStar's Gross Sales
Revenue calculated in accordance with Schedule 7.
BIOSTAR IP means any and all Intellectual Property:
(a) disclosed by BioStar to Biota in the course of the Project,
the Development Project or the manufacture, sale or distribution of the
Diagnostic; or
(b) owned by BioStar or licensed to BioStar which BioStar
disclosed to Biota for the purposes of the Project or discloses to Biota for the
purposes of the Development Project or for the manufacture, sale or distribution
of the Diagnostic, including BioStar's Optical Immunoassay Technology and
antibody know-how; or
(c) created, discovered or coming into existence or arising as a
result of the Project, the Development Project or in connection with the
manufacture, sale or distribution of the Diagnostic; or
(d) learned by Biota or BioStar in the course of carrying out the
Project or the Development Project or in connection with the manufacture, sale
or distribution of the Diagnostic,
provided that, in the case of paragraphs (c) and (d), the Intellectual Property
is related directly to BioStar's Optical Immunoassay Technology or an antibody
approach to a diagnostic not incorporating a Compound or a Compound conjugate or
combination and not constituting Project IP (as defined under the Diagnostic
Project Research Agreement) or Foreground IP.
BIOTA DISTRIBUTION ALLOWANCE means a percentage of Biota's Gross Sales
Revenue relating to the sale of the Diagnostic in the US calculated in
accordance with Schedule 7.
BIOTA GROUP means Biota Holdings Limited and any of its subsidiaries (as
defined in Division 6 of Part 1.2 of the Corporations Law).
2.
<PAGE> 6
BIOTA IP means any and all Intellectual Property:
(a) disclosed by Biota to BioStar in the course of carrying out
the Project, the Development Project or the manufacture, sale or distribution of
the Diagnostic;
(b) owned by Biota or licensed to Biota which Biota brought to
the Project or brings to the Development Project or discloses to BioStar for use
in the manufacture, sale or distribution of the Diagnostic; or
(c) constituting Project IP.
BREACH DATE has the meaning given in clause 5.5.
COMMERCIALIZATION PLAN means a plan for the commercialization of the
Diagnostic in the form set out in Schedule 8.
COMPOUND-BASED ASSAY means an assay incorporating a Compound or Compounds.
COMPOUNDS means those compounds listed in Schedule 4 and any compounds
specific for influenza detection:
(a) synthesized or produced in the course of carrying out the
Project or the Development Project;
(b) brought to the Project or the Development Project by Biota
either at the start or during the course of the Project or the Development
Project; or
(c) resulting from modifications or changes to any such
compounds, but does not include antibodies or antibody like molecules unless
such antibodies or antibody like molecules are combined or conjugated with such
compounds.
CONFIDENTIAL INFORMATION of a Disclosing Party means any information and
know-how including Biota IP, BioStar IP or Foreground IP, as the case may be,
(except information described in clause 15.2):
(a) disclosed by the Disclosing Party to the Disclosee;
(b) learned by the Disclosee as a result of or in relation to the
Project, Development Project or the manufacture, sale or distribution of the
Diagnostic; or
(c) concerning this Agreement (including the terms of this
Agreement), the Diagnostic Project Research Agreement or any other agreement
executed or proposed between the parties or the negotiations between the parties
3.
<PAGE> 7
relating to this Agreement or any such other agreement.
CORPORATIONS LAW means the Corporations Law of the State of Victoria,
Australia.
COST OF GOODS includes all costs directly incurred by a party in producing
goods (Diagnostic or Compounds, as the case may be) including the cost of raw
materials (including GG167 chemicals), actual cost of all direct labor and any
administrative costs related to such manufacture, such administrative costs to
be determined in a manner which is consistent with generally accepted Australian
accounting principles.
DEVELOPMENT BUDGET means the budget for the Development Project set out in
Schedule 2, as varied from time to time by mutual agreement of the parties under
clause 3.2.
DEVELOPMENT PROJECT means the collaborative project which is to be
undertaken by the parties as described in Recital E and the Development Work
Plan.
DEVELOPMENT WORK PLAN means the work plan for the Development Project set
out in Schedule 1, as varied from time to time by mutual agreement of the
parties under clause 2.1.
DIAGNOSTIC means a device or procedure which incorporates one or more
Compounds, Antibodies, Antibody-like molecules or Ligands for use in, or in
connection with diagnosing viral influenza.
DIAGNOSTIC PATENTS means any Patent or Patent Applications now or hereafter
applied for, granted to or made by Biota or BioStar in respect of the Diagnostic
or the Intellectual Property in the Diagnostic and any continuations,
continuations in part division, registrations, confirmations, re-issues,
renewals or extensions of term thereof.
DIAGNOSTIC PROJECT RESEARCH AGREEMENT means the agreement described as such
in recital C.
DISCLOSEE means the party to whom Confidential Information or Intellectual
Property is disclosed or the party which learns the relevant Confidential
Information from the other party.
DISCLOSING PARTY means the party which discloses Confidential Information
or Intellectual Property to the other party or from whom information is learned
directly or indirectly.
DISTRIBUTION ALLOWANCE means the Biota Distribution Allowance or the
BioStar Distribution Allowance, as relevant.
DUE DATE has the meaning given in clause 5.4.
4.
<PAGE> 8
FDA means the Food and Drug Administration of the US (or any replacement or
successor body).
FDA CLEARANCE OF THE DIAGNOSTIC means formal FDA clearance of the sale and
use of the Diagnostic for the diagnosis of influenza in the US.
FDA APPROVAL OF GG167 means formal FDA approval to the use of the compound
GG167 (Zanamivir) for therapeutic purposes in the treatment of influenza in the
US.
FORCE MAJEURE means acts of gods, fire, lightening, explosions, flood,
subsidence, insurrection or civil disorder or military operations; government
restraint, expropriation, prohibition, intervention, direction or embargo.
FOREGROUND IP means any and all Intellectual Property:
(a) created, discovered, coming into existence or arising from
the carrying out of the Development Project or the manufacture, sale or
distribution of the Diagnostic; or
(b) learned by Biota or BioStar from the Development Project,
(including the results of any evaluation or testing carried out pursuant to the
Development Project) or the manufacture, sale or distribution of the Diagnostic,
including without limitation, any and all Intellectual Property which:
(c) relates to the structure, manufacture, use, synthesis or
properties of Compounds or combinations or conjugates of Compounds;
(d) relates to the therapeutic or diagnostic application of
Compounds or combinations or conjugates of Compounds; or
(e) is derived directly or indirectly from the use or application
of Glaxo IP; but excluding any and all Intellectual Property which directly
relates to BioStar IP.
[ *
]
GLAXO GROUP means any or all of Glaxo Wellcome plc, Glaxo Group Limited,
Glaxo Wellcome Australia Ltd, Glaxo Research and Development Limited and their
related bodies corporate from time to time.
GLAXO IP means any and all Intellectual Property owned or possessed by
Glaxo Group which Glaxo Group has disclosed or discloses to the Biota Group or
BioStar for the purposes of, or in the course of the
5.
<PAGE> 9
Project or the Development Project or the manufacture, sale or distribution of
the Diagnostic.
GROSS SALES REVENUE means all amounts or revenue received, receivable or
derived by a party from the sale of the Diagnostic to a third party, provided
that for these purposes any sales not made in an arms length, bona fide,
commercial transaction will be deemed to have been at the standard commercial
price list rates of the selling party for the Diagnostic, or, if none, at the
fair market price.
INDEPENDENT AUDITOR means the person appointed as auditor jointly by Biota
and BioStar for the purposes of clause 10.6 or if they do not agree on the
person to be appointed within 7 days of the end of the first Sales Year, the
accountant appointed by the President of the Australian Institute of Chartered
Accountants (Victorian Branch) at the request of either Biota or BioStar.
INTELLECTUAL PROPERTY includes:
(a) inventions, patents, copyright works and other subject
matter, trade dress, designs, trade marks, trade names, logos and get up,
circuit layouts, business or marketing plans, trade secrets and confidential
information;
(b) ideas, concepts, processes, techniques, software products and
know-how; and
(c) all rights conferred under statute, common law and equity in
and in relation to any of the above.
LIBOR means:
(a) if not less than two rates for 90 day loans are displayed on
Reuters page "LIBO" at or around 11:00 am (London time) on the business day
before the day on which this Agreement terminates under clause 16.4, the
arithmetic mean (expressed as a rate per cent per annum and rounded up to five
decimal places) of not less than two of those rates selected by Biota; or
(b) if Biota is unable to determine a rate under paragraph (a)
because an insufficient number of rates are displayed, the rate (expressed as a
rate per cent per annum and rounded up to three decimal places) specified in
good faith by Biota at or around that time having regard, to the extent
possible, to the offer rates otherwise quoted to Biota for loans equal to the
amount due over a 90 day period at or around that time;
LIGAND means any atom, ion or molecule that can complex with a target
molecule and is capable of being detected.
6.
<PAGE> 10
MINIMUM SALES VOLUME means the minimum sales volume of Diagnostic to be
achieved by BioStar during the term of this Agreement as set out in Schedule 6.
OPERATING MARGIN of a party means all Gross Sales Revenue of that party
less:
(a) the Cost of Goods of that party, provided that for these
purposes any sales not made in an arms length, bona fide, commercial transaction
will be deemed to have been at the standard commercial price list rates for the
Diagnostic, or, if none, at the fair market price; and
(b) any Distribution Allowance to which the relevant party is
entitled.
OPTICAL LIMMUNOASSAY TECHNOLOGY means the optical immunoassay technology
described in Schedule 5.
PARTIES means Biota and BioStar and PARTY means one or both of the parties
as the context requires.
PATENT means a patent as defined in the Patents Act 1990 (Cth) and any
national or regional patent within the terms of the Patent Co-operation Treaty
and includes any re-issue, renewal or extension of a patent (whether in whole or
in part) and any patent of addition or any substantially similar form of
protection for inventions granted in any country, the essence of which is a
right in the holder of such form of protection to exclude others from making,
using or selling products or processes, the subject matter of the said
invention.
PATENT APPLICATIONS means any patent application as defined in the Patents
Act 1990 (Cth) and any national, regional or international application within
the terms of the Patent Co-operation Treaty and includes any continuation,
continuation in part, division, re-issue or substitution of a patent application
or application for any substantially similar form of protection for inventions
granted by any country, the essence of which is a right in the holder of such
form of protection to exclude others from making, using or selling products or
processes, the subject matter of the said invention.
PERMITTED PURPOSES means for the purposes of:
(i) carrying out the Development Project; or
(ii) the manufacture, sale or distribution of the Diagnostic,
pursuant to this Agreement.
PERSONNEL of a party includes its officers, directors, employees, agents,
consultants or contractors.
7.
<PAGE> 11
PRESCRIBED TERMS means terms, conditions and warranties implied by law into
some contracts for the supply of goods or services which the law expressly
provides may not be excluded, restricted or modified, or may be excluded,
restricted or modified only to a limited extent.
PROJECT has the meaning given in Recital C.
PROJECT IP means any and all Intellectual Property:
(a) created, discovered coming into existence or arising from the
carrying out of the Project; or
(b) learned by Biota or BioStar from the Project, including the
results of any evaluation or testing carried out pursuant to the Project,
and not relating directly to BioStar IP but without limitation, includes any and
all Intellectual Property which:
(c) relates to the structure, manufacture, use, synthesis or
properties of Compounds or combinations or conjugates of Compounds;
(d) relates to the therapeutic or diagnostic application of
Compounds or combinations or conjugates of Compounds; and
(e) is derived directly or indirectly from the use or application
of Glaxo IP.
RELATED BODY CORPORATE has the meaning given in section 9 of the
Corporations Law.
SALES YEAR means a 12 calendar month period during the term of this
agreement in respect of which BioStar must achieve a Minimum Sales Volume in
accordance with clause 7.1 and Schedule 6. If sales start (that is product is
shipped) during a calendar month, the first Sales Year shall commence on the 1st
day of the subsequent month.
SECOND GENERATION DIAGNOSTIC means a Diagnostic incorporating technology
which is not Optical Immunoassay Technology and includes any technology licensed
or otherwise made available to BioStar or a Related Body Corporate of BioStar.
SPECIFICATIONS means the specifications and performance criteria for the
Diagnostic set out in Schedule 3.
TAXES means any and all present and future sales, use, personal property,
real property, value added, turnover, stamp, documentary, interest equalization,
business, occupation, excise, income, corporation, profits, gains, gross
receipts, or other taxes, fees, withholdings, imposts, levies, duties or other
charges of any nature whatsoever or whensoever imposed, together with any
penalties, fines or interest
8.
<PAGE> 12
thereon or similar additions thereto, imposed, levied or assessed or otherwise
payable.
TERRITORY means the following countries: US, Canada, Japan, Australia, New
Zealand and the members forming the European Union.
US means the United States of America.
1.2 Unless the contrary intention appears:
(a) a reference to this Agreement or any other instrument
includes any variation or replacement of either of them which does not supersede
this Agreement in its entirety;
(b) a reference to any thing is a reference to the whole or any
part of it (unless the reference specifically excludes parts of the whole or
specifically references only the part) and a reference to a group of persons is
a reference to any one or more of them (unless the reference specifically refers
to the group as a whole); and (C) where a word or phrase is grammatically
defined in this Agreement any other parts of speech and grammatical forms of
that word or phrase shall have the corresponding meanings.
1.3 Headings are inserted for convenience and do not affect the
interpretation of this Agreement.
1.4 The parties acknowledge that in some respects this Agreement
supersedes the Diagnostic Project Research Agreement and agree therefore that to
the extent of any inconsistency between this Agreement and the Diagnostic
Project Research Agreement, this Agreement shall prevail.
2. DEVELOPMENT PROJECT
2.1 BioStar shall undertake work for the purposes of and in relation
to the Development Project as set out in the Development Work Plan. The parties
may vary or add to the Development Work Plan only by written agreement of both
parties from time to time during the term of the Agreement. The parties agree
that any variation or addition to the Development Work Plan may require an
amendment to the Development Budget.
2.2 BioStar shall use commercially reasonable efforts to ensure that
it has sufficient facilities and qualified Personnel to enable it to comply with
its obligations under this Agreement.
2.3 BioStar shall not enter into any other contract, arrangement or
understanding with any third party or parties in respect of the matters covered
by the Development Project or in relation to, or in any way
9.
<PAGE> 13
involving Foreground IP without Biota's prior written consent, such consent
not to be unreasonably withheld.
2.4 BioStar shall maintain full and accurate data, information and
records of and concerning its work in relation to the Development Project and
the results of any research studies undertaken by BioStar for the purposes of
the Development Project and must make such data, information and records
available to Biota as and when necessary or as and when requested by Biota.
Biota shall maintain full and accurate data, information and records of and
concerning its work in relation to the Development Project and the results of
any research studies undertaken by Biota for the purposes of the Development
Project and must make such data, information and records available to BioStar as
and when necessary for the purposes of FDA Clearance of the Diagnostic.
2.5 Upon the giving of reasonable advance notice by Biota, BioStar
shall permit Biota and its Personnel to enter the premises of BioStar at all
reasonable times for the purpose of inspecting activities relating to the
Development Project.
2.6 BioStar undertakes to Biota that it shall use all reasonable
efforts to keep Biota informed of, and make available under this Agreement, new
ideas, opportunities, updates in technology (including in Optical Immunoassay
Technology) and technologies relating to Diagnostics and shall agree to
reasonable amendments to the Development Work Plan to take account of the same
from time to time. Biota undertakes to BioStar that it shall use all reasonable
efforts to keep BioStar informed of, and make available under this Agreement,
new ideas, opportunities, updates in technologies relating to Compounds
developed by it and shall agree to reasonable amendments to the Development Work
Plan to take account of the same from time to time.
3. FUNDING OF DEVELOPMENT PROJECT
3.1 Subject to this clause 3, Biota agrees to pay [
* ] in accordance with the Development Budget
for the period up to FDA Clearance of Diagnostic. In the period following the
FDA Clearance of the Diagnostic, the parties agree to negotiate in good faith in
relation to costs in undertaking further research and development in relation to
Diagnostics.
3.2 The parties may vary or add to the Development Budget by written
agreement of the parties from time to time during the term of the Agreement.
3.3 BioStar agrees to use commercially reasonable efforts to conduct
the Development Project in accordance with the Development Work Plan and
Development Budget.
10.
<PAGE> 14
4. FDA CLEARANCE
4.1 BioStar shall use commercially reasonable efforts to obtain FDA
Clearance of a Diagnostic. BioStar must prepare an application for FDA Clearance
of a Diagnostic in accordance with the Development Work Plan and shall provide
Biota with a draft application and all relevant materials for submission as part
of the application to the FDA in relation to the Diagnostic as soon as possible.
BioStar must obtain Biota's prior written consent before lodging any original
application for FDA Clearance such consent not to be unreasonably withheld.
4.2 Biota undertakes to review promptly any application for FDA
Clearance submitted to it by BioStar, whether provided in whole or in part. In
the event Biota fails to respond to BioStar within 30 days' after receiving any
such materials Biota shall be deemed to have approved those materials.
4.3 Following submission of an application for FDA Clearance of the
Diagnostic, BioStar must make all reasonable efforts to discuss the provision of
any additional information to the FDA and must promptly make available to Biota
copies and details of all information used or provided to FDA for the purposes
of obtaining FDA Clearance of the Diagnostic, including records of conversations
with the FDA and correspondence from or other information provided by or to the
FDA, and must keep Biota fully informed of progress of the application for FDA
Clearance of the Diagnostic. BioStar must use all reasonable efforts to maintain
the confidentiality of any information containing or relating to Foreground IP
or Biota IP and must request confidential treatment of the same by the FDA.
4.4 Biota agrees to pay BioStar the sum of [ * ] within 30 days
after the grant of FDA Clearance of the Diagnostic.
4.5 BioStar shall provide Biota with such assistance (including
executing documentation and assignments) as may be reasonably required by Biota
to obtain regulatory approval to the use of the Diagnostic in the diagnosis of
influenza in countries other than the US.
4.6 If FDA Clearance of a Diagnostic is obtained, BioStar shall
immediately notify Biota and provide Biota with copies of the FDA Clearance of
the relevant Diagnostic and any associated materials.
4.7 In addition to any other specific obligations under this
Agreement, each party agrees with the other that it will comply with all
applicable legislation, regulations and governmental requirements insofar as the
same apply to it in the manufacture, use or sale of the Diagnostic.
5. MANUFACTURE OF DIAGNOSTIC
5.1 At the time that a [ *
], BioStar must also
11.
<PAGE> 15
provide Biota with a draft Commercialization Plan for the Diagnostic for Biota's
review and discussion with BioStar. BioStar must use all reasonable efforts to
implement a mutually agreeable Commercialization Plan.
5.2 Biota hereby grants to BioStar effective upon, and subject to,
Biota's approval of the FDA Application as set forth in clause 4.2 above, for
the term of this Agreement, a sole and exclusive, world-wide license of Project
IP and Foreground IP for the purposes of manufacturing the Diagnostic for the
purposes of the sale and distribution of the Diagnostic by Biota or BioStar
pursuant to this Agreement provided that:
(i) the Diagnostic manufactured by BioStar conforms with the
Specifications;
(ii) BioStar is able to and does supply Biota with such quantity
of Diagnostic as may be required by Biota from time to time; and
(iii) BioStar's manufacture of the Diagnostic materially complies
with all relevant legislation and regulations in the Territory, including the
FDA's Good Manufacturing Practice and other applicable regulations.
5.3 For the purposes of clause 5.2(i) or (ii), BioStar shall not be
taken to have failed to supply Biota with Diagnostic where:
(a) Biota has failed to supply BioStar with requisite quantities
of Compounds used in such Diagnostic or has supplied BioStar with defective
Compounds; or
(b) the failure to supply is remedied within 60 days of the date
on which delivery of the relevant quantity of Diagnostic was due.
5.4 In the event that BioStar fails to supply Biota with Diagnostic
as required under clause 5.2(i) or (ii):
(a) BioStar must pay [ * ] to Biota within 14 days of the
date being 60 days after the date on which the delivery of the relevant quantity
of Diagnostic or conforming Diagnostic was due;
(b) thereafter, not less than [*] of Diagnostic manufactured by
BioStar from time to time must be applied by BioStar in fulfilling Biota's
orders, unless otherwise agreed by the parties in writing; and
(c) BioStar must fully meet Biota's requirements for Diagnostic
within 6 months of the date ("Due Date") being 60 days after the date on which
the delivery of the relevant quantity of Diagnostic or conforming Diagnostic was
due but not supplied.
12.
<PAGE> 16
This clause 5.4 shall only apply to the first breach by BioStar of clause
5.2(i) or (ii). For the avoidance of doubt, the parties acknowledge that in the
event BioStar fails to supply Biota with Diagnostic as required under clause
5.2(i) or (ii) at any time after the date being 6 months after the Due Date,
BioStar shall be in breach of its obligations under this Agreement.
5.5 For the purposes of clause 5.2(iii), BioStar shall not be taken
to have failed to materially comply with relevant legislation or regulations in
the Territory including the FDA's Good Manufacturing Practice and other
applicable regulations, where:
(a) BioStar rectifies the relevant failure; or
(b) BioStar is able to, and does, supply Diagnostic in compliance
with clause 5.2(iii) from an alternative BioStar manufacturing facility;
within 60 days of the date on which the failure first occurred. Any failure that
is not remedied within this time period shall be deemed for the purposes of this
agreement to have occurred on the day being 60 days after the date on which the
failure first occurred ("Breach Date").
5.6 In the event BioStar fails to comply with clause 5.2(iii):
(a) if no amount has been paid to Biota in accordance with clause
5.4(a), BioStar must pay [ * ] to Biota within 14 days of the Breach Date;
and
(b) BioStar must fully rectify the failure to Biota's reasonable
satisfaction within 6 months after the Breach Date; This clause 5.6 shall only
apply to the first failure by BioStar to comply with clause 5.2(iii), unless
otherwise agreed by the parties.
5.7 As soon as BioStar becomes aware that there has been a breach of
either clause 5.2(i) or 5.2(ii) it must promptly advise Biota in writing of the
full details of the breach.
5.8 In the event that BioStar's failure to supply Biota with
Diagnostic under clause 5.2(ii) was caused by an event of Force Majeure,
BioStar's license shall only be suspended and shall recommence when the relevant
event of Force Majeure ceases or is removed, provided that if BioStar is
affected by an event of Force Majeure it must give Biota details of the event of
Force Majeure as soon as practicable and must forthwith take all reasonable
steps to remove or mitigate the relevant event of Force Majeure and BioStar
keeps Biota fully informed of its progress in relation to the same.
13.
<PAGE> 17
5.9 In order to assist BioStar in meeting Biota's requirements for
the Diagnostic, Biota shall provide BioStar with an annual forecast and monthly
updates of its requirements for Diagnostic, the first 90 days of which shall be
considered a purchase order.
5.10 Biota must place a purchase order with BioStar for any Diagnostic
required by it and BioStar must supply Diagnostic ordered pursuant to such
purchase orders within 90 days of receipt of such order by delivery to the place
specified in the relevant purchase order, provided that:
(a) Biota may amend any purchase order by up to [*] (plus or
minus) of the ordered quantity at any time in the 45 days immediately following
the date of the purchase order;
(b) BioStar must use its best efforts to meet any amendment in
excess of [*] (plus or minus) of the ordered quantity made within the same time
period at no cost to Biota; and
(c) at any time during the first 6 months following the date on
which Diagnostic is first supplied to Biota, Biota may cancel any purchase order
provided that it reimburses BioStar for [*] of BioStar's costs (or [* ] if
notice of the cancellation is given later than 45 days after the date of the
purchase order) incurred in filling the relevant purchase order prior to receipt
of notice of cancellation.
5.11 If the parties so agree in writing, prior to receipt of FDA
Clearance of the Diagnostic, either party may sell Diagnostic for research
purposes only, subject to compliance with all applicable laws. For this purpose
only the licenses granted under clauses 5.2 and 7.1 shall be deemed to be
effective from the time of agreement of the parties to the research sales. Sales
of Diagnostic for research purposes shall not constitute sales for the purposes
of calculating the Minimum Sales Volume under clause 10 and the license granted
under this clause shall not be subject to meeting any sales volumes, but clause
10 shall otherwise apply to receipts from such sales.
5.12 BioStar must use all reasonable commercial efforts to produce the
Diagnostic as efficiently and at as low a cost as possible consistent with the
FDA's Good Manufacturing Practice and other applicable regulations.
5.13 BioStar must provide Biota with annual forecasts of Cost of Goods
based on reasonable commercial efforts to accurately forecast such cost.
5.14 Biota agrees to pay BioStar an amount equal to [
* ] for the supply of Diagnostic to
Biota within 30 days of invoice for the same, invoices not to be provided more
frequently than monthly.
14.
<PAGE> 18
5.15 All Diagnostic supplied to Biota by BioStar shall be shipped ex
works BioStar's facilities in Boulder, Colorado (Incoterms 1990) to a port or
ports nominated by Biota, provided that Biota shall pay all reasonable shipping
costs.
5.16 Without limiting clause 17, BioStar agrees to take out and
maintain during the term of this Agreement and any period thereafter in which it
is manufacturing Diagnostic or sales or use of the Diagnostic are continuing in
any country adequate product liability insurance in respect of Diagnostic
manufactured by BioStar and covering liability to the value of [ * ].
5.17 BioStar agrees to provide Biota with such technical assistance
as may be reasonably required by Biota from time to time in connection with the
manufacture of the Diagnostic, after sales assistance and other matters arising
in connection with the manufacture (subject to clause 5.2), sale and
distribution of the Diagnostic at Biota's expense.
6. SUPPLY OF COMPOUNDS
6.1 Biota agrees to sell and BioStar agrees to exclusively purchase
from Biota such quantity of Compounds as may be required by BioStar for the
purposes of manufacturing the Diagnostic under clause 5.2. Biota must use all
reasonable commercial efforts to produce any Compounds used in the Diagnostic as
efficiently and at as low a cost as possible consistent with good manufacturing
practice and other applicable regulations.
6.2 BioStar agrees to pay Biota an amount equal to [
* ] for the supply of Compounds to BioStar
under clause 6.1 within 30 days of invoice for the same, invoices not to be
provided more frequently than monthly.
7. MARKETING, SALE AND DISTRIBUTION OF DIAGNOSTIC
7.1 Biota hereby grants to BioStar effective upon, and subject to
Biota's written approval of the application for FDA Clearance of the Diagnostic
made in accordance with clause 4, a sole and exclusive license for the term of
this Agreement to market, sell and distribute the Diagnostic in the US, subject
to BioStar selling at least the Minimum Sales Volume for each Sales Year.
7.2 If BioStar fails to achieve the Minimum Sales Volume in respect
of any Sales Year during the term of the Agreement, the license granted to
BioStar under clause 7.1 shall become non-exclusive.
7.3 The parties acknowledge that Biota shall have the exclusive right
to market, sell and distribute the Diagnostic outside the US.
15.
<PAGE> 19
7.4 BioStar hereby grants to Biota a contingent and exclusive (as
set out below), worldwide license to use BioStar IP:
(a) subject to clauses 7.1 and 7.2 for the purposes of the sale
and distribution of the Diagnostic; and
(b) subject to clause 5.2, the manufacture of the Diagnostic;
by Biota.
7.5 Biota agrees to enter into negotiations on behalf of BioStar in
good faith with the Glaxo Group concerning the sale and distribution of the
Diagnostic by the Glaxo Group in the US.
7.6 Subject to agreement by the parties of the terms of any agreement
for the sale of the Diagnostic to the Glaxo Group, Biota and BioStar agree that
any sale of a unit of the
Diagnostic by BioStar to any member of the Glaxo Group for use in the US shall
be treated as a sale of a unit of Diagnostic by BioStar in determining whether
BioStar has achieved the Minimum Sales Volume in any Sales Year for the purposes
of clause 7.1.
7.7 (a) Either party may provide samples to customers provided that
the number of samples of Diagnostic provided is approved by the other party in
writing, such approval not to be unreasonably withheld.
(b) For the purposes of calculating the Minimum Sales Volume for
each Sales Year, provision of samples of the Diagnostic shall be disregarded.
7.8 In the event that BioStar sells the Diagnostic in conjunction
with another of its products or the product of a third party, any discount
applied to such combined sale shall be applied between the products pro rata to
their respective list sales prices.
7.9 Biota agrees to discuss in good faith with BioStar requests by
BioStar relating to the commercialization of the Diagnostic in countries in
which Biota has elected not to commercialize the Diagnostic.
7.10 BioStar undertakes it shall forthwith notify Biota if it intends
to enter into any arrangement for the sale or distribution of the Diagnostic
with a third party who is the manufacturer of a competitive (of either the Biota
Group or Glaxo Group) influenza therapeutic or the product of a third party who
is the manufacturer of a competitive (of either the Biota Group or Glaxo Group)
influenza therapeutic and offer Biota or Biota's nominee the right to enter into
such an arrangement on terms substantially similar to those offered to the third
party. If Biota or its nominee fails to accept such offer within 60 days of
receipt of full details of the offer, BioStar may make the proposed offer to the
party, provided that BioStar must not offer such third parties terms and
16.
<PAGE> 20
conditions which are more favorable than those offered to Biota without first
offering such alternative terms to Biota.
8. MARKETING/TRADE DRESS
8.1 If requested by BioStar, Biota agrees to seek to obtain the [
* ] from [ * ] for use by BioStar at no cost to BioStar in marketing
the Diagnostic in the US under this Agreement.
8.2 BioStar agrees to use its best endeavors to promote the sale of
the Diagnostic in the US, including if requested to do so by Biota and subject
to any conditions imposed by Glaxo, directly contacting customers on the [
* ].
8.3 BioStar agrees to use telemarketing at its own cost to contact
potential customers who are not located in territories covered by BioStar's Flex
Rep marketing program.
8.4 Biota and BioStar agree to jointly develop labeling, trade dress
and trademarks to be used on or in relation to the Diagnostic in the marketing,
sale and distribution of the Diagnostic in the US under this Agreement.
8.5 (a) Subject to clause 8.5(b) neither party may use any labeling,
trade dress and trademarks on or in relation to the Diagnostic in the marketing,
sale and distribution of the Diagnostic other than that jointly developed by the
parties without the prior written consent of the other party, provided that
BioStar must not unreasonably withhold or delay its consent in relation to the
use of other labeling, trade dress or trademarks by Biota outside the US.
(b) In the event that BioStar fails to achieve the Minimum Sales
Volume in respect of any Sales Year and Biota elects to sell or distribute
Diagnostic in the US, Biota shall not be required to use any of the labeling,
trade dress or trademarks developed under clause 8.4 except to extent required
by the FDA.
8.6 BioStar acknowledges and agrees that Biota shall own all right,
title and interest in and to the Intellectual Property in the labeling,
trademarks or trade dress developed under clause 8.4. To the extent that any
Intellectual Property relating to the labeling, trademarks or trade dress does
not vest in Biota as a result of the foregoing, BioStar undertakes to procure
the assignment of such Intellectual Property to Biota at Biota's cost.
8.7 Biota agrees to grant BioStar an exclusive, royalty free license
to use the said labeling, trademarks or trade dress in relation to the
marketing, sale and distribution of the Diagnostic in the US for the term of
this Agreement in a form to be agreed by the parties.
17.
<PAGE> 21
9. SECOND GENERATION DIAGNOSTIC
If BioStar develops a Second Generation Diagnostic during the term of this
Agreement, BioStar undertakes it shall forthwith notify Biota and offer Biota
the right to develop and commercialize the Second Generation Diagnostic on terms
substantially similar to those set out in this Agreement. If Biota fails to
accept such offer within [ * ] of receipt of reasonably sufficient details of
the Second Generation Diagnostic, BioStar may offer the commercialization rights
to the Second Generation Diagnostic to third parties, provided that BioStar must
not offer such third parties terms and conditions which are more favorable than
those offered to Biota without first offering such alternative terms to Biota.
10. PROFITS
10.1 Biota and BioStar shall [* ] be entitled to [*] of the Operating
Margin of BioStar relating to the sale of the Diagnostic in the US and BioStar
shall pay Biota accordingly quarterly in arrears as directed by Biota.
10.2 If BioStar fails to achieve the Minimum Sales Volumes in respect
of any Sales Year as required under clause 7.1 and Biota exercises its right to
market, sell and distribute Diagnostic in the US, Biota shall be entitled to
[*], and BioStar shall be entitled to [*] of the aggregate Operating Margin of
Biota and BioStar relating to sales of the Diagnostic in the US and shall pay
each other accordingly quarterly.
10.3 Biota agrees to pay BioStar [*] of the Gross Sales Revenue of
Biota relating to the sale of the Diagnostic throughout the world, excluding the
US during each Sales Year and shall pay BioStar accordingly quarterly.
10.4 Biota and BioStar each agree to jointly appoint the Independent
Auditor and to make their financial records available to the Independent
Auditor:
(i) at the end of each Sales Year; and
(ii) immediately prior to the launch of GG167, if the
Diagnostic has already been launched,
to enable the Independent Auditor to conduct an audit of those records and to
prepare a report concerning the sales volumes of Diagnostic and the amount (if
any) payable by Biota and/or BioStar to each other under this Agreement. The
costs of the Independent Auditor shall be borne equally by the parties and each
party shall ensure that prompt payment of the Independent Auditor's fees is
made.
10.5 The report prepared under clause 10.4 shall include details for
the relevant period of:
18.
<PAGE> 22
(a) BioStar's Cost of Goods in manufacturing Diagnostic for
supply to Biota under clause 5.1;
(b) Biota's Cost of Goods in manufacturing Compounds for supply
to BioStar under clause 6.2;
(c) the number of units of Diagnostic sold by BioStar to third
parties in the US;
(d) the Operating Margin of each of Biota and BioStar relating to
their sale of Diagnostic;
(e) the Gross Sales Revenue of each of Biota and BioStar relating
to their sale of Diagnostic;
(f) the Biota Distribution Allowance;
(g) the BioStar Distribution Allowance; and
(h) a reconciliation of the amounts (if any) payable by Biota
and/or BioStar to each other under this Agreement during the relevant Sales Year
against the actual payments made.
10.6 As soon as possible after receipt of the Independent Auditor's
report and no later than 30 days after receipt of the same, each party shall
ensure that, if the Independent Auditor's report indicates that there has been a
shortfall, in or overpayment, of any payments required to have been made by that
party under this Agreement, payment of such shortfall is made or the amount of
any overpayment is refunded as the case may be.
11. BIOTA IP
11.1 BioStar shall, and shall ensure that its Personnel shall:
(a) keep all Biota IP confidential;
(b) use Biota IP solely for the Permitted Purposes;
(c) not disclose, without Biota's written consent Biota IP to any
person other than BioStar Personnel to whom disclosure is necessary for any of
the Permitted Purposes, and then only to the extent necessary; and
(d) not to reproduce any of the Biota IP except as necessary for
any of the Permitted Purposes or with the prior permission of Biota; unless
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(e) the relevant Biota IP is in the public domain or becomes part
of the public domain otherwise than as a result of a wrongful act of BioStar,
(f) such intellectual property was not acquired directly or
indirectly from Biota; or
(g) BioStar independently developed the Intellectual Property
without reference to Biota IP and can demonstrate such independent development
through competent written records.
Without limiting the foregoing, BioStar agrees not to disclose any Biota IP to
the FDA without complying with clause 4.
11.2 BioStar acknowledges and agrees that:
(a) it has no rights whatsoever in or in relation to Biota IP
other than to use the Biota IP for the Permitted Purposes;
(b) it will not assert any ownership in respect of the Biota IP
against Biota or any third party from whom Biota may have licensed the Biota IP;
(c) subject to the terms of this Agreement, third parties may
also be granted by Biota rights to use the Biota IP.
11.3 BioStar shall ensure that its Personnel to whom Biota IP may be
disclosed execute a confidentiality undertaking in the form agreed by the
parties.
11.4 BioStar agrees to make all reasonable endeavors to prevent Biota
IP and Glaxo IP from being used for the benefit of any third party other than
Biota or Glaxo (as the case may be), their respective licensees, or third
parties otherwise entitled to use the same.
11.5 Biota shall be responsible for drawing the specifications for,
prosecuting, obtaining and maintaining the Diagnostic Patents (subject to clause
13.5, except to the extent the relevant patent includes only BioStar IP) which
shall be in the name of Biota.
11.6 BioStar shall provide, and shall ensure that its employees or
consultants provide Biota with such assistance as may be reasonably required by
Biota to file, prosecute, obtain or maintain any Diagnostic Patent provided that
Biota shall pay BioStar's actual costs of such consultants.
11.7 Biota represents and warrants to BioStar on the date of this
Agreement and on each date Biota IP is provided to BioStar that to the best of
Biota's knowledge, having made all reasonable enquiries, the Biota IP and any
work undertaken by Biota for the Permitted Purposes does not and will not
infringe the Intellectual Property of any third party.
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11.8 Biota hereby grants BioStar a non-exclusive license under the
Diagnostic Patents and Biota IP to the extent necessary to enable BioStar to
exercise its rights under clauses 5 and 7.
11.9 Biota will promptly and fully inform BioStar in writing of:
(a) any infringement or threatened infringement of Biota's rights
in and to Biota's IP and patents associated with that intellectual property;
(b) any unauthorized use of Biota's IP; or
(c) any challenge or threat of challenge to the grant or validity
of any patent associated with Biota's IP or any part thereof or of Biota's right
to use Biota's IP or any part thereof as contemplated by this Agreement, which
may come to Biota's attention;
to the extent that the same are relevant to the Diagnostic.
12. FOREGROUND IP
12.1 BioStar acknowledges and agrees that all Foreground IP vests in
and is the exclusive property of Biota and save as provided in clause 12.3,
BioStar has no right, title or interest whatsoever in or in relation to
Foreground IP. To the extent that the Foreground IP does not vest in Biota as a
result of the foregoing BioStar undertakes to procure the assignment of such
Foreground IP to Biota and to provide all information, execute all documents and
do all acts and things necessary or desirable to give effect this clause 12.
12.2 BioStar must disclose to Biota all Foreground IP (except
Foreground IP which is discovered by or in conjunction with Biota), as soon as
reasonably practicable after becoming aware of that Foreground IP.
12.3 Biota hereby grants BioStar a non-exclusive license to use the
Foreground IP to the extent necessary to enable BioStar to exercise its rights
under clause 7. BioStar acknowledges that subject to the terms of this Agreement
third parties may also be granted by Biota rights to use the Foreground IP.
12.4 Subject to the terms of this Agreement, the parties acknowledge
and agree that Biota shall have the exclusive right to commercially exploit and
to protect any Foreground IP in whatever manner Biota may choose, including
without limitation, licensing of any third party or filing any patent
application during or after termination of this Agreement. Except as provided
for in this Agreement (including clause 16.9) Biota must not commercialize
Foreground IP in a manner which uses BioStar IP developed in the project without
obtaining from BioStar a royalty bearing license to do so (which will be
negotiated in good faith and will not be unreasonably withheld by BioStar).
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12.5 In the event that the parties do not proceed with an application
for FDA Clearance or commercialization of the Diagnostic in accordance with
clauses 4 and 5 or the termination of this Agreement, BioStar must promptly
return to Biota, upon demand, all material in its possession, power and control,
or in the possession, power or control of its Personnel in which Biota IP,
Foreground IP or Confidential Information of Biota is contained or embodied, or
from which it may be reproduced. BioStar shall promptly thereafter provide Biota
with a statutory declaration made by its representative or an authorized officer
declaring that neither they nor their Personnel have any such material in their
possession, power or control.
13. BIOSTAR IP
13.1 Biota shall, and shall ensure that its Personnel shall:
(a) keep all BioStar IP confidential;
(b) use BioStar IP solely for the Permitted Purposes;
(c) not disclose, without BioStar's written consent, BioStar IP
to any person other than Biota Personnel to whom disclosure is necessary for the
Permitted Purposes, and then only to the extent necessary; and
(d) not to reproduce any of the BioStar IP except as necessary
for the Permitted Purposes and with the prior permission of BioStar; unless
(e) the relevant BioStar IP is in the public domain or becomes
part of the public domain otherwise than as a result of a wrongful act of Biota,
(f) such intellectual property was not acquired directly or
indirectly from BioStar, or
(g) Biota independently developed the Intellectual Property
without reference to BioStar IP and can demonstrate such independent development
through competent written records.
13.2 Biota acknowledges and agrees that:
(a) it has no rights whatsoever in or in relation to BioStar IP
other than to use BioStar IP for the Permitted Purposes;
(b) it will not assert any ownership in respect of the BioStar IP
against BioStar or any third party from whom BioStar may have licensed the
BioStar IP; and
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(c) subject to clause 16.7 and the terms of this Agreement, third
parties may also be granted by BioStar rights to use the BioStar IP.
13.3 Biota agrees to make all reasonable endeavors to prevent BioStar
IP from being used for the benefit of any third party other than Biota, Biota
licensees, or third parties otherwise entitled to use the same.
13.4 Biota shall ensure that its Personnel to whom BioStar IP may be
disclosed execute a confidentiality undertaking in the form nominated by BioStar
and approved by Biota.
13.5 Biota acknowledges and agrees that all BioStar IP vests in and
is the exclusive property of BioStar and Biota has no rights whatsoever in or in
relation to the BioStar IP other than as expressly provided in this Agreement.
To the extent that any BioStar IP does not vest in BioStar as a result of the
foregoing Biota undertakes to procure the assignment of such Intellectual
Property to BioStar. Biota acknowledges and agrees that nothing in this
Agreement shall be interpreted as providing Biota with a license to use BioStar
IP, except as necessary for the Permitted Purposes or as provided in clause
16.9. BioStar must take such steps as are reasonably required to protect BioStar
IP used in the Diagnostic in the countries listed in Schedule 9, including
making application, prosecuting and maintaining patents in countries nominated
by Biota and shall keep Biota informed as to the status of such applications and
prosecutions. If BioStar fails to apply, prosecute or maintain patents in
relation to BioStar IP used in the Diagnostic in additional countries nominated
by Biota, Biota may apply for (in BioStar's name or subsequently assign the same
to BioStar) and proceed with patent applications, prosecutions or take such
steps as it deems necessary to maintain patents at its cost and expense,
provided that Biota has first advised BioStar of its intention to do so. BioStar
must render, and procure where necessary its employees or consultants to render,
all reasonable assistance to Biota in relation to filing prosecution, obtaining
or maintaining any such patents, including execution of relevant documentation.
13.6 BioStar represents and warrants to Biota on the date of this
Agreement and on each date BioStar IP is provided to Biota that to the best of
BioStar's knowledge, having made all reasonable enquiries, the BioStar IP and
any work undertaken by BioStar for the Permitted Purposes does not and will not
infringe the Intellectual Property of any third party. BioStar will promptly and
fully inform Biota in writing of:
(a) any infringement or threatened infringement of BioStar's
rights in and to BioStar IP and patents associated with that intellectual
property;
(b) any unauthorized use of BioStar IP; or
(c) any challenge or threat of challenge to the grant or validity
of any patent associated with BioStar IP or any part thereof or of
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BioStar's right to use BioStar IP or any part thereof as contemplated by this
Agreement, which may come to BioStar's attention.
13.7 In the event that the parties do not proceed with an application
for FDA Clearance or commercialization of a Diagnostic in accordance with
clauses 4 and 5 or the termination of this Agreement, Biota must promptly return
to BioStar, upon demand, all material in its possession, power and control, or
in the possession, power or control of its Personnel in which BioStar IP is
contained or embodied, or from which it may be reproduced. Biota shall promptly
thereafter provide BioStar with a statutory declaration made by its
representative or an authorized officer declaring that neither they nor their
Personnel have any such material in their possession, power or control.
14. PUBLICATION OF DEVELOPMENT PROJECT RESULTS AND OTHER INFORMATION
Without limiting clause 4 and clause 15 and except as permitted under this
Agreement, neither Biota nor BioStar shall publish or otherwise disclose
information describing or relating to the results of the Development Project or
the studies undertaken for the purposes of the Development Project or otherwise
arising in connection with the Permitted Purposes without the prior written
consent of the other party, which must not be unreasonably withheld or delayed.
15. CONFIDENTIALITY
15.1 The Disclosee shall, and shall ensure that its Personnel shall:
(a) keep all Confidential Information of the Disclosing Party
confidential;
(b) not use Confidential Information of the Disclosing Party
except as permitted by this Agreement;
(c) not disclose, without the Disclosing Party's prior written
consent, Confidential Information of the Disclosing Party to any person other
than the Disclosee's Personnel to whom disclosure is necessary for the Permitted
Purposes, and then only to the extent necessary, or to whom disclosure is
otherwise permitted by this Agreement; and
(d) not reproduce any of the Confidential Information of' the
Disclosing Party except as necessary for the Permitted Purposes or with the
prior permission of the Disclosing Party.
15.2 Nothing in this Agreement prohibits disclosure of information
which:
(a) at the time of first disclosure to the Disclosee is in the
public domain;
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(b) after disclosure to the Disclosee becomes part of the public
domain otherwise than as a result of the wrongful act of a party or one of that
party's disclosees;
(c) the Disclosee can show by written records was in its
possession at the time of first disclosure and was not acquired directly or
indirectly from the other party under a confidentiality obligation;
(d) is received from a third party provided that it was not
acquired directly or indirectly by that third party from a party to this
Agreement under a confidentiality obligation;
(e) is required to be disclosed by law, the Australian Stock
Exchange Limited or any government or governmental body, authority or agency
having authority over the Disclosee;
(f) is required to be disclosed in connection with legal
proceedings relating to this Agreement or enforcement of a Disclosee's rights
under this Agreement; or
(g) is independently developed without reference to the
Disclosee's Confidential Information, which independent development the
Disclosee can demonstrate through competent written records.
The onus shall be on the party alleging the same to prove that one of the above
exceptions applies.
15.3 Except as permitted by this Agreement, irrespective of whether
information disclosed to the Disclosee constitutes Confidential Information of
the Disclosing Party or not, the Disclosee agrees to use all reasonable
endeavors to prevent information disclosed by the Disclosing Party from being
used for the benefit of any third party other than the Disclosing Party, or in
the case of Biota, Biota's licensees or third parties otherwise entitled to use
the same. Similarly except as permitted by this Agreement, irrespective of
whether the results of the Development Project or other discoveries are to be
kept confidential, the Disclosee agrees to take all reasonable endeavors to
prevent the results of the Development Project or other discoveries arising in
connection with the Permitted Purposes from being used for the benefit of any
person other than the Disclosing Party.
15.4 Each party acknowledges that the rights in information disclosed
or otherwise communicated by the other party may be the rights of Biota, BioStar
or of a third party. In particular, BioStar acknowledges that Biota has
obligations of confidence to Glaxo Group in respect of certain Confidential
Information.
15.5 The Disclosee acknowledges that damages may not be a sufficient
remedy for the Disclosing Party for any breach of this Agreement and that the
Disclosing Party is entitled to seek specific performance or
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injunctive relief (as appropriate) as a remedy for any breach or threatened
breach by the Disclosee of this Agreement, in addition to any other remedies
available to the Disclosing Party at law or equity.
15.6 The confidentiality obligations in this Agreement are to continue
after, and survive, the termination of this Agreement, unless superseded by a
further written agreement relating to confidentiality.
16. TERM AND TERMINATION
16.1 This Agreement commences on the date of execution of this
Agreement and shall continue until the last of the Diagnostic Patents has
expired or, if there are no Diagnostic Patents, the date being [*] years after
the date of this Agreement, unless terminated earlier in accordance with this
clause 16 or extended for one or more additional one year terms by the written
agreement of the parties.
16.2 Either party may terminate this Agreement immediately if the
other party:
(a) becomes insolvent, goes or is put into liquidation or
dissolution (other than by way of reconstruction), or any action, steps or
proceedings are taken to effect any of the foregoing which proceedings are not
terminated within 60 days or otherwise permanently discontinues business; or
(b) makes any compromise, assignment or composition with its
creditors generally, has a receiver, manager, administrator, secured creditor or
other custodian appointed to it or taking possession of all or a substantial
part of its assets or business, or otherwise seeks to take advantage of
insolvency laws, which proceedings are not terminated within 60 days; or
(c) is in breach of any of its obligations under this Agreement
and has not rectified such breach within 45 days (or such longer period as the
parties agree in writing is reasonable in the circumstances) of receiving a
notice from the first party to do so.
16.3 Biota may immediately terminate this Agreement by giving notice
in writing to BioStar if any competitor of Biota or the Glaxo Group in the
fields of influenza therapeutics or influenza diagnostics acquires the power to
vote in respect of or to dispose of or control the disposal of more than [*] of
the outstanding voting shares of BioStar.
16.4 Biota may, at any time prior to submission of an Application for
FDA Clearance of the Diagnostic, terminate this Agreement by giving not less
than 60 days written notice to BioStar.
16.5 In the event that Biota terminates this Agreement under clause
16.4:
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(a) Biota agrees to reimburse BioStar for all expenses directly
and reasonably incurred by BioStar as a result of such termination upon
production of satisfactory, documented evidence of such expenditure; and
(b) if BioStar is meeting the Diagnostic specifications and goals
set out in Schedule 3 at the time of termination, Biota agrees to grant BioStar
a license to use Biota IP and Foreground IP to the extent necessary to enable
BioStar to commercialize a Compound-based assay in the US on the following
terms:
(i) BioStar shall repay Biota [*] of all payments made to
BioStar by Biota under the Diagnostic Project Research Agreement and this
Agreement (including any and all development, feasibility or incentive payments)
plus interest at LIBOR over the period from the date of the relevant payment to
the date of termination of this Agreement; and
(ii) BioStar shall pay Biota [*] royalty on the Operating
Margin of BioStar relating to the sale of all products incorporating the
Compound-based assay by BioStar;
such payments to be made immediately prior to the first sale or other return
from such commercialization.
16.6 Termination of this Agreement for any reason does not affect:
(a) any rights of a party against the other party which:
(i) arose prior to the time at which such termination
occurred; or
(ii) otherwise relate to or may arise at any future time from
any breach or non-observance of obligations under this Agreement occurring prior
to termination;
(b) the rights and obligations of the parties under clauses 10,
11, 12, 13, 14, 15, 16 and 18.
16.7 BioStar agrees that it shall not, and shall procure that none of
its Related Body Corporates, engage in research studies, research, assistance or
development in respect of any device or procedure for use in or in connection
with the diagnosing influenza virus other than with Biota:
(a) during the term of this Agreement; and
(b) for a period of 2 years from the termination of this
Agreement (for any reason other than a breach by Biota or termination by Biota
for reasons that do not relate to BioStar's performance or condition or the
progress of the Development Project),
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unless BioStar has first offered Biota the opportunity to engage in such
research studies, assistance or development on terms substantially similar to
those set out in this Agreement in writing and Biota has declined that offer
in writing, or more than 45 days have elapsed from the date of receipt of such
offer by Biota. BioStar must provide Biota with all necessary information to
enable Biota to assess any such offer.
16.8 If the parties do not elect to extend the term of this Agreement
under clause 16.1, Biota agrees to grant BioStar the non-exclusive right to
manufacture the Diagnostic for supply to Biota upon terms substantially similar
to those granted to BioStar under clause 5 after termination of this Agreement.
16.9 If upon termination of this Agreement, BioStar does not elect to
manufacture the Diagnostic for Biota under clause 16.8, or if this Agreement is
terminated by Biota under clauses 16.2 or 16.3, BioStar hereby grants to Biota
or its nominee an exclusive world-wide license to use the BioStar IP for the
purposes of developing, manufacturing, selling and distributing the Diagnostic.
Biota agrees to pay BioStar a reasonable royalty for the grant of such license,
the amount of which will be negotiated in good faith.
17. INDEMNITY
17.1 Except as expressly provided by Prescribed Terms (if any) or as
otherwise expressly provided in this Agreement, a party will not be liable to
the other party (whether arising in contract, in tort, under statute or in any
other way and whether due to negligence, willful or deliberate breach or any
other cause) under this Agreement or for any act, omission or event arising out
of this Agreement for or in respect of any direct or indirect liability, loss,
damage, cost, charge or expense.
17.2 A party ("Indemnifying Party") must indemnify the other party
("Innocent Party") and hold the Innocent Party harmless from all claims,
actions, demands, liability, costs, charges and expenses:
(a) arising out of or relating directly to the actions of the
Indemnifying Party under or performed in accordance with this Agreement;
(b) arising directly as a result of the death or personal injury
of the Personnel of the Indemnifying Party, except to the extent that such death
or personal injury is caused by the negligence or willful conduct of the
Innocent Party; or
(c) arising out of the claim by a third party against the
Innocent Party alleging that the Innocent Party's use or exploitation of any
Intellectual Property or Confidential Information of the Indemnifying Party,
whether on its own or as part of the Diagnostic or Foreground IP, infringes any
Intellectual Property of that third party.
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17.3 If an act or omission of a party ("Indemnifying Party") or its
officers, employees, agents or contractors is in breach of this Agreement or is
negligent or willful and:
(a) the other party ("Innocent Party") suffers direct loss or
damage; or
(b) such act or omission directly results in a claim against the
Innocent Party by a third party, the Indemnifying Party shall indemnify and hold
harmless the Innocent Party from such direct loss or damage, or any costs or
damages or settlement payments arising as a direct result of such claim,
provided the Innocent Party shall not agree to any settlement without the prior
consent of the Indemnifying Party (such consent not to be unreasonably
withheld).
17.4 Each indemnity in this Agreement is a continuing obligation,
separate and independent from the other obligation of the parties and survives
termination or expiry of this Agreement.
17.5 It is not necessary for a party to incur expense or make payment
before enforcing a right of indemnity conferred by this Agreement.
17.6 Each party warrants to the other that it has in place and will
keep current during the term of this Agreement and for any additional period
required to cover claims arising out of the Development Project or this
Agreement and will not vitiate or render void or voidable adequate insurance
coverage which will insure it in respect of any liability which one party may
have to the other or to third parties as a result of or arising out of the
Development Project or this Agreement.
18. FURTHER COLLABORATION
Nothing in this Agreement shall prevent Biota from undertaking a
collaborative project or entering an agreement with a third party for the
purpose of or in relation to the use of Biota IP or Foreground IP in conjunction
with the Intellectual Property of such third party to develop one or more
diagnostics, provided that in the event Biota enters into a collaboration with a
third party and develops and markets an influenza diagnostic in competition to
the Diagnostic, BioStar's obligations under clause 7.1 to sell at least the
Minimum Sales Volume for each Sales Year shall cease.
19. TAXATION
Biota and BioStar agree that a payment made under this Agreement will be
net of any Taxes. Biota and BioStar agree that the payor of any such Taxes must
provided to the payee all information and documents
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that will enable the payee to claim any credit, refund or rebate to which the
payee is entitled in respect of Taxes levied on a payment.
20. RELATIONSHIP OF PARTIES
Neither party is, and nothing in this Agreement shall be taken as making
either party, an agent, employee or partner of the other.
21. NOTICES
21.1 Except as otherwise expressly provided, a notice, approval,
consent or other communication in connection with this Agreement:
(a) must be in writing and legible; and
(b) must be left at the address of the addressee, or sent by
prepaid ordinary post (airmail if posted to or from a place outside Australia)
to the address of the addressee or sent by facsimile to the facsimile number of
the addressee and marked for the attention of the representative which is
specified in this clause or if the addressee notifies another address or
facsimile number or representative then to that address or facsimile number or
representative.
The address, facsimile number, and representative of each party is:
Biota
Address: Biota Scientific Management Pry Ltd
Level 4
616 St Kilda Road
Melbourne Vic 3004
Facsimile: 61 3 9529 2261
Attention: Company Secretary
BioStar
Address: 6655 Lookout Road
Boulder, Colorado, 80301
Facsimile: (303) 530 6641
Attention: President
21.2 A notice, approval, consent or other communication takes effect
from the time it is received unless a later lime is specified in it.
21.3 A letter or facsimile is taken to be received:
(a) in the case of a posted letter, on the third (seventh, if
posted to or from a place outside Australia) day after posting;
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(b) in the case of facsimile, on production of a transmission
report by the machine from which the facsimile was sent which indicates that the
facsimile was sent in its entirety to the facsimile number of the recipient
provided that where transmission is completed after 5pm on a business day or is
sent on a day that is not a business day, the message will not be deemed to have
been received until the next business day; and
(c) in the case of a letter sent by an internationally recognized
courier, on the third day after its sent.
22. ASSIGNMENT
A party cannot sell, assign, pledge or otherwise transfer or dispose of its
rights or interests under this Agreement, or novate any of its rights under this
Agreement without the prior written consent of the other party, unless such
sale, assignment, pledge or other transfer or disposal is part of the sale or
disposal of the entire undertaking of that party and in the case of BioStar such
sale or disposal is not to a competitor of Biota or the Glaxo Group in the
fields of influenza therapeutics or diagnostics.
23. WAIVER AND VARIATION
A provision of or a right created under this Agreement may not be:
(a) waived except in writing signed by the party granting the
waiver; or
(b) varied except in writing signed by both parties.
24. REMEDIES CUMULATIVE
The rights, powers and remedies provided in this Agreement are cumulative
with and not exclusive of the rights, powers or remedies provided by law
independently of this Agreement.
25. FURTHER ASSURANCES
Each party agrees, at its own expense, on the request of the other party,
to:
(a) do everything reasonably necessary to give effect to this
Agreement and the transactions contemplated by it, including without limitation
the execution of documents; and
(b) use its best endeavors to cause relevant third parties to do
likewise.
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26. SUPERVENING LEGISLATION
Any present or future legislation which operates to vary an obligation or
right, power or remedy of a person in connection with this Agreement is excluded
except to the extent that its exclusion is prohibited or rendered ineffective by
law.
27. SEVERABILITY
If the whole or any part of a provision of this Agreement is void,
unenforceable or illegal in a jurisdiction it is severed for that jurisdiction.
The remainder of this Agreement has full force and effect and the validity or
enforceability of that provision in any other jurisdiction is not affected. This
clause has no effect if the severance alters the basic nature of this Agreement
or is contrary to public policy.
28. ENTIRE AGREEMENT
This Agreement and the Diagnostic Project Research Agreement constitute the
entire agreement of the parties about its subject matter and all other
agreements, undertakings and negotiations on the subject matter cease to have
any effect.
29. GOVERNING LAW
29.1 This Agreement and the transactions contemplated by this
Agreement are governed by the law in force in the State of Victoria, Australia.
29.2 Each party irrevocably and unconditionally submits to the
non-exclusive jurisdiction of the courts of the State of Victoria and courts of
appeal from them for determining any dispute concerning this Agreement or the
transactions contemplated by this Agreement. Each party waives any right it has
to object to an action being brought in those courts, to claim that the action
has been brought in an inconvenient forum, or to claim that those courts do not
have jurisdiction.
30. ARBITRATION OF PAYMENTS
30.1 Any dispute, controversy or claim between the parties as to
financial or payment issues under this Agreement (other than entitling a party
to proceed for equitable relief) which cannot be promptly resolved between the
parties is to be resolved by arbitration, administered by the Australian
Commercial Disputes Centre Limited, conducted at Melbourne and held in
accordance with and subject to the Commercial Arbitration Act 1984 (Vic).
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30.2 Arbitration shall be effected by a single arbitrator appointed in
accordance with clause 30.3. Such arbitration shall be held in Victoria or such
other place as the parties may agree.
The arbitration shall be conducted in accordance with the Institute of
Arbitration Australian Rules for the Conduct of Commercial Arbitrations.
The arbitrator shall not be an employee of either party nor a person who
has been connected with work under this Agreement. The Arbitration shall be
private and confidential.
The arbitrator may award whatever interest the arbitrator considers
reasonable.
30.3 For the purposes of the arbitration proceedings under clause
20.1, the parties agree to appoint an arbitrator from any international firm of
chartered accountants. If the parties do not agree on the arbitrator to be
appointed, the arbitrator is to be a person nominated by the Secretary General
for the time being of the Australian Commercial Disputes Centre Limited in
Victoria.
31. PUBLICITY
The parties shall maintain confidentiality concerning the terms of this
Agreement and details of its subject matter (including details of the
Development Project, its progress and results, the manufacture, sale and
distribution of the Diagnostic and any submission for FDA approval made under
this Agreement) and no public announcement or communication relating to the
negotiations of the parties or the existence, subject matter or terms of this
Agreement, may be made or authorized by a party without the prior written
approval of the other party except that a party may make a disclosure in
relation to this Agreement:
(a) to its professional advisers, bankers, financial advisers and
financiers upon those persons undertaking to keep confidential any information
so disclosed; or
(b) to comply with any applicable law or requirement of any
regulatory body including the Australian Stock Exchange Limited. In such a case
the party proposing to make the disclosure shall use all reasonable endeavors to
ensure the other party consents to the content and form of the disclosure.
EXECUTED as an agreement
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SCHEDULE 1
DEVELOPMENT WORK PLAN
1. Activities for the Project are shown in the attached table. Detailed
activities and review points are shown in attached Overview of Project
Flow. Phases II and III correspond with internal development process Steps
4, 5 and 6, Phase IV represents Steps 7 and 8, and Phase V represents Steps
9-11.
2. Monthly reports will be provided on progress.
3. An early prototype for international research will be tested during Phase
III clinical trials in Australia commencing 1 May 1997.
4. Delivered "research use only" product will be available for Phase III
clinical trials in the US and international sale by [ * ]. The
purchase price of product by Glaxo Wellcome will be jointly negotiated by
Biota and BioStar. It will be developed in accordance with BioStar's
product development guidelines and in compliance with the FDA's Device
Design Requirements.
5. The FDA position on approval criteria indicates that an influenza
diagnostic will be accepted for review under a 510(k) format. The
diagnostic clearance will be based on the clinical study protocol, claims
and intended use.
34.
<PAGE> 38
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PHASE II PHASE III PHASE IV PHASE V
- -------------------------------------------------------------------------------------------------------------------
1 July - [ [
1 April - 30 June 1997 14 September 1997 * ] * ]
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Surface optimization 1. Tolerance testing 1 International clinicals 1. Technical support
2. Conjugate optimization 2. Formulation tolerance 2. Product of Phase III 2. Data analysis
3. Extraction reagents 3. Process tolerance trials 3. 510k submission
4. Sample types 4. Qualification runs 1 & 2 3. Product for 4. FDA Q&A responses
5. Controls 5. Characterize international sales 5. Reimbursement
6. Stability studies performance of 4. Qualification Run 3/
7. SOPs, QCPs, MPs analytical sensitivity, scale up
8. FDA Protocols analytical specificity/ 5. Unit cost confirmed
9. FDA Education cross reactivity, 6. Kit stability studies
10. Customer feedback interference 7. US clinicals
11. Prototype for 6. Shipping studies 8. Customer feedback
Australian Phase III 7. In-house clinicals 9. Reimbursement
trials 8. Trials site selection
9. Customer feedback
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
DEVELOPMENT WORK PLAN - COMPOUND BASED
INFLUENZA DIAGNOSTIC RESEARCH PROGRAM
PROGRAM GOAL
To incorporate Biota Compounds with BioStar's [ * ] Optical ImmunoAssay
surfaces into a delivery format that can achieve analytical sensitivity greater
than the Becton Dickinson assay in an assay time of 15 minutes or less.
SPECIFIC GOALS
1. Analytical sensitivity greater than [ *
] for at least two influenza A and B strains.
2. A minimum number of steps and reagents [ * ]
3. As rapid as possible [ * ]
4. [
*
]
OVERVIEW
Funding for research on a compound-based assay has been committed for up to one
year. It is BioStar's aim that a working assay will be available sooner which
can be evaluated on clinical samples to establish the feasibility of the assay
format.
Initial efforts will focus on identification of candidate compounds and formats
so that the path chosen has the highest likelihood of success. Preparation of
new compounds will be done in conjunction with [ * ] of Biota
Chemistry Laboratory. Reagent selection and formatting will be initiated
including evaluation of alternate attachment and anti-reflective layers and
determination of which optical stack will provide optimal binding and
sensitivity of the compound or compound carrier complex. After selecting the
appropriate compound/carrier combination and surface chemistry, formulation of
ancillary components such as diluent, extraction reagents and wash will be
included.
Clinical specimens (i.e. from naturally infected patients) as well as spiked
samples from normal healthy volunteers will be included during the later phases
of feasibility to insure that we are capable of handling clinical specimens.
If the project demonstrates assay feasibility, a further development agreement
with Biota may be negotiated.
ACTIVITIES FOR APRIL 1997
1. Review progress to date on current status of compound-based assay formats.
2. Coordinate with [ *
] (6 months to completion)
35.
<PAGE> 39
3. Continue the [ * ]
4. Initiate the production of [ * ] for subsequent
testing.
5. Confirm the [* ] results.
6. Initiate conjugation of [ * ] surfaces.
7. Coordinate with [ * ] on the construction of [
* ]
ACTIVITIES [ * ]
APRIL - JUNE 1997
This quarter will see the initiation of work on the [ * ] OIA surfaces
and the initial attempts at the transfer of the compound based assays to the new
surfaces. A library of optical test surfaces will be created with the assistance
of [ * ] at BioStar. We will also identify a number of potential assay
formats and begin the evaluation of these formats.
JULY - SEPTEMBER 1997
The second quarter will focus on development of specific assay conditions
required for the [ * ] compound based assay. During this quarter we
should be able to select the specific compound/carrier combination which will
provide for a working assay. It is anticipated that we may need additional
compound/carrier combinations synthesized based on the best choice out of the
initial library, which will allow us to optimize the performance of the selected
components. We will also complete the evaluation of the optical stack options
which were created during the preceding quarter. Ancillary components, which are
required for the formatting of the compound based assay (dilutents, extraction
reagents, wash, substrate options) will be identified and formulated. It is
recognized that a prototype device (plastic parts to hold the test surface and
absorbent backing) will need to be identified. It is possible that we will be
able to tap into components being developed for other programs.
[ * ] will be tested when available from [
* ]
OCTOBER-DECEMBER 1997
Using the assay components developed to date, the assay will be evaluated on
spiked samples from normal healthy volunteers and frozen samples from specimen
banks. It is likely that we will need to re-optimize the assay based on these
results and repeat the testing. Preliminary evaluation of component stability
will be initiated. Evaluation of extraction buffers will also be undertaken at
this time.
[ * ]
The [ * ] focuses on evaluation of the compound-based assay using
clinical specimens from a broad age range of patients. It is anticipated that
fresh specimens may pose different extraction or handling characteristics than
may have been seen using banked, frozen specimens. Therefore, it is likely that
final optimization of portions of the assay may be required. Final performance
characteristics will be established on the [ * ] compound-based assay.
36.
<PAGE> 40
REPORTING
At the beginning of each month, a written report, detailing the results from the
work of the preceding month as well as the anticipated direction of the work of
the next month will be forwarded from BioStar to Biota. This may be accompanied
by either teleconference or video conferences between Biota staff and BioStar
staff to discuss the results and then arrive at consensus at the direction for
the anticipated research.
37.
<PAGE> 41
SCHEDULE 2
DEVELOPMENT BUDGET
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PHASE II PHASE III PHASE IV PHASE V
(%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------
1 April - 1 July - [ [
30 June 1997 14 Sept 1997 * ] * ]
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FTES 100% = 1 FTE
- ------------------------------------------------------------------------------------------------------------------
[ * ]
- ------------------------------------------------------------------------------------------------------------------
[ * ]
- ------------------------------------------------------------------------------------------------------------------
[ * ]
- ------------------------------------------------------------------------------------------------------------------
[ * ]
- --------------------------------------------------------------------------------------------------------------------
[ * ]
- ------------------------------------------------------------------------------------------------------------------
[ * ]
- ------------------------------------------------------------------------------------------------------------------
[ * ]
- ------------------------------------------------------------------------------------------------------------------
[ * ]
- ------------------------------------------------------------------------------------------------------------------
[ * ]
- ------------------------------------------------------------------------------------------------------------------
[ * ]
- ------------------------------------------------------------------------------------------------------------------
[
*
]
- ------------------------------------------------------------------------------------------------------------------
Totals: Phases II-V [ * ] [ * ] [ * ] [ * ]
- ------------------------------------------------------------------------------------------------------------------
TOTAL [ * ]
- ------------------------------------------------------------------------------------------------------------------
Continuation of compound based work from [ * ] [ * ]
- ------------------------------------------------------------------------------------------------------------------
GRAND TOTAL [ * ]
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Biota will pay costs (US dollars) for each phase of development according to the
following schedule:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PAYMENT: TOTAL USD
PHASE DATE DEVELOPMENT 1 RESEARCH 2 PAYMENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
38.
<PAGE> 42
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
[ * ]
- ----------------------------------------------------------------------------------------------------------------------
TOTAL [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
1. For Phase II-V
2. For continuing compound-based research
1. If the choice is made by 1 April to proceed with a non-antibody based assay
system, then antibody related expenses would not be charged to the program.
2. Compound based research will continue from [ * ] at
the level of [ * ]. The objective is to continue the optimization of a
compound based approach for a new version of the influenza diagnostic.
3. Clinical study costs may vary once the precise protocol is agreed upon with
the FDA. Actual clinical study costs would be used. Any reconciliation with
estimates can occur during Phase V.
4. Payments will be made 60 days in advance on the indicated date by wire
transfer.
5. Before payments are made for Phase II, invoices will be provided to Biota
incorporating any antibody costs required for the development. Payments
will then be adjusted accordingly.
6. Before payments are made for Phase IV, invoices will be provided to Biota
based on the cost of US clinicals and the protocol agreed with the FDA.
Payments will then be adjusted accordingly.
39.
<PAGE> 43
SCHEDULE 3
DIAGNOSTIC SPECIFICATIONS AND GOALS
A. CRITICAL FEATURES
1. Clinical Sensitivity: [*] of resolved viral tissue culture for
Influenza A and B. Resolution may be with a variety of methods.
2. Clinical Specificity: [*] of resolved viral tissue culture for
Influenza A and B. Resolution may be with a variety of methods.
3. Costs of goods sold at: Test Volume
1 million devices/year $TBD
3 million devices/year $TBD
5 million devices/year $TBD
4. Ease of Use: CLIA moderately complex device equivalent. Time to test
completion: < or equal to 15 minutes. No result interpretation
before test completion is intended.
B. MARKET
1. > or equal to 20 tests per month practices.
C. SPECIMEN / SWAB TYPES
1. Stock, sterile Dacron or rayon tipped swabs (hollow or solid, no
wood). (BD or equivalent.) PBS for washes/gargles.
2. Swabs/washes are supplied by user. They are not included in the assay
kit.
D. WORKFLOW / EASE OF USE
1. Tests can be run in a lab area with: (a) no unique drain or
ventilation, and (b) 1000-2000 Lux and 100-200 foot candles
illuminance.
2. Multiple tests (< or equal to 10) can be run simultaneously,
limited only by the operator's ability to sequence reagents, time
steps, and read a result between the test completion time and time
limit for result stability.
3. Assay performed at room temperature, i.e. 15(degree) - 30(degree)C.
4. No sample manipulation or pretreatment occurs before use with the
test.
5. Endpoint of the test is a crisp-edged, distinct color change that is
limited to a presence/absence interpretation.
E. SYSTEM COMPONENTS
1. Extraction tube
40.
<PAGE> 44
2. OIA device
3. Extraction reagent, conjugate, wash, and substrate (if required) are
contained within the kit.
4. Controls (positive and negative).
F. DEVICE
1. Current, 1.0 version OIA test device (silicon wafer based).
2. Each device is a single test.
3. Area 1" x 5/8" (2.5 x 1.6 cm) for writing or affixing label of patient
name/ID is provided.
4. Visually read surface.
5. Materials compatibility with:
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
6. Surface optically coated silicon wafer, static (non-porous).
7. Device material: commodity resin, white color, matte finish
8. Absorbent papers: equivalent to those in use with [ * ]
G. STABILITY
1. Shipping
[ *
]
[ * ]
[ * ]
d. FYI. Consider an indicator, e.g. temperature dot, for shipment
acceptability at delivery.
2. Shelf Life:
a. at market entry: [ * ] at room temperature
b. after six months on market: [ * ] months
at room temperature
c. humidity: TBD
3. Result: should remain stable for not less than [ * ].
H. STORAGE
1. [ * ] at time of manufacture for device [ * ] at time
of manufacture for reagents
41.
<PAGE> 45
I. ASSAY PROCESSING STEPS
1. Direct Detection
a. Swab/sample and extraction reagent are combined
b. Conjugate added to sample/extraction tube
c. Sample added to OIA surfaces
d. Wait/wash
e. Substrate added to OIA surface
f. Wait/wash
g. Read
J. WITHIN DEVICE CONTROLS
1. Procedural control utilizing purified antigen or anti-species capture
antibody to produce color only if free conjugate has been captured and
is incorporated on the device surface.
K. EXTERNAL CONTROLS
1. Positive and negative controls are provided. These controls may be
solutions or lyophilised.
L. ANALYTICAL PERFORMANCE
1. Analytical Sensitivity: [ *
]
2. Analytical Specificity: [ * ]
3. No x-reactivity with normal throat flora.
4. Preservative Efficacy Testing (PET) - ProClin - USP + rechallenge.
M. LABELING / PACKAGE INSERT
1. Require labels/package inserts in six languages: English, Spanish,
French, German, Japanese and Italian. Translations to be provided by
Biota.
2. Symbology (storage, sampling, etc.) should be used whenever possible
(TBD what symbols are commonly used).
3. Abbreviate ex-US package inserts to required content to meet 97 EU
standards.
4. No unit labeling.
5. Controls will meet FDA guidelines for review of Calibration and
Quality Control Labeling for In Vitro Diagnostic Devices (1 Feb.
1996).
N. PACKAGING
1. Utilize recyclable materials whenever possible.
2. Thirty test kits and 100 test kits sizes.
42.
<PAGE> 46
3. Inner and outer packaging TBD
a. no unit packaging
b. require packaging in six languages: English, Spanish, French,
German Japanese and Italian.
4. Symbology (storage, sampling, etc.) should be used whenever possible
(TBD what symbols are commonly used).
5. Put labeling, i.e. name and lot information on the front of the
package for easy viewing.
O. SHIPPING
1. USA
a. ship via ground transportation to distributors (5 days) at room
temperature.
b. two to three days air distribution to customers - TBD
2. International
a. air shipments - 5 days maximum
b. kit tolerance to 5 days, unprotected
3. Drop test: no damage with 3 x 36" (1m.) falls.
4. Other shipping tests as per ASTM and UPS standards - TBD
P. REAGENTS
1. Conjugate a. liquid
b. TBD chemistry
2. Extraction Reagent a. liquid
b. TBD chemistry
3. Substrate a. liquid
b. Custom BioStar formulation
4. Wash a. liquid
b. TBD chemistry
43.
<PAGE> 47
SCHEDULE 4
COMPOUNDS
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
44.
<PAGE> 48
SCHEDULE 5
OPTICAL IMMUNOASSAY
Optical Immunoassay (OIA) refers to the interaction of light with thin
biological films on an optical support. Three major areas are covered. First the
design and construction of the optical support, second the methods and
instruments used for detecting the changes in the incident light as a result of
interaction with the optical support, and third, the assays and methods for
amplification of OIA techniques.
The optical support may be defined as any solid support selected for specific
optical characteristics. The required optical characteristics are tied to the
detection method to be used in the final assay format. The optical support may
be further described by inclusion of one or more optical thin film or
anti-reflective layer. The optical support also includes thin films of materials
designed to promote the adhesion or binding of the biological thin films to the
support.
Second, OIA also includes the methods and instruments useful of the measurement,
quantization, or interpretation of the signal generated as a result of light's
interaction with the optical support. These methods include visual interference
effects, ellipsometry, comparison ellipsometry, changes in the state or degree
of polarization for a polarized light source, and related thin film measurement
technologies.
Third, OIA covers the amplification of the signal generated on a thin film
optical support. The critical feature of such an amplification process is that
the method and materials amplify the mass or thickness change on the surface of
the optical support while maintaining the original thin film properties and
characteristics of the support.
45.
<PAGE> 49
SCHEDULE 6
MINIMUM SALES VOLUMES
1. PERIOD AFTER FORMAL LAUNCH OF GGI67 COMPOUND AS THERAPEUTIC AGENT IN
TREATMENT OF INFLUENZA IN THE US
BioStar shall sell a minimum number of units of Diagnostic during each year
commencing on the first day of the month immediately following the month in
which the formal launch of GG167 occurs as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
PERIOD (SALES YEARS) AFTER FORMAL MINIMUM NUMBER OF UNITS OF DIAGNOSTIC
LAUNCH OF GG167 TO BE SOLD BY BIOSTAR IN THE UNITED STATES OF
AMERICA DURING SALES YEAR INDICATED
- ---------------------------------------------------------------------------------------------
<S> <C>
Year 1 [ * ]
- ---------------------------------------------------------------------------------------------
Year 2 [ * ]
- ---------------------------------------------------------------------------------------------
Year 3 [ * ]
- ---------------------------------------------------------------------------------------------
Year 4 [ * ]
- ---------------------------------------------------------------------------------------------
Year 5 [ * ]
- ---------------------------------------------------------------------------------------------
Each year thereafter [ * ]
- ---------------------------------------------------------------------------------------------
</TABLE>
2. PERIOD PRIOR TO FORMAL LAUNCH OF GG167 COMPOUND AS THERAPEUTIC AGENT IN
TREATMENT OF INFLUENZA IN THE US
In the event that FDA Clearance of the Diagnostic is granted and the use of
the Diagnostic is launched prior to the formal launch of GG167, BioStar
shall sell a minimum number of units of Diagnostic during each year
commencing on the first day of the month immediately following the month in
which the formal launch of the Diagnostic occurs and prior to the formal
launch of GG167 as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
PERIOD (SALES YEARS) AFTER FORMAL MINIMUM NUMBER OF UNITS OF DIAGNOSTIC
LAUNCH OF THE DIAGNOSTIC TO BE SOLD BY BIOSTAR IN THE UNITED STATES
DURING SALES YEAR INDICATED
- -----------------------------------------------------------------------------------------------
<S> <C>
Year 1 [ * ]
- -----------------------------------------------------------------------------------------------
Each year thereafter [ * ]
- -----------------------------------------------------------------------------------------------
</TABLE>
For the purposes of this schedule 6, the number of units sold is the number
of units sold to third parties or classes of third parties who have been
approved in writing by Biota.
46.
<PAGE> 50
SCHEDULE 7
DISTRIBUTION ALLOWANCES
1. BIOSTAR DISTRIBUTION ALLOWANCE
1.1 PERIOD AFTER FORMAL LAUNCH OF GG167 COMPOUND AS THERAPEUTIC AGENT IN
TREATMENT OF INFLUENZA IN THE US.
The BioStar Distribution Allowance shall be equal to a percentage of
the Gross Sales Revenue of BioStar relating to its sale of Diagnostic
in the US during each year after the formal launch of GG167 as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
PERIOD (SALES YEARS) AFTER FORMAL DISTRIBUTION ALLOWANCE EQUAL TO
LAUNCH OF GG167 FOLLOWING PERCENTAGES OF GROSS SALES
REVENUE OF BIOSTAR RELATING TO SALE OF
DIAGNOSTIC IN THE US DURING SALES YEAR
INDICATED
- ---------------------------------------------------------------------------------------
<S> <C>
Year 1 [*]
- ---------------------------------------------------------------------------------------
Year 2 [*]
- ---------------------------------------------------------------------------------------
Year 3 [*]
- ---------------------------------------------------------------------------------------
Year 4 [*]
- ---------------------------------------------------------------------------------------
Year 5 [*]
- ---------------------------------------------------------------------------------------
Each year thereafter [*]
- ---------------------------------------------------------------------------------------
</TABLE>
1.2 PERIOD PRIOR TO FORMAL LAUNCH OF GGL67 COMPOUND AS THERAPEUTIC AGENT
IN TREATMENT OF INFLUENZA IN THE US.
In the event that FDA Clearance of the Diagnostic is granted and the
Diagnostic is launched prior to the formal launch of GG167, shall be
as follows during each year after the formal launch of the Diagnostic
and prior to the formal launch of GG167.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
PERIOD (SALES YEARS) AFTER FORMAL LAUNCH DISTRIBUTION ALLOWANCE EQUAL TO FOLLOWING
OF THE DIAGNOSTIC PERCENTAGES OF GROSS SALES REVENUE OF
BIOSTAR RELATING TO SALE OF DIAGNOSTIC IN
THE US DURING SALES YEAR INDICATED
- ---------------------------------------------------------------------------------------
<S> <C>
Year 1 [*]
- ---------------------------------------------------------------------------------------
Each year thereafter [*]
- ---------------------------------------------------------------------------------------
</TABLE>
The Distribution Allowance set out in this paragraph 1.2 will be
decreased from [*] to [*] with effect from the formal launch of GG167.
47.
<PAGE> 51
2. BIOTA DISTRIBUTION ALLOWANCE
Biota Distribution Allowance shall be equal to a percentage of the Gross
Sales Revenue of Biota relating to the sale of Diagnostic in the US as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
PERIOD FOLLOWING THE DISTRIBUTION ALLOWANCE EQUAL TO FOLLOWING
COMMENCEMENT OF SALES OF DIAGNOSTIC BY PERCENTAGES OF GROSS SALES REVENUE OF BIOTA
BIOTA IN THE US RELATING TO SALE OF DIAGNOSTIC IN THE US
DURING SALES YEAR INDICATED
- ---------------------------------------------------------------------------------------
<S> <C>
Year 1 [*]
- ---------------------------------------------------------------------------------------
Year 2 [*]
- ---------------------------------------------------------------------------------------
Year 3 [*]
- ---------------------------------------------------------------------------------------
Year 4 [*]
- ---------------------------------------------------------------------------------------
Year 5 [*]
- ---------------------------------------------------------------------------------------
Each year thereafter [*]
- ---------------------------------------------------------------------------------------
</TABLE>
48.
<PAGE> 52
SCHEDULE 8
PRO-FORMA COMMERCIALIZATION PLAN
The commercialization plan will include:
1. PERFORMANCE DATA
(a) Preclinical data for sensitivity and specificity
(b) 510(k) trial site data (if available)
(c) Competitive performance comparison
2. FORECAST / BUILD PLANS
(a) Domestic forecast (customer kits, sample kits)
(b) International forecast (customer kits, sample kits)
(c) Worldwide production plan/inventory projections
3. PRODUCT LABELING
Samples of labels, package insert draft, cartons, procedure card
4. PHOTOGRAPHS
Photographs appropriate for early publicity
5. TRAINING MATERIALS
To include:
US market overview
Medical positioning/justification versus other methods
Reimbursement position
Financial justification for use
Troubleshooting guide
Operator instrumentation
Competitive comparisons
CLIA materials
6. COLLATERAL MATERIAL
Drafts of sales sheets
49.
<PAGE> 53
SCHEDULE 9
BIOSTAR PATENT COUNTRIES
Austria
Belgium
Switzerland
Germany
Benelux (Belgium, Netherlands, Luxembourg)
Spain
France
United Kingdom
Italy
Sweden
Japan
Canada
Mexico
United States of America
Australia
EXECUTION PAGE
SIGNED by Richard Wadley )
as authorized representative for BIOTA )
SCIENTIFIC MANAGEMENT PTY LTD in the )
presence of: )
)
)
)
/s/ Phillip Andrew Reece )
- -------------------------------------- )
Signature of witness )
)
)
Phillip Andrew Reece ) /s/ Richard Wadley
- -------------------------------------- ) --------------------------------
Name of witness (block letters) ) By executing this Agreement the
) signatory warrants that the
) signatory is duly authorized to
) execute this Agreement on behalf
) of BIOTA SCIENTIFIC MANAGEMENT
) PTY LTD
Biota Scientific Mgt Pty Ltd. )
Level 4 - 616 St Kilda Rd. )
- -------------------------------------- )
Address of witness Melbourne. )
)
)
Director, Research and Development )
- -------------------------------------- )
Occupation of witness )
SIGNED by )
as authorized representative for BIOSTAR, )
INC. in the presence of: )
)
)
/s/ Noel T. Doheny )
- -------------------------------------- )
Signature of witness )
)
)
Noel T. Doheny ) /s/ Teresa W. Ayers
- -------------------------------------- ) --------------------------------
Name of witness (block letters) ) By executing this Agreement the
) signatory warrants that the
) signatory is duly authorized to
) execute this Agreement on behalf
) of BIOSTAR, INC.
6650 Lookout Road )
Boulder CO 80503 )
- -------------------------------------- )
Address of witness )
)
)
Exec VP Commercial Development )
- -------------------------------------- )
Occupation of witness )
<PAGE> 1
DISTRIBUTION AGREEMENT
THIS AGREEMENT, made effective this 1st day of January, 1997, by and
between BioStar, Inc., a corporation organized and existing under the laws of
the state of Delaware and having its principal place of business at 6655
Lookout Road, Boulder, Colorado 80301 (hereinafter referred to as "BIOSTAR")
and Murex Diagnostics, Inc., a corporation organized and existing under the
laws of the State of Delaware and having its principal place of business at
3075 Northwoods Circle, Norcross, Georgia 30071 (hereinafter referred to as
"MDI").
WITNESSETH THAT:
WHEREAS, the parties entered into a Distribution Agreement dated as of
September 1, 1995 (the "PRIOR AGREEMENT") pursuant to which BioStar appointed
MDI as a distributor with respect to certain BioStar products; and
WHEREAS, the parties desire to amend and restate the Prior Agreement
to read in full as set forth below.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants set forth herein, the parties hereto mutually agree as
follows:
ARTICLE I
DEFINITIONS
The following definitions, whether used in the singular or in the
plural, shall apply throughout this Agreement:
1.1 "AFFILIATE" shall mean any corporation which controls, is controlled by
or is under common control with a party to this Agreement. A corporation shall
be regarded as in control of another corporation if it owns or directly or
indirectly controls at least forty percent (40%) of the voting stock of the
other corporation, or in the absence of the ownership of at least forty percent
(40%) of the voting stock of a corporation, if it possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of the corporation.
1.2 "CONTRACT YEAR" shall mean the period of twelve (12) successive
calendar months commencing on the 1st day of January 1997, and each successive
twelve (12) month period thereafter.
1.3 "EFFECTIVE DATE" shall mean the date appearing at the beginning of this
Agreement.
1.4 "MANUFACTURING COSTS" shall mean and include the cost of direct labor
(including allocable employee benefits and employment taxes), direct material
and other charges incurred directly for the manufacture of a Product (including
costs of quality control), and normal production overhead (i.e., indirect labor,
maintenance, depreciation of the manufacturing equipment and facilities and
other allocable overhead of the manufacturing factory), all
1.
* CERTAIN CONFIDENTIAL MATERIAL CONTAINED IN
THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES ACT OF 1933, AS AMENDED
<PAGE> 2
determined in accordance with generally accepted accounting principles applied
on a consistent basis.
1.5 "NATIONAL ACCOUNTS" shall mean: (i) the following reference
laboratories: [ * ] (ii) the following hospitals:
[ * ] ; and (iii) any
National Accounts mutually agreed to in writing by MDI and BioStar.
1.6 "PRODUCTS" shall mean the rapid human in vitro diagnostic
products set forth in Appendix A attached hereto and made a part hereof, and
such other diagnostic products, if any, as may be added thereto from time to
time by the parties in accordance with Section 2.9 hereof.
1.7 "SPECIFICATIONS" shall mean the product and packaging
specifications for each Product referred to in Appendix A attached hereto and
made a part hereof, each of which has been mutually agreed upon and in respect
of new products added pursuant to Section 2.9 will be mutually agreed upon in
good faith by the parties hereto, giving due consideration to applicable
regulatory requirements; and determined in accordance with applicable
analytical methodology set forth in such specifications.
1.8 "TERRITORY" shall have the meaning set forth in Section 2.2
below.
1.9 "TRADEMARKS" shall mean those trademarks and trade names,
whether or not registered in the United States, trade dress and packaging which
(a) are owned by either party, and (b) are applied to or used in connection
with a Product.
1.10 "TERM" shall have the meaning set forth in Section 6.1 below.
ARTICLE II
DISTRIBUTORSHIP
2.1 GRANT.
(a) LICENSE GRANT. Subject to the terms of this
Agreement, BioStar hereby grants to MDI and MDI hereby accepts from BioStar a
non-transferable right and license for the Term, (i) to market, sell,
demonstrate and distribute for sale the Products in the Territory, (ii) to
reproduce the related documentation as necessary for the purpose of furnishing
such documentation in conjunction with the sale of the Products, and (iii) the
right to use the Trademarks in connection with the Products.
(b) NON-TRANSFERABLE LICENSE. MDI is not authorized to
establish subdistributors or sell to persons other than hospitals and reference
laboratories, except with BioStar's prior written consent.
(c) REPRESENTATION REGARDING BIOSTAR INTELLECTUAL
PROPERTY. MDI hereby acknowledges and agrees that title and interests and
rights of ownership in and to the Intellectual Property (as defined in.
Section 10.1 below), and all copies, in any form, of all or part thereof, are
and remain with, and shall be the sole and exclusive property of, BioStar.
2.
<PAGE> 3
2.2 TERRITORY AND EXCLUSIVITY. The license granted to MDI set
forth in Section 2.1 above shall be for the following territories on the
following terms (collectively, the "TERRITORY"):
(a) TERRITORIES AND EXCLUSIVITY. Except as set forth in
subsection (c) below, MDI shall have the right and license to distribute the
following Products to hospitals and reference laboratories located in the
United States.
(i) GBS. BioStar hereby grants MDI the exclusive
right to distribute BioStar's GBS Product to all National Accounts, hospitals
and reference labs located in the United States; provided, however, that this
right shall be non-exclusive with respect to those hospitals and reference labs
being served by BioStar as of March 15, 1997 (the "BIOSTAR ACCOUNTS").
(ii) GAS. BioStar hereby grants MDI the exclusive
right to distribute BioStar's GAS Product to all National Accounts, hospitals
and reference labs located in the United States; provided, however, that this
right shall be non-exclusive with respect to the BioStar Accounts and with
respect to key hospitals identified by mutual agreement of BioStar and MDI,
which are decision-makers who influence physician office lab diagnostic test
kit purchasing decisions.
(iii) CHLAMYDIA. BioStar hereby grants MDI the
non-exclusive right to distribute BioStar's Chlamydia Product to all National
Accounts, hospitals and reference labs located in the United States; provided,
however, that MDI acknowledges and agrees that it does not have any right to
distribute BioStar's bundled Chlamydia/Zithromax Product which is being
distributed by General Injectables and Vaccines, Inc. in public health
facilities based in hospitals but does have the exclusive right to distribute
BioStar's Chlamydia Product to Bergen Clinical Lab located in Englewood, New
Jersey.
(iv) ALL PRODUCTS. Notwithstanding the foregoing,
BioStar hereby grants MDI the non- exclusive right to distribute BioStar's GBS,
GAS and Chlamydia Products in Alaska and Hawaii to all hospitals, reference
labs and physician office labs.
(b) BIOSTAR ACCOUNT TRANSFERS. In the event that BioStar
agrees to transfer any of the BioStar Accounts for GBS or GAS to MDI, MDI
agrees to accept an increase in the sales minimums comparable to the 1996 sales
by BioStar to such BioStar Account. In the event that MDI transfers any
customers for the Products to BioStar, BioStar agrees to decrease the sales
minimums comparable to the 1996 sales by MDI for any such customers.
(c) BIOSTAR RETAINED TERRITORIES. BioStar shall retain
Methodist Hospital System in Indiana, as well as all other territories outside
of the Territory, including but not limited to, managed care organizations, all
physician office laboratories (outside of Alaska and Hawaii), clinics, student
health centers and integrated delivery systems (which are agreed upon in
writing by BioStar and MDI). BioStar may consider assigning MDI as an agent
for these accounts in its sole discretion subject to a separate agreement of
the parties.
(d) OTHER TERRITORIES. BioStar, in its sole discretion,
may consider a business plan proposal from MDI with respect to MDI serving as
BioStar's distributor for the Products to hospitals and reference laboratories
located in Canada, South America and Central America.
3.
<PAGE> 4
MDI's proposal should contain the specific reasons why MDI is the best
distribution option for BioStar in these territories and specific sales
performance commitments for a three (3) year period.
2.3 EXCLUSIVITY AND SALES REVENUES. Subject to Section 6.2,
BioStar may convert MDI's appointment from exclusive to non-exclusive for the
Territory as further described below unless MDI purchases [ * ]
of the agreed minimum of Product during each six (6) month period and [ *
] for each twelve (12) month period. Murex shall have six
(6) months to make up shortfall to purchases from previous annual term. These
minimums will be specific to the Products available during the contract period
and are as set forth in Appendix B. In the event that MDI has not achieved the
sales revenue targets in any given period during the Term then BioStar may elect
to convert any of MDI's exclusive rights under this Agreement set forth in
Section 2.2 to non-exclusive upon ninety (90) days prior written notice. The
only exception to this loss of exclusivity would be if BioStar fails to provide
product in sufficient quantity (as defined in Article III, 3.1) or quality (as
defined in Article VIII) in accordance with this Agreement to fulfill Purchase
Orders submitted by Murex to BioStar which, in the aggregate, exceed such agreed
minimums. BioStar and MDI will meet quarterly to review MDI's performance
against the sales revenue targets.
2.4 SALES REVENUE MINIMUMS FOR SUBSEQUENT CONTRACT YEARS. During
the last three (3) months of 1997 and of each subsequent Contract Year, the
parties shall meet to discuss and negotiate in good faith the minimum for the
following Contract Year, taking into account end user Product pricing,
competition and other relevant marketing issues as well as regulatory issues.
In the event the parties are unable to agree upon minimums, the minimums for
the next Contract Year shall be an equivalent of 1.1 times the purchase volume
of the preceding year.
2.5 MDI'S OBLIGATIONS. MDI agrees to use its best efforts to
promote and maximize the sale, marketing and distribution of the Products. MDI
shall distribute the Products in the Territory under BioStar's designated
Trademarks for the Products and in their original condition and packaging.
(a) MDI REPRESENTATIONS AND WARRANTIES. MDI represents
and warrants that it has adequate financial resources, management, sales force
and facilities (including warehouse facilities, business offices and clerical
staff): (i) to acquire and maintain a reasonable inventory of Products; (ii) to
sell and promote the sale of the Products as herein provided; and (iii) to
perform all of its obligations under this Agreement.
(b) MDI MARKETING AND SUPPORT OBLIGATIONS.
(i) (A) MDI shall designate Regional Sales
Managers and a reasonable number of salespersons to perform MDI's obligations
hereunder with regard to the Products and such Regional Sales Manager and
salespersons shall attend BioStar training on new Products as set forth in
Section 4.8 below, (B) MDI shall establish a specific bonus program for its
sales organization, and (C) MDI shall establish sales targets for each of its
sales representatives in their respective territories;
4.
<PAGE> 5
(ii) MDI shall engage in advertising and sales
promotional activities in the Territory including, but not limited to (a)
advertising the Products in professional medical journals published in the
Territory, (b) participating in national trade shows for medical diagnostic
products, (c) displaying the Products within such shows, (d) qualifying the
Products to all existing, active MDI accounts in the Territory within sixty
(60) days after Product training, and (e) promoting the Products to all
existing active MDI National Accounts;
(iii) MDI shall use the literature, catalogs and
technical brochures with respect to the Products which BioStar may, from time
to time, furnish MDI, free of charge, and in reasonable quantities;
(iv) MDI, at its own expense, may prepare
additional advertising and promotional materials. All of MDI's advertising and
promotional materials shall designate the Products by the Trademarks and shall
identify the Products as BioStar's being marketed by MDI as a distributor for
BioStar. MDI shall submit all advertising and promotional material for the
Products which it generates to BioStar for review and approval; and
(v) MDI shall provide the following support for
National Accounts: (a) MDI will ensure that National Accounts present BioStar
products at least twice per year to each listed account, (b) MDI National
Account Managers will make joint calls with BioStar management on National
Accounts at least once per year per account, and (c) MDI will provide monthly
reports to BioStar's Vice President of Sales/National Accounts regarding MDI's
National Account call activities and the status of all National Accounts.
(c) MDI'S BUSINESS CONDUCT.
(i) MDI shall at all times conduct its business
in a manner as will reflect favorably on BioStar and the Products and will not
engage in any deceptive, misleading, illegal and unethical business practice.
MDI shall consult with BioStar regarding any advertising or trade practice
which might affect the good name, Trademarks, goodwill or reputation of BioStar
or its Products; and
(ii) MDI undertakes not to solicit sales of
Products outside the Territory.
(d) MDI'S OBLIGATION TO KEEP BIOSTAR INFORMED. MDI shall
keep BioStar fully informed of all governmental, commercial and industrial
activities and plans which do or could affect the sale of the Products in the
Territory including any significant reduction or other alteration of MDI's
sales staff which materially adversely affects the sale or other distribution
of the Products.
(e) CUSTOMER LIST. MDI shall establish and maintain a
system of record keeping identifying each end user by name, address and
designation of type of practice or business and the date of sale and lot number
for each of the Products sold (the "CUSTOMER LIST"). If the customer does not
deliver the Products directly to end users then MDI shall require the customer
to maintain a similar Customer List. MDI will provide BioStar with electronic
sales reports by the 10th day of each month for all GAS sales only for BioStar
commission purposes. The electronic reports shall include the following
information: name of customer,
5.
<PAGE> 6
customer ID, customer state with zip code, product number, product quantity,
unit and extended pricing, purchase order number, invoice or ship date. During
the Term, the Customer List is to be used by BioStar as a tool for commission
purposes and to identify reference accounts only.
(f) TECHNICAL SUPPORT OBLIGATIONS. MDI shall provide
technical assistance and support to its customers, including support for
customer product evaluations as outlined in Appendix C.
(g) COMPETING REPRESENTATION. MDI agrees not to engage
directly or indirectly in the manufacture, sale, promotion or distribution of
similar or analogous products which may be competitive with the Products, in
any manner whatsoever (including, but not limited to the use of similar
technology, use or application), during the term of this Agreement; provided,
however, that MDI shall be entitled to distribute the Reveal GAS product.
2.6 BIOSTAR'S OBLIGATIONS. BioStar will make available to MDI the
following marketing support for the Territory:
(a) Training for MDI sales and marketing personnel no
more than twice per year for two (2) continuous days at MDI's offices in
Atlanta. At BioStar's expense, BioStar will provide the sales trainer and pay
associated travel expenses, appropriate sales training material and product
literature. MDI shall bear all other expenses for its sales and marketing
personnel.
(b) Copies of BioStar's monthly mailings to its sales
representatives, including marketing and technical tips and other sales
information.
(c) Copies of third party publications and scientific
support material for the Products.
(d) Support for MDI's customer product evaluations as
outline in Appendix C.
(e) BioStar shall keep MDI fully informed of all
governmental, commercial and industrial activities and plans which do or could
affect the sale of the Products in the Territory including any significant
reduction or other alteration of BioStar's sales staff which materially
adversely affects the sale or other distribution of the Products.
2.7 RIGHT OF FIRST NEGOTIATION. BioStar hereby grants MDI the
right of first negotiation during the Term to become a distributor in the
Territory for any diagnostic products which BioStar develops after the
Effective Date on an exclusive basis or some other basis mutually agreed upon
by BioStar and MDI; provided, however, that this Section 2.7 shall not apply to
any products which BioStar develops in cooperation with any third party or for
which BioStar does not have, or is unable to obtain, the right to appoint MDI
as a distributor.
6.
<PAGE> 7
ARTICLE III
MANUFACTURE BY AND SUPPLY FROM BIOSTAR
3.1 PURCHASE OF PRODUCTS. MDI undertakes to purchase the Products
in its name and for its own account. Purchase of Products shall be made on a
monthly basis and shall be made by delivery to BioStar, ninety (90) days in
advance of the requested delivery date, written purchase orders for the
Products (the "PURCHASE ORDERS"). All Purchase Orders shall be subject to
acceptance by BioStar at its principal place of business. In the event of any
inconsistency between the terms and conditions of a Purchase Order and this
Agreement, this Agreement shall prevail.
3.2 PACKAGING. BioStar shall deliver the Products to MDI in
finished form, ready for delivery to MDI's customers. All unique labeling,
direction circulars and cartons used by BioStar in connection with the supply
of Products to MDI shall be approved in advance by MDI prior to the first
delivery of each Product. BioStar agrees to review all packaging changes in
advance with MDI.
3.3 REGULATORY APPROVALS. BioStar shall be fully responsible for
obtaining and maintaining United States Food and Drug Administration
(hereinafter referred to as "FDA") approval in respect to Products. Any
provision of this Agreement to the contrary notwithstanding, the obligations of
BioStar to supply and MDI to purchase from BioStar any Product under this
Agreement are expressly conditioned upon receipt of all required regulatory
approvals for such Product, including but not limited to approval by the FDA
for such Product, and unless such approvals are granted, BioStar shall be under
no obligation to supply and MDI shall be under no obligation to purchase such
Product.
3.4 FORECASTS. No later than ten (10) days after the Effective
Date and at least ninety (90) days prior to the beginning of the second and
each subsequent Contract Year during the term of this Agreement, MDI shall
provide BioStar with a written rolling purchase forecast of the quantity for
each Product by package size which MDI expects to purchase from BioStar during
the following Contract Year (the "FORECAST"). The Forecast shall be reviewed
and updated with BioStar by MDI on at least a monthly basis during each
Contract Year.
ARTICLE IV
PRICES AND PAYMENTS
4.1 BASE PRICES. The per kit Base Prices of the Products ordered
by MDI hereunder in respect of sales shall be as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
PRODUCT BASE PRICE TO MDI
- ----------------------------------------------------------------------------
<S> <C>
GAS-30 [ * ]
- ----------------------------------------------------------------------------
GAS-100 [ * ]
- ----------------------------------------------------------------------------
GBS-30 [ * ]
- ----------------------------------------------------------------------------
Chlamydia [ * ]
- ----------------------------------------------------------------------------
</TABLE>
7.
<PAGE> 8
4.2 PAYMENT. Payment shall be due to BioStar not later than
thirty (30) days following the date of invoice. Payment shall be made to
BioStar in United States Dollars. BioStar shall not invoice MDI for any
Product prior to the shipment of such Product and the forwarding to MDI of the
batch records relating to such Product.
4.3 PRICE CHANGES. At least ninety (90) days prior to the end of
the Contract Year ending 12/31/98 and each Contract Year thereafter, MDI and
BioStar shall meet and negotiate in good faith the purchase price to govern the
purchase of each Product for the next succeeding Contract Year (the "NEW PRICE
YEAR"). The Base Price of each Product will be reviewed annually taking into
account market conditions and any changes in the cost of manufacture of the
Product. In the event no agreement is reached on a price revision following
such review, BioStar shall be entitled to adjust the Base Price by sixty
percent (60%) of the USA Consumer Price Index (All Item) over the preceding
contract period. All orders received and accepted by BioStar prior to the
effective date of the price increase will be billed at the price in effect at
the time of acceptance of the order. All other orders for shipment for the
quarter after the effective date of the price increase will be billed at the
increased price.
4.4 SPECIFIC BUSINESS OPPORTUNITIES. In certain situations
BioStar and Murex may mutually agree to pursue specific business opportunities
at special prices. It is agreed that BioStar and Murex will establish a rebate
system appropriate for the situation.
4.5 PROFIT REBATE (WHITE SLIPS). In the event that BioStar
notifies MDI of an MDI customer (e.g., a hospital) who is delivering Product to
outpatient accounts, the parties hereto will meet to discuss an appropriate
profit rebate mechanism from MDI to BioStar in respect to such accounts. Any
such rebate will be subject to:
(a) BioStar clearly demonstrating the quantities of such
outpatient accounts and BioStar's loss of direct sales to such accounts;
(b) deduction of all reasonable costs of MDI to service
such customer or outpatient accounts up to a maximum of [ * ] of
MDI's net revenues from sales of Products to such customer or outpatient
accounts; and
(c) deduction of White Slips of hospitals being shipped
directly by BioStar that are not being serviced by a BioStar representative.
4.6 SAMPLES. BioStar will provide samples to MDI at a reduced
cost for promoting the Products. These samples will be priced at [ *
] of the Base Price (the "DISCOUNT") to MDI. MDI shall purchase the
sample Products at the Base Price and shall provide BioStar with a report
detailing the samples ordered (the "SAMPLE REPORT"). BioStar shall credit or
rebate the Discount to MDI based upon the Sample Report. Volume will be
limited to sixty (60) tests of each Product per MDI representative per month.
8.
<PAGE> 9
ARTICLE V
DELIVERY AND ACCEPTANCE
5.1 DELIVERY. In the absence of specific instructions from MDI,
the shipping and packaging method used will be at the discretion of BioStar.
Deliveries shall be made FCA BioStar's (or BioStar's designated supplier's)
manufacturing facility and shall be shipped to MDI's address as set forth in
this Agreement. Unless MDI's Purchase Order specifies the name of a carrier,
BioStar will select the carrier. BioStar shall bear the risk of loss until
such time as a shipment has been placed on board the carrier, at which time the
risk of loss shall be borne by MDI. Any claims for damage or loss in transit
shall be placed by MDI through the carrier. All shipments will be shipped by
BioStar freight collect, or if prepaid by BioStar, such freight will be
subsequently billed to MDI and MDI will reimburse BioStar for such freight.
BioStar may deliver in advance of estimated delivery dates upon prior notice to
and agreement by MDI. At MDI's option, BioStar will insure the shipments
against damage to or loss of Products. Any shipping insurance so provided by
BioStar will be subsequently billed to MDI and MDI will reimburse BioStar for
such expense.
5.2 ACCEPTANCE. MDI shall inspect all goods, and shall validate
the quantity of goods, promptly upon receipt thereof at the shipping
destination. MDI will notify BioStar if any order quantities are incorrect.
MDI may reject any goods which fail in any significant respect to meet
BioStar's acceptance specifications prevailing on the date of delivery. Goods
not rejected by written notification to BioStar within twenty-one (21) days of
receipt shall be deemed to have been accepted. Rejected goods shall be
returned freight prepaid to BioStar within ten (10) days of rejection. As
promptly as possible but not later than thirty (30) days after receipt by
BioStar of properly rejected goods, BioStar shall, at its option and expense,
either repair or replace rejected goods. The party shipping the goods pursuant
to this Section 5.2 shall bear the entire risk of loss for goods during
shipment. Any insurance proceed payable in respect of any loss incurred shall
be paid to the party bearing the risk of loss for such goods to the extent of
the loss incurred therefor. BioStar will prepay transportation charges back to
MDI and shall reimburse MDI for any costs of transportation incurred by MDI in
connection with the return to BioStar of properly rejected goods; otherwise,
MDI shall pay transportation charges in both directions.
ARTICLE VI
TERM; TERMINATION
6.1 TERM. Except as otherwise expressly provided in this
Agreement:
(a) INITIAL TERM. The initial term of this Agreement
shall extend from the Effective Date for a period of one (1) year with the
option to renew for three (3) successive one (1) year periods as set forth in
subsection (b) below (collectively, the "TERM)."
(b) RENEWAL OPTION. MDI shall have the right and option
to renew the term of this Agreement for three (3) successive periods of one (1)
Contract Year by giving BioStar written notice thereof at least ninety (90)
days prior to the end of the initial Contract Year or any
9.
<PAGE> 10
subsequent renewal Contract Year, provided MDI has met its minimum sales
revenue targets through September for the concluding Contract Year.
6.2 TERMINATION BY MDI. In addition and without prejudice to any
other rights or remedies, this Agreement may be terminated by MDI as follows:
(a) TERMINATION FOR BREACH OR DEFAULT BY BIOSTAR
GENERALLY. This Agreement may be terminated by MDI in the event of the breach
or default by BioStar of the terms and conditions hereof; provided, however
that with respect to a breach or default other than (i) BioStar's inability to
supply the Products otherwise than for a cause reasonably beyond its control,
as provided in Section 11.1 hereof, MDI shall first give BioStar written notice
of the proposed termination or cancellation of this Agreement, specifying the
grounds therefor, and BioStar shall have ninety (90) days after such notice is
given to cure such default. If not so cured, this Agreement shall terminate or
be deemed canceled at the expiration of such ninety (90) days.
(b) TERMINATION FOR SPECIFIC BREACHES OR DEFAULTS BY
BIOSTAR. This Agreement may be terminated or canceled by MDI upon sixty (60)
days' written notice for failure of BioStar to supply the Products other than
by reason of a cause reasonably beyond its control, as provided in Section 11.1
hereof, which failure is not cured prior to the expiration of such sixty (60)
days. Anything in this Agreement to the contrary notwithstanding, the failure
of BioStar to meet a delivery date of quantities of Products within forecasted
levels on at least three (3) occasions in any twelve (12) month period or the
delivery by BioStar of nonconforming Products on at least three (3) occasions
in any twelve (12) month period shall be deemed to substantially impair the
value of this Agreement to MDI and in either such event, MDI shall have the
right, in addition to any other legal or equitable remedies which it may have,
to terminate and cancel the remainder of this Agreement upon ninety (90) days
prior notice to BioStar.
6.3 TERMINATION BY BIOSTAR. In addition and without prejudice to
any other rights or remedies, this Agreement may be terminated by BioStar as
follows:
(a) TERMINATION FOR BREACH OR DEFAULT BY MDI GENERALLY.
This Agreement may be terminated by BioStar in the event of the breach or
default by MDI of the terms and conditions hereof; provided, however, that with
respect to a breach or default other than (i) MDI's sale of a competitive
product, as provided in Section 2.5(g); (ii) MDI's failure to make timely
payments to BioStar, as provided in Section 4.2, or (iii) MDI's failure to meet
at least seventy-five percent (75%) of the minimum sales goals for any twelve
(12) month period, BioStar shall first give MDI written notice of the proposed
termination or cancellation of this Agreement, specifying the grounds therefor,
and MDI shall have ninety (90) days after such notice is given to cure such
default. If not so cured, this Agreement shall terminate or be deemed canceled
at the expiration of such ninety (90) days.
(b) TERMINATION FOR SPECIFIC BREACHES OR DEFAULTS BY MDI.
This Agreement may be terminated or canceled by BioStar immediately upon
written notice to MDI for (i) MDI's sale of a competitive product (except the
sale of the Reveal GAS product), as provided in Section 2.5(g); or (ii)upon
fifteen (15) days written notice for MDI's failure to make timely payments to
BioStar, as provided in Section 4.2, or (iii) upon ninety (90) days notice for
10.
<PAGE> 11
MDI's failure to meet at least seventy-five percent (75%) of the minimum sales
goals for any twelve (12) month period.
6.4 TERMINATION BY EITHER PARTY. Notwithstanding anything in this
Agreement to the contrary, either party shall have the right, in addition and
without prejudice to any other rights or remedies, to terminate this Agreement
immediately upon written notice to the other party if:
(a) (i) all or a substantial portion of the assets of the
other party are transferred to an assignee for the benefit of creditors, to a
receiver or to a trustee in bankruptcy, (ii) a proceeding is commenced by or
against the other party for relief under bankruptcy or similar laws and such
proceeding is not dismissed within sixty (60) days, or (iii) the other party is
adjudged bankrupt;
(b) the other party shall cease to carry on business;
(c) an event described in Section 11.1 continues for a
period of three (3) months, provided that the party seeking a termination gives
the other party thirty (30) days prior written notice; or
(d) for convenience upon at least ninety (90) days prior
notice.
6.5 EFFECT OF TERMINATION.
(a) EFFECT ON AGREEMENT AND OUTSTANDING INVOICES.
Termination or cancellation of this Agreement is not a release and shall not
relieve either party from any obligation under this Agreement which may have
accrued prior thereto, including any confidentiality obligation of either party
under Article XIII of this Agreement. Upon termination, the due date of all
outstanding invoices to MDI for Products shall automatically be accelerated to
become due and payable by immediate wire transfer on the effective date of
termination but after the reconciliation of both parties financial statements,
even if longer terms have been previously agreed to. All orders or portions
thereof remaining unshipped as of the effective date of termination shall
automatically be canceled.
(b) PENALTY FOR TERMINATION FOR CONVENIENCE.
(i) If BioStar terminates this Agreement for
convenience pursuant to Section 6.4(d) and provides MDI with less than twelve
(12) months prior written notice, then BioStar agrees to pay MDI the following:
(a) [ * ] of MDI's sales for the previous Contract Year up
to a maximum of [ * ], and (b) up to
[ * ] of MDI's marketing and sales promotion
expenses which are supported by invoices not yet realized.
(ii) If MDI terminates this Agreement for
convenience pursuant to Section 6.4(d) and provides BioStar with less than
twelve (12) months prior written notice, then MDI agrees to pay BioStar the
following: (a) [ * ] of MDI's sales for the previous
Contract Year up to [ * ], (b) up to
[ * ]
11.
<PAGE> 12
[ * ] of BioStar's marketing and sales promotion
expenses which are supported by invoices not yet realized.
6.6 MDI'S DUTIES UPON TERMINATION. Upon the termination or
expiration of this Agreement, MDI agrees to do the following:
(a) refrain thereafter from representing itself as a
distributor of BioStar or using any Trademarks or trade names of BioStar;
(b) immediately return to BioStar or immediately destroy
(i) all Confidential Information of BioStar including advertising materials,
and (ii) all other printed material in its possession or under its control
containing or bearing any Trademark or trade names of BioStar;
(c) deliver to BioStar current Customer Lists, as well as
Customer Lists prepared by MDI's customers within fifteen (15) days of
BioStar's request; and
(d) make available to BioStar for a period of one year
for inspection and copying all books and records of MDI that pertain to MDI's
performance of and compliance with its obligations, warranties and
representations under this Agreement.
6.7 PRODUCT REPURCHASE IN THE EVENT OF TERMINATION. In the event
of termination of this Agreement, BioStar shall not be obligated to repurchase
from MDI the latter's inventory of Products. BioStar shall be entitled at its
election to repurchase all or any portion of such new and unused inventory at
the original invoice price less [ * ]. For the purposes of the
sale of the inventory or any part thereof pursuant to this Section 6.7, BioStar
shall be permitted to inspect the inventory to verify its condition prior to
making payment. Any such sale shall be carried out promptly after termination
of this Agreement.
6.8 PRODUCT SALE AFTER TERMINATION. Notwithstanding the
foregoing, if BioStar terminates this Agreement pursuant to Section 6.4(d) and
only provides MDI with ninety (90) days prior notice, MDI shall be entitled to
sell its inventory of Products for an additional ninety (90) days after
termination provided that MDI is otherwise complying with the provisions of
Section 6.6 above.
6.9 GUARANTEE OF SUPPLY TO MDI NATIONAL ACCOUNTS. In the event
that this Agreement is terminated for any reason, BioStar agrees to continue to
supply Products to the National Accounts which MDI identifies to BioStar for
the term of and according to the terms and conditions of MDI's agreement with
such National Accounts.
ARTICLE VII
WARRANTIES AND INSPECTIONS
7.1 WARRANTIES. BioStar covenants and warrants as follows:
(a) All Products supplied hereunder shall, at the time of
sale and shipment to MDI (i)be approved by the FDA. for marketing in the
Territory, (ii)meet the applicable Specification and requirements set forth in
Appendix A hereto; (iii) have a minimum shelf-life
12.
<PAGE> 13
equal to six (6) months, (iv) be free from material faults and defects in
workmanship. Notwithstanding the above, the shelf-life of Products added to
this Agreement by the parties will be individually determined.
(b) BioStar guarantees that no Products supplied hereunder
will, at the time of shipment and delivery, (i) be adulterated, misbranded,
banned or restricted within the meaning of the Federal Food, Drug and Cosmetic
Act, as amended, or (ii) be a product which may not under the provisions of
Section 404 or 505 of such Act be introduced into interstate commerce. This
guarantee shall be a continuing guarantee and shall be binding upon merchandise
shipped or delivered by BioStar to MDI before the receipt by MDI of written
notice of revocation thereof.
(c) All Products supplied hereunder will be manufactured and
packaged in accordance with, and will materially meet, all other applicable
federal, state and local laws, including but not limited to FDA regulations
covering good manufacturing practices.
(d) The required tests and quality control procedures
shall have been carried out by BioStar on Product delivered prior to delivery
and results shall be available for inspection by MDI; and
(e) Human-based materials incorporated into Product shall
have been tested and found free from HIV I+II and Hepatitis BsAg viruses and
other contaminants as agreed in the tests and quality control procedures and
that any additional tests required for MDI to sell the Products in the
Territory shall be completed.
(f) All animal derived materials incorporated into Product
shall have been obtained from sources acceptable to all relevant US authorities
for importation into and use in the US; and
(g) Product shall be generally safe when used by trained
individuals in a clinical testing site in accordance with the procedures and
specifications included in its instructions.
7.2 WARRANTY DISCLAIMER AND LIMITATION. BIOSTAR DOES NOT WARRANT
THE MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT OF THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OF THE PRODUCTS OR THE
PERFORMANCE THEREOF AND DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, WITH
RESPECT TO PRODUCTS, SPECIFICATIONS, SUPPORT, SERVICE OR ANYTHING ELSE, OTHER
THAN THE WARRANTY CONTAINED HEREIN. BIOSTAR HAS NOT AUTHORIZED ANYONE TO MAKE
ANY REPRESENTATION OR WARRANTY OTHER THAN THE LIMITED WARRANTY CONTAINED
HEREIN. The warranties shall apply only if BioStar's examination discloses to
BioStar's satisfaction that alleged defects actually exist and were not caused
by misuse, unauthorized modifications, neglect, improper use or storage,
attempts to repair, or the like, or by accident, fire, or other hazard. In the
event that there is a dispute between the parties with respect to the existence
of a warranty claim the dispute shall be resolved in accordance with the
provisions of Section 8.3 below.
13.
<PAGE> 14
7.3 NO WARRANTY PASS-THROUGH. MDI shall not pass through to its
customers or any other third party the warranties made by BioStar under Section
7.1, shall make no other representations to its customers or any other third
party on behalf of BioStar, and shall expressly indicate to its customers that
they must look solely to MDI in connection with any problems, warranty, claim
or other matters concerning the Products. No warranty, representation or
agreement herein shall be deemed to be made for the benefit of any customer of
MDI or any other third party.
7.4 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES,
INCLUDING LOSS OF PROFITS, REVENUE, DATA, OR USE, INCURRED BY EITHER PARTY OR
ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT OR BASED ON A
WARRANTY, EVEN IF THE OTHER PARTY OR ANY OTHER PERSON HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. SOME STATES DO NOT ALLOW THE LIMITATION OR
EXCLUSION OF IMPLIED WARRANTIES, OR LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL
DAMAGES, SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY. MDI ACKNOWLEDGES
THAT THE ALLOCATION OF RISKS AND BENEFITS UNDER THIS AGREEMENT ARE BASED ON,
AND THE FEES PAID UNDER THIS AGREEMENT WOULD BE GREATER IN THE ABSENCE OF, THE
LIMITATIONS DESCRIBED ABOVE.
7.5 MDI RIGHT TO INSPECT.
(a) MDI shall have the right during regulation business
hours to inspect any facility on a biannual basis with appropriate advance
notice where Products are manufactured. BioStar further agrees to cooperate
fully with, and to provide all data and records relating to the production of
the Products, including but not limited to analytical methodologies and quality
assurance records reasonably requested by the authorized representatives of
MDI, but not including any proprietary financial information.
(b) Notwithstanding anything herein to the contrary, any
failure on the part of MDI to discover any nonconformance either during the
production process or upon inspection of shipments shall not relieve BioStar of
its warranties hereunder.
ARTICLE VIII
WARRANTY CLAIMS
8.1 QUALITY ASSURANCE DOCUMENTATION. Each delivery of Products
shall be accompanied by documentation in a form agreed between the Managers of
Quality Assurance at both parties certifying:
(a) that the tests and quality control procedures have
been carried out by BioStar on Products delivered prior to delivery and that
Products delivered have satisfied these tests and quality control procedures as
described;
(b) the date of manufacture of Products; and
14.
<PAGE> 15
(c) the date of expiration of shelf life of Products.
8.2 EFFECT OF ACCEPTANCE ON WARRANTY CLAIMS. MDI's acceptance of
products pursuant to Section 5.2 above shall in no way prejudice MDI's right to
a replacement in the event that Product does not conform to the warranties
given in Section 7.1. Notwithstanding the aforesaid, MDI will not have the
right to a replacement in the event that the nonconformity of the Products to
such warranties is due to transport and storage conditions which are different
than those previously recommended by BioStar to MDI based on data obtained from
transit studies.
8.3 RESOLUTION OF WARRANTY CLAIMS. In the event of any dispute
arising between the parties which they are unable to settle amicably as to the
quality and/or conformity of the Product to the Specification when used in
accordance with the procedures included in the Product's instructions, taking
account of the terms of this Agreement and in particular the warranties of
BioStar under Section 7.1, the matter shall be referred to a suitable, mutually
agreed upon laboratory of repute in the United States, independent of the
parties who shall be requested to make a determination with respect to the
quality and/or conformity of the Product. That is, if quality and/or
conformity of the disputed Product is found to be in accordance with the terms
of this Agreement, the expense, including the laboratory expense, shall be
borne by MDI; otherwise the expense, including the laboratory expense, shall be
borne by BioStar. The parties agree that any such determination shall be final
and binding on both parties and that the laboratory shall act as expert, not
arbitrator.
8.4 BATCH SAMPLE RETENTION. BioStar shall retain samples from
each batch of Product for at least three (3) months after the expiration date
sufficient for the purpose of verification in the case of complaints from
purchasers or other users of the Product.
8.5 REPLACEMENT OF DEFECTIVE PRODUCT. Product found to be in
breach of BioStar's obligations under this Agreement and in particular Section
7.1 (or determined in accordance with Section 8.3 to be so) shall be replaced
by BioStar without charge forthwith (including reimbursement for freight
charges) and in any event within forty five (45) days of such discovery or
determination. MDI or its Affiliates shall return to BioStar if so requested
by a reasonable method non-complying Product in accordance with the directions
of and at the cost of BioStar. If the Product is found to be complying
pursuant to Section 8.3, then all costs associated with returning the Product
to MDI shall be in accordance with the directions of and at the cost of MDI.
8.6 QUALITY CONTROL/QUALITY ASSURANCE INVESTIGATION.
(a) If MDI reasonably considers it necessary in the light
of customer complaints it receives in respect of Product (or when an
appropriate Regulatory Authority requires it), BioStar shall at MDI's request
instigate a quality control/quality assurance investigation in respect of
Product and report its findings to MDI as soon as such findings are available
and in any event provide a preliminary report within two (2) weeks after the
receipt of MDI's request.
(b) If BioStar's findings are not in MDI's reasonable
opinion considered adequate to explain and resolve the problem or complaint
giving rise to MDI's request, BioStar
15.
<PAGE> 16
shall allow MDI the rights to raise specific questions about the complaint and
the findings and any other matter pertinent thereto, to examine relevant
documentation and to audit relevant manufacturing procedures at BioStar's
manufacturing premises and BioStar shall ensure that its relevant personnel
shall provide MDI with such reasonable information and assistance as MDI may
require in this regard.
ARTICLE IX
PRODUCT WITHDRAWALS
9.1 PRODUCT WITHDRAWALS. BioStar shall promptly notify MDI of and
shall provide MDI with copies of any correspondence and other documentation
received or prepared by BioStar in connection with any of the following events:
(a) receipt of a regulatory letter from the FDA in
connection with BioStar's manufacture, or a third party's manufacture, of any
Product;
(b) the recall of any Product;
(c) the withdrawal of any Product from the market;
(d) any regulatory' comments or inquiry from a government
entity requiring a response or action by BioStar or a third party manufacturer
with respect to any Product; or
(e) receipt of customer complaints about a Product which
relate to the clinical efficacy of such Product.
9.2 PRODUCT CHANGES. In advance of making any change in the
composition of, the manufacturing process for, or the labeling of any Product
which would require FDA notification, BioStar will notify MDI and provide a
reasonable time for MDI to understand such changes. BioStar shall be
responsible for obtaining all relevant FDA or other US government approvals
prior to shipping such Product to MDI for sale in the US.
9.3 COSTS OF PRODUCT WITHDRAWAL, NOTIFICATION, LABEL CHANGE, ETC.
In the event of a recall, market withdrawal, market notification or label
change or correction of a Product, BioStar shall reimburse MDI for all
documented costs and expenses associated with such action (including actual
direct labor and postage costs); provided that the reason for such a recall is
attributable to a defect or failure of the Product or an error, omission, act,
failure or regulatory non-compliance by BioStar in the manufacture of the
Product. Such costs and expenses shall be substantiated in a reasonably
satisfactory manner.
ARTICLE X
INTELLECTUAL PROPERTY
10.1 OWNERSHIP OF INTELLECTUAL PROPERTY. BioStar shall retain all
of its rights, title and interest in and to and ownership of all copyrights,
trademarks, trade secrets, patents and all other industrial and intellectual
property embodied in the Products including any improvements
16.
<PAGE> 17
or enhancements to the Products (the "INTELLECTUAL PROPERTY"). Except as
otherwise expressly provided in this Agreement, MDI has no right, title or
interest in the Products or any industrial or intellectual property relating to
the Products and shall not reproduce or otherwise use, in whole or in part, the
Products. MDI shall keep each and every item to which BioStar retains title
free and clear of all claims, liens, and encumbrances except those of BioStar,
and any act of MDI, voluntary or involuntary, purporting to create a claim,
lien or encumbrance on such item shall be void.
10.2 USE OF TRADEMARKS. MDI hereby grants BioStar the right to use
MDI's Trademarks on the Products BioStar' supplies to MDI for distribution
hereunder. Each party agrees to use the designation TM or the designation
specified by the owner of the Trademark in connection with such party's use of
the Trademark of the other party.
(a) Each party acknowledges the validity of the other
party's right, title and interest in such other party's Trademarks and shall
not have, assert or acquire any right, title or interest in or to any of such
other party's Trademarks, except to the extent expressly provided herein. If a
party, in the course of its business in the distribution of the Products,
acquires any goodwill or reputation in any of the Trademarks of the other
party, then at the expiration or termination of this Agreement all such
goodwill or reputation automatically shall vest in the owner of the Trademark
without any separate payment or other consideration of any kind to the other
party, and the licensee of the Trademark agrees to take all such actions
necessary to effect such vesting.
(b) MDI shall use BioStar's Trademarks only in connection
with its distribution and promotion of the Products and shall use BioStar's
Trademarks in the manner reasonably directed by BioStar. BioStar shall use
MDI's Trademarks solely on the Products supplied by BioStar to MDI for
distribution hereunder and only in the manner directed by MDI.
(c) Each party shall, at the request and expense of the
owner of the Trademark, do such acts or things as the owner of the Trademark
may reasonably require for the purpose of obtaining, maintaining, enforcing and
preserving any of the Trademarks, trade names or other proprietary rights of
the owner of such proprietary rights in the Territory; provided, however, that
each party agrees that only the owner of the proprietary rights has the right
to enjoin any infringement or registration by a third party of the Trademarks,
trade names or similar rights. Each party shall give the other party notice of
any infringement or threatened infringement of any of such other party's
Trademarks used in connection with the Products. Such notice shall include the
full facts of the infringement or threatened infringement known to it,
including the identity of the suspected infringer, the place of the asserted
infringement and evidence thereof. Each party agrees to cooperate fully with
the owner of the Trademark at the expense of the owner of the Trademark if such
owner sues to enjoin such infringement.
(d) Each party shall not (nor shall it attempt to) adopt,
use, or register any acronym, trademark, trade name or other marketing name of
the other party or any confusingly similar work or symbol as part of such
party's own name or the name of its Affiliates or the names of the products
which it markets.
17.
<PAGE> 18
ARTICLE XI
EXCUSES FOR NONPERFORMANCE
11.1 FORCE MAJEURE. No party shall be held liable or responsible
for failure or delay in fulfilling or performing any obligation of this
Agreement in case such failure or delay is due to Acts of God, strikes or other
labor disputes, governmental regulations or actions, inability to obtain or
provide material, labor, equipment or transportation, or any other condition
beyond the reasonable control of the affected party.
(a) Each party agrees to give the other party prompt
written notice of the occurrence of any such condition, the nature thereof, and
the extent to which the affected party will be unable to fully perform its
obligations hereunder. Each party further agrees to use all reasonable efforts
to correct the condition as quickly as possible, and to give the other party
prompt written notice when it is again fully able to perform such obligations.
(b) All quantities of Products not shipped by BioStar
hereunder due to any such condition shall be confirmed, in writing, by the
parties immediately after such condition has been corrected.
11.2 PRODUCT ALLOCATION. If, as a result of conditions as set
forth in Section 11.1 above, BioStar at any time is unable fully to supply the
orders of MDI and BioStar's other customers, BioStar shall equitably allocate
its available resources and production capacity among MDI, BioStar and/or
BioStar's other customers, taking into consideration the respective
requirements of each of the parties during a reasonable time period prior to
the allocation, as well as such requirements during the allocation period.
ARTICLE XII
INSURANCE; INDEMNIFICATION
12.1 PRODUCT LIABILITY INSURANCE.
(a) BioStar shall take out and maintain, at its own
expense, during the term of this Agreement and for a minimum of two (2) years
following the expiration, termination or cancellation of this Agreement, at
least five million dollars ($5,000,000) of product liability coverage from an
insurance company or companies reasonably satisfactory to MDI. The insurance
policy relating to such coverage shall name MDI as an additional insured by way
of endorsement or otherwise. MDI will notify BioStar prior to contacting
BioStar's insurance company for any reason.
(b) Promptly upon execution of this Agreement, BioStar
shall cause to be delivered to MDI an insurance certificate evidencing the
insurance coverage required by Section 12.l(a). Such insurance certificate
shall name MDI as an additional insured and shall include a certification that
such insurance coverage includes contractual coverage for BioStar's liability
under this Agreement.
18.
<PAGE> 19
12.2 INDEMNIFICATION BY BIOSTAR. BioStar shall indemnify, defend
and hold harmless MDI and MDI's directors, officers, employees and agents from
and against any and all losses, costs, liabilities or expenses (including costs
and reasonable fees of attorneys and other professionals) arising out of or in
connection with BioStar's performance under or breach of this Agreement to the
extent caused by, in whole or in part, any negligent act or omission or willful
misconduct of BioStar or BioStar's employees or agents, including but not
limited to any act or omission that contributes to (i) any personal injury,
sickness, disease or death; (ii) any damage to or destruction of any property
of BioStar; or (iii) any violation of any statute, ordinance or regulation.
12.3 INDEMNIFICATION BY MDI. MDI shall indemnify, defend and hold
harmless BioStar and BioStar's directors, officers, employees and agents from
and against any and all losses, costs, liabilities or expenses (including costs
and reasonable fees of attorneys and other professionals) arising out of or in
connection with MDI's performance under or breach of this Agreement to the
extent caused by, in whole or in part, any negligent act or omission or willful
misconduct of MDI or MDI's employees or agents, including but not limited to
any act or omission that contributes to (i) any personal injury, sickness,
disease or death; (ii) any damage to or destruction of any property of BioStar;
or (iii) any violation of any statute, ordinance or regulation.
ARTICLE XIII
CONFIDENTIALITY
During the term of this Agreement and for a period of five (5) years
thereafter, any information which is disclosed by one party (either BioStar or
MDI) (the disclosing party) to the other party (either BioStar or MDI) (the
recipient) in confidence under this Agreement, including but not limited to the
existence of this Agreement, shall be treated by the recipient as Confidential
Information and shall be used by the recipient only in carrying out the
purposes of this Agreement. For the purposes of this Agreement, the term
"CONFIDENTIAL INFORMATION" shall mean and include any and all business and
financial information (including, without limitation, Product Specifications,
instructions, know-how, and inventions claimed by BioStar's patents) relating
to the Products and all information which a party should reasonably expect to
be considered Confidential Information. Confidential Information may be
communicated orally, in writing or in any other recorded or tangible form. The
foregoing obligations regarding confidentiality and use of Confidential
Information shall not apply to Confidential Information (i) which at the time
of disclosure is in the public domain; (ii) which after disclosure is published
or otherwise becomes part of the public domain through no fault of the
recipient, but only after it is published or comes into the public domain;
(iii) which the recipient can document by written records as having been its
possession at the time of disclosure hereunder; (iv) which the recipient can
document by written records as having been received by it after the time of
disclosure from a third party who did not acquire it directly or indirectly
under an obligation of confidence from the disclosing party; and (v)which the
recipient can document by written records to have been independently developed
by the recipient. Each party acknowledges that irreparable injury will result
to the other in the event of a breach or threatened breach of any of the
provisions of this Article and agrees that in the event of a breach or
threatened breach, the complaining party shall be entitled, in addition to any
other available remedy, to seek injunctive and other equitable relief
19.
<PAGE> 20
from a court of competent jurisdiction. The obligations contained in this
Article shall survive the termination of this Agreement.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 RELATIONSHIP OF THE PARTIES. Nothing herein contained shall
be deemed to constitute the relationship of partners, joint venturers nor of
principal and agent between MDI and BioStar.
14.2 ASSIGNMENT. Neither MDI nor BioStar shall assign this
Agreement without the prior written consent of the other; provided, however,
that BioStar, without such consent, may assign or sell this Agreement in
connection with the transfer or sale of all or substantially all of the assets
of its diagnostics business. Any permitted assignee shall assume all assigned
obligations of its assignor under this Agreement. No assignment shall relieve
either MDI or BioStar of responsibility for the performance of any accrued
obligation which it then has hereunder. Any consent required hereunder shall
not be unreasonably withheld.
14.3 WAIVER. Either party's waiver of any breach or failure to
enforce any of the terms and conditions of this Agreement, at any time, shall
in no way affect, limit or waive such party's right thereafter to enforce and
compel strict compliance with every term and condition of this Agreement.
14.4 SEVERABILITY. If any provision of this Agreement shall be
held invalid or unenforceable, such invalidity or unenforceability shall apply
only to such provision and shall not in any manner affect or render invalid or
unenforceable any other severable provision of this Agreement, and this
Agreement shall be carried out as if any such invalid or unenforceable
provision were not contained herein.
14.5 CAPTIONS. The captions at the beginning of the several
Articles of this Agreement have been inserted for convenience only and shall
not be used in any way to construe or interpret this Agreement.
14.6 NOTICES. all notices required or permitted to be given under
this Agreement shall be in writing and shall be sent by registered or certified
mail (return receipt requested), postage prepaid, or by telex or facsimile
(confirmed by such registered or certified mail), and shall be deemed to have
been given upon mailing. Any such notices shall be addressed to the receiving
party at such party's address set forth below or at such other address as may
from time to time be furnished by a similar notice by either party.
If to MDI: If to BioStar:
Murex Diagnostics, Inc. BioStar, Inc.
3075 Northwoods Circle 6655 Lookout Road
Norcross, Georgia 30071 Boulder, Colorado 80301
Fax: (770) 449-4018 Fax: (303) 530-6641
20.
<PAGE> 21
14.7 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Georgia.
14.8 COUNTERPARTS. Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original, but
all of which together shall constitute the same instrument.
14.9 ENTIRE AGREEMENT. This Agreement represents the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any prior agreement or understanding among them with respect to the
subject matter hereof. No provision hereof may be amended, modified,
terminated or revoked except by a writing signed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement
to be executed by their respective, duly authorized representatives as of this
day and year first above written.
Agreed to for an on behalf of Agreed to for an on behalf of
BIOSTAR, INC. MUREX DIAGNOSTICS, INC.
/s/ Teresa W. Ayers /s/ Robert V. Ahlgren
- --------------------------------- --------------------------------
Teresa W. Ayers Robert V. Ahlgren
President/Chief Executive Officer General Manager, Americas
Date: 7-7-97 Date: July 7, 1997
---------------------------- ---------------------------
21.
<PAGE> 22
APPENDIX A
PRODUCT LIST, PRODUCT SPECIFICATIONS AND PACKAGING SPECIFICATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------
PRODUCT PRODUCT AND PACKAGING SPECIFICATIONS
- ------- ------------------------------------
<S> <C>
- -----------------------------------------------------------
GAS-30 o Shelf Life - 6 months minimum
o Certificate of Analysis provided
- -----------------------------------------------------------
GAS-100 o Shelf Life - 6 months minimum
o Certificate of Analysis provided
- -----------------------------------------------------------
GBS-30 o Shelf Life - 6 months minimum
o Certificate of Analysis provided
- -----------------------------------------------------------
Chlamydia-30 o Shelf Life - 6 months minimum
o Certificate of Analysis provided
- -----------------------------------------------------------
</TABLE>
<PAGE> 23
APPENDIX B
SALES MINIMUM FOR CONTRACT YEAR 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
PRODUCT MINIMUM UNITS
------- -------------
<S> <C>
- ----------------------------------------------------------------------------
GAS-30 [ * ]
- ----------------------------------------------------------------------------
GAS-100 [ * ]
- ----------------------------------------------------------------------------
GBS-30 [ * ]
- ----------------------------------------------------------------------------
Chlamydia-30 [*]
- ----------------------------------------------------------------------------
</TABLE>
<PAGE> 24
APPENDIX C
CLINICAL EVALUATIONS MANAGEMENT PROCESS AGREEMENT BETWEEN BIOSTAR AND MUREX
APPROVED 1/7/97
MUREX RESPONSIBILITIES
REGISTRATION
o Register all evaluations with over 100 samples and any others where
investigator plans to publish data
o Submit all necessary information to Lyndal Hesterberg in writing-See form
attached (Lyndal's Fax is: 303-530-6627)
PROTOCOL APPROVAL
o Ensure account submits protocol in writing to Lyndal before evaluation
starts
o Use BioStar protocols wherever possible
TRAINING
o Train all personnel involved in evaluation and inform Lyndal that evaluation
has begun and approximate time to finish
FOLLOW UP
o Follow up during first week of evaluation to answer questions at least once
preferably in person to ensure account is comfortable reading OIA results
-ask account to save all completed tests.
o Follow up by telephone weekly after evaluation has started to resolve
problems quickly and bring in BioStar as needed.
o Provide feedback to Lyndal by voicemail during evaluation at least once per
month during evaluation (1-800-637-3717 ext. 604)
FINAL DATA
o Supply final data to BioStar for analysis
o Do not read results or alter any data from account please!
o Provide feedback on customer decision as a result of study-to convert,
change protocols, stay with competition, etc.
BIOSTAR RESPONSIBILITIES
REGISTRATION
o Keep current database of all evaluations submitted
PROTOCOL APPROVAL
o Approve protocol or provide feedback on protocol changes within 5 business
days
TRAINING
o Provide Proficiency Panels to Murex reps as needed to teach reading
FOLLOW UP
o Make contact at least once during first 2 weeks of evaluation
o Provide ongoing telephone support as needed
o Provide field support for critical influential evaluations if problems cannot
be resolved over the telephone
FINAL DATA
o Analyze data and provide feedback to customer as needed within 5 business
days
<PAGE> 25
AMENDMENT
THIS AGREEMENT, made effective this 27th day of January, 1998, by and
between BioStar, Inc., a corporation organized and existing under the laws of
the state of Delaware and having its principal place of business at 6655 Lookout
Road, Boulder, Colorado 80301 (hereinafter referred to as "BIOSTAR") and Murex
Diagnostics, Inc., a corporation organized and existing under the laws of the
State of Delaware and having its principal place of business at 3075 Northwoods
Circle, Norcross, Georgia 30071 (hereinafter referred to as "MDI").
WHEREAS, the parties entered into a Distribution Agreement dated as of
January 1, 1998 (the "DISTRIBUTION AGREEMENT") pursuant to which BioStar
appointed MDI as a distributor with respect to certain BioStar products; and
WHEREAS, the parties desire to amend certain provisions of the Distribution
Agreement to correct drafting errors.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants set forth herein, the parties hereto mutually agree as follows:
1. The references to Section 2.9 in Section 1.6 (definition of "Products") and
Section 1.7 (definition of "Specifications") are amended so that the
reference is to Section 2.7.
2. Section 2.7 is amended to read in full as follows:
2.7 RIGHT OF FIRST NEGOTIATION. BioStar hereby grants MDI the right of
first negotiation during the Term to become a distributor in the
Territory for any OIA rapid human invitro microbiological diagnostic
products which BioStar develops after the Effective Date on an
exclusive basis or some other basis mutually agreed upon by BioStar
and MDI; provided, however, that this Section 2.7 shall not apply to
any products which BioStar develops in cooperation with any third
party or for which BioStar does not have, or is unable to obtain, the
right to appoint MDI as a distributor.
3. The Distribution Agreement shall remain in full force and effect, except as
modified by this Agreement.
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to
be executed by their respective, duly authorized representatives as of this day
and year first above written.
Agreed to for and on behalf of Agreed to for and on behalf of
BIOSTAR, INC. MUREX DIAGNOSTICS, INC.
/s/ TERESA W. AYERS /s/ ROBERT V. AHLGREN
- --------------------------------- ------------------------------
Teresa W. Ayers Robert V. Ahlgren
President/Chief Executive Officer General Manager, Americas
<PAGE> 1
DISTRIBUTION AGREEMENT
BIOSTAR, INC./WYNTEK DIAGNOSTIC, INC.
THIS AGREEMENT ("Agreement"), made effective this 1st day of July, 1997, by and
between BioStar, Inc., a corporation organized and existing under the laws of
the state of Delaware and having its principal place of business at 6655
Lookout Road, Boulder, Colorado 80301 (hereinafter referred to as "BioStar")
and Wyntek Diagnostics, Inc., a corporation organized and existing under the
laws of the State of California and having its principal place of business at
6146 Nancy Ridge Drive, San Diego, CA 92121 (hereinafter referred to as
"Wyntek").
WHEREAS, BioStar(R) is engaged in the business of developing and marketing
various in vitro diagnostic products which utilize Optical ImmunoAssay (OIA(R))
technology and products ancillary thereto, and is seeking additional products
to market through its sales organization, and
WHEREAS, Wyntek is also engaged in the business of developing and marketing
various in vitro diagnostic products and is seeking an improved method of
distribution of its products.
NOW, THEREFORE in consideration of the mutual covenants and obligations set
forth below, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
The following definitions, whether used in the singular or in the plural, shall
apply throughout this Agreement:
1.1 "CONTRACT YEAR" shall mean the period of twelve (12)
successive calendar months commencing on the 1st day of July, 1997, and each
successive twelve (12) month period thereafter.
1.2 "EFFECTIVE DATE" shall mean the date appearing at the
beginning of this Agreement.
1.3 "PRODUCT(S)" shall mean the rapid human in vitro diagnostic
products set forth in Appendix A attached hereto and made a part hereof, and
such other diagnostic products, if any, as may be added thereto from time to
time by the parties in accordance with Section 2.6 hereof.
1.4 "SPECIFICATIONS" shall mean the product and packaging
specifications for each Product referred to in the Quality Control Agreement,
Exhibit A, attached hereto and made a part hereof, each of which has been
mutually agreed upon and, in respect of new products added pursuant to Section
2.6, will be mutually agreed upon in good faith by the parties hereto and set
forth in such product and packaging specifications, giving due consideration to
applicable regulatory requirements.
1.5 "TERRITORY" shall have the meaning set forth in Section 2.2
below.
1.
* CERTAIN CONFIDENTIAL MATERIAL CONTAINED IN
THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES ACT OF 1933, AS AMENDED
<PAGE> 2
1.6 "TRADEMARKS" shall mean those trademarks and trade names,
whether or not registered in the United States, trade dress and packaging which
(a) are owned by BioStar, and (b) are applied to or used in connection with a
Product.
1.7 "TERM" shall have the meaning set forth in Section 6.1 below.
1.8 "PURCHASE PRICE" shall be the price BioStar pays Wyntek for
the Products in Appendix A under the column titled "Cost/Test."
ARTICLE II
DISTRIBUTORSHIP
2.1 LICENSE. Subject to the terms of this Agreement, Wyntek
hereby grants to BioStar and BioStar hereby accepts from Wyntek a non-exclusive
right and license for the Term, (i) to market, sell, demonstrate and distribute
for sale the Products in the Territory, and (ii) to label the Products as
BioStar products manufactured for BioStar. The foregoing license includes a
right to sublicense to distributors.
2.2 TERRITORY. The license granted to BioStar set forth in
Section 2. 1 above shall be for the right and license to distribute the
Products in the Territory. "Territory" shall mean the United States, including
without limitation managed care outpatient facilities, physician offices,
urgent care facilities, clinics, student health centers, public school
facilities, public health facilities, hospitals and reference laboratories
located in the United States. The rights to sell the Products in additional
areas or markets may be discussed and agreed to separate from this contract.
2.3 BIOSTAR'S OBLIGATIONS. BioStar agrees to use its best efforts
to promote and maximize the sale, marketing and distribution of the Products in
the Territory. BioStar may distribute the Products in the Territory under the
Trademarks. BioStar, at its own expense, may prepare advertising and
promotional materials. All of BioStar's advertising and promotional materials
shall designate the Products by the Trademarks and shall identify the Products
as being manufactured for BioStar.
(A) REPRESENTATIONS AND WARRANTIES. BioStar
represents and warrants that it has adequate financial resources, management,
sales force and facilities (including warehouse facilities, business offices and
clerical staff): (i) to acquire and maintain a reasonable inventory of Products;
(ii) to sell and promote the sale of the Products as herein provided; and (iii)
to otherwise perform all of its obligations under this Agreement.
(B) CUSTOMER LIST. For regulatory purposes,
BioStar shall establish and maintain a system of record keeping identifying each
end user by name, address, the date of sale and lot number for each of the
Products sold (the "Customer List"). If the customer does not use the Products
itself, but rather delivers the Products to other end users, then BioStar shall
require the customer to maintain a similar Customer List.
(C) TECHNICAL SUPPORT OBLIGATIONS. BioStar shall
provide technical assistance and support to its customers who purchase the
Products.
2.
<PAGE> 3
2.4 WYNTEK'S OBLIGATIONS. Wyntek will make available to BioStar the
following support:
(A) REPRESENTATIONS AND WARRANTIES. Wyntek represents and
warrants that it has adequate financial resources, management and facilities
(including manufacturing and warehouse facilities, business offices and
clerical staff): (i) to produce and maintain an inventory of Products
sufficient to meet its supply obligations under this Agreement; and (ii) to
otherwise perform all of its obligations under this Agreement.
(B) Wyntek shall keep BioStar fully informed of all governmental,
commercial and industrial activities and plans of which it has knowledge which
Wyntek believes does or could affect the sale of the Products in the Territory.
(C) Wyntek will support BioStar's marketing efforts by conducting
meetings to train BioStar personnel for the sale, after-sale service and
support of the Product sold in the Territory pursuant to this Agreement. Such
support will include training of BioStar employees at BioStar's offices
specifically as it relates to new product introductions and QC/QA standards.
Wyntek will be responsible for the cost of transportation and living expenses
for its training staff.
(D) TECHNICAL ASSISTANCE. Any technical support BioStar may
reasonably require for the promotion, sale, after-sale service and support of
Product sold in the Territory pursuant to this Agreement.
(E) Copies of third party publications and scientific support
material for the Products.
(F) Support for BioStar's customer product evaluations as needed
and agreed to by both parties.
2.5 RESERVATION OF RIGHTS. Wyntek agrees not to develop private label
agreements with other companies for the United States domestic market for the
products listed in Appendix A and subsequent products that may be listed in
Appendix A that contain more favorable terms than the contract with BioStar.
2.6 NOTIFICATION OF INTENT TO MARKET. Wyntek agrees to notify BioStar of
plans to market new Products and, if it is appropriate, to discuss including
the distribution of the new Products in the agreement between BioStar and
Wyntek.
ARTICLE III
MANUFACTURE BY AND SUPPLY FROM WYNTEK
3.1 PURCHASE OF PRODUCTS. BioStar undertakes to purchase the
Products in its own name and for its own account. Purchase of Products shall
be made on a monthly basis and shall be made by delivery to Wyntek, sixty (60)
days in advance of the requested delivery date, of written purchase orders for
the Products (the "Purchase Orders"). The first thirty days represent
committed purchase volumes. BioStar may increase or decrease stated purchase
volumes for the second thirty (30) days by up to 20%, provided a written
purchase order is placed at Wyntek at
3.
<PAGE> 4
least thirty (30) days prior to requested delivery. In the event of any
inconsistency between the terms and conditions of a Purchase Order and this
Agreement, this Agreement shall prevail.
3.2 PACKAGING TO OCCUR AS FOLLOWS.
(A) FOR THE STREP A PRODUCT. Initially, Wyntek shall
deliver the Products to BioStar in finished form (in packaging designed by
BioStar), ready for delivery to BioStar customers. BioStar is to develop
artwork for all packaging and deliver this artwork to Wyntek. Wyntek will
produce all packaging using the BioStar artwork. The packaging shall include
all Wyntek labeling, package inserts and cartons with artwork designed by
BioStar. As soon as possible, but, prior to December 31, 1997, Wyntek will
initiate shipments of strips in tube, reagents in bottles, test tubes and tray
to BioStar for BioStar to package. BioStar will be responsible for purchase of
swabs, package inserts and packaging required for the completion of the
assembly of the Product and the Product packaging. Cost of the Products is
listed in Appendix A.
(B) FOR THE HCG PRODUCT. Wyntek shall deliver the
Products to BioStar in finished form (in packaging designed by BioStar), ready
for delivery to BioStar's customers. BioStar is to develop artwork for all
packaging and deliver this artwork to Wyntek. Wyntek will produce all
packaging using the BioStar artwork. The packaging includes all Wyntek
labeling, package inserts and cartons using the BioStar artwork.
(C) Wyntek will purchase a set quantity of BioStar
packaging and labeling material. At the transition of final assembly for the
Strep A product from Wyntek to BioStar, BioStar will pay Wyntek for all of the
unused material at Wyntek's cost. BioStar will also pay for any set up fees
for the initiation or changes of BioStar packaging and labeling.
3.3 REGULATORY APPROVALS. Wyntek shall be fully responsible for
obtaining and maintaining United States Food and Drug Administration
(hereinafter referred to as "FDA") approval/clearance with respect to all
Products. Any provision of this Agreement to the contrary notwithstanding, the
obligations of Wyntek to supply and BioStar to purchase from Wyntek any Product
under this Agreement are expressly conditioned upon receipt of all required
regulatory approvals for any such Product, including but not limited to
approval/clearance by the FDA for any such Product, and unless such approvals
are granted, Wyntek shall be under no obligation to supply and BioStar shall be
under no obligation to purchase any such Product.
ARTICLE IV
PRICES AND PAYMENTS
4.1 PRICES; TAXES. The per test prices of the Products are set
forth in Appendix A. Prices listed on Appendix A do not include sales, use, or
excise or similar taxes. The amount of any present, retroactive or future
sales, use, excise or similar tax applicable to BioStar's purchase of Products
will be paid by BioStar.
4.2 PAYMENT. Payment shall be due to Wyntek not later than
forty-five (45) days following the date of the invoice. Payment shall be made
to Wyntek in United States Dollars by check. Wyntek shall not invoice BioStar
for any Product prior to the shipment of such Product.
4.
<PAGE> 5
4.3 PRICE CHANCES. At least ninety (90) days prior to the end of
the Contract Year ending 6/30/98 and each Contract Year thereafter, Wyntek and
BioStar shall meet and negotiate in good faith the purchase price to govern the
purchase of each Product by BioStar from Wyntek for the succeeding Contract
Year. The purchase price of each Product will be reviewed annually taking into
account market conditions and any changes in the cost of manufacture of the
Product. In the event no agreement is reached on a price revision following
such review, Wyntek shall be entitled to adjust the purchase price fifty
percent (50%) of the US Consumer Price Index (All Items) over the preceding
contract period, provided Wyntek can document to BioStar's satisfaction that
Wyntek's costs have increased an equivalent amount. All orders received and
accepted by Wyntek prior to the effective date of the price increase will be
billed at the price in effect at the time of acceptance of the order. All
other orders will be billed at the increased price.
4.4 SPECIFIC BUSINESS OPPORTUNITIES. In certain situations,
BioStar and Wyntek may mutually agree to pursue specific business opportunities
at special prices. It is agreed that BioStar and Wyntek will establish a
pricing system appropriate for each situation.
4.5 CAMDON LABORATORY AND MEDICAL SUPPLY, PRICING. Camdon will be
contacted jointly by BioStar and Wyntek upon the signing of the agreement to
determine which source (BioStar or Wyntek) Camdon will use for product supply.
4.6 SAMPLES. BioStar will purchase from Wyntek [ * ] 10-test
BioStar-labeled kits. Wyntek agrees to sell these [ * ] 10-test kits to BioStar
for a total of [ * ]. These [ * ] kits are to be delivered to BioStar as
soon as possible, but no later than July 15, 1997. In addition, BioStar may
purchase additional 10-kits for [ * ] per kit. These kits are to be
purchased as agreed to in 3.1. Wyntek will supply BioStar one (1) up or two (2)
up sample kits of the hCG test in printed envelopes. Wyntek will supply the
sample tests at no charge and BioStar will pay for the printing and other
materials. Initially, [ * ] two (2) up kits are to be delivered to BioStar as
soon as possible, but no later than July 15, 1997. Additional tests will be
ordered as agreed to in 3.1.
ARTICLE V
DELIVERY AND ACCEPTANCE
5.1 DELIVERY. Wyntek shall use its best efforts to deliver
Products ordered by BioStar on or before the requested delivery date to the
extent that such date is at least thirty (30) days from the date Wyntek
receives the order. All shipments will be ground; any expediting of shipments
will be charged to BioStar. Deliveries shall be made FOB BioStar's facility
and shall be shipped to BioStar's address as set forth in this Agreement.
Delivery quantities shall be plus or minus 10% of the order quantity. Wyntek
shall bear the risk of loss until such time as a shipment has been accepted by
BioStar at the BioStar facility. Any claims for damage or loss in transit
shall be placed by Wyntek through the carrier. All shipments will be shipped
by Wyntek freight paid.
5.2 ACCEPTANCE. BioStar shall inspect all goods and shall
validate the quantity of goods promptly upon receipt thereof at the shipping
destination. BioStar will notify Wyntek if any order quantities are incorrect.
Product received at BioStar shall have a minimum of ten (10) months shelf life.
BioStar may reject any goods which fail to meet BioStar's acceptance
5.
<PAGE> 6
specifications prevailing on the date of delivery. The acceptance
specifications will be mutually determined by BioStar and Wyntek and set forth
in Exhibit A. Goods not rejected by written notification to Wyntek within
twenty-one (21) days of receipt shall be deemed to have been accepted.
Rejected goods shall be returned freight collect to Wyntek within ten (10) days
of rejection. As promptly as possible but not later than thirty (30) days
after receipt by Wyntek of properly rejected goods, Wyntek shall, at its option
and expense, either repair or replace rejected goods. Wyntek shall bear the
entire risk of loss for goods during shipment. Any insurance proceeds payable
in respect of any loss incurred shall be received by Wyntek.
ARTICLE VI
TERM; TERMINATION
6.1 TERM. Except as otherwise expressly provided in this
Agreement:
(A) INITIAL TERM. The initial term of this Agreement
shall extend from the Effective Date for a period of three (3) years with
options to renew for one (1) year periods as set forth in subsection (b) below
(collectively, the "Term").
(B) RENEWAL OPTION. BioStar shall have the right and
option to renew the term of this Agreement for additional successive periods of
one (1) Contract Year by giving Wyntek written notice thereof at least ninety
(90) days prior to the end of the preceding Contract Year.
If no such written notice is given within such time period, the term of
the agreement will expire.
6.2 TERMINATION BY BIOSTAR. In addition and without prejudice to
any other rights or remedies, this Agreement may be terminated by BioStar as
follows:
(A) TERMINATION FOR BREACH BY WYNTEK. This Agreement may
be terminated by BioStar in the event of the breach or default by Wyntek of the
terms and conditions hereof; provided, however, that with respect to a breach
or default other than Wyntek's inability to supply the Products otherwise than
for a cause reasonably beyond its control, as provided in Section 11.1 hereof,
BioStar shall first give Wyntek written notice of the proposed termination or
cancellation of this Agreement, specifying the grounds therefore, and Wyntek
shall have sixty (60) days after such notice is given to cure such default. If
not so cured, this Agreement shall terminate or be deemed canceled at the
expiration of such sixty (60) days.
(B) EXCHANGE OF MANUFACTURING RIGHTS. BioStar and Wyntek
will discuss appropriate royalties for the perpetual right to manufacture the
Products for sale in the territory upon (i) (A) all or a substantial portion of
the assets of Wyntek are transferred to an assignee for the benefit of
creditors, to a receiver or to a trustee in bankruptcy, (B) a proceeding is
commenced by or against Wyntek for relief in bankruptcy or similar laws and
such proceeding is not dismissed within sixty (60) days, or (C) Wyntek is
adjudged bankrupt, or (ii) Wyntek announces that it is discontinuing or has
discontinued its business that is directed to the manufacture of the Products,
any of which shall be deemed to substantially impair the value of this
Agreement to BioStar. In any such event, Wyntek agrees to immediately deliver
to BioStar the manufacturing processes, materials supplier, any necessary
rights, licenses, and know-how,
6.
<PAGE> 7
and any other information that would provide BioStar the ability to assume the
manufacturing of products listed in Appendix A.
6.3 TERMINATION BY WYNTEK. In addition and without prejudice to
any other rights or remedies, this Agreement may be terminated by Wyntek in the
event of the breach or default by BioStar of the terms and conditions hereof;
Wyntek shall first give BioStar written notice of the proposed termination or
cancellation of this Agreement, specifying the grounds therefor, and BioStar
shall have sixty (60) days after such notice is given to cure such default. If
not so cured, this Agreement shall terminate or be deemed canceled at the
expiration of such sixty (60) days.
6.4 TERMINATION BY EITHER PARTY. Notwithstanding anything in this
Agreement to the contrary, either party shall have the right, in addition and
without prejudice to any other rights or remedies, to terminate this Agreement
immediately upon written notice to the other party if:
(A) (i) all or a substantial portion of the assets of
the other patty are transferred to an assignee for the benefit of creditors, to
a receiver or to a trustee in bankruptcy, (ii) a proceeding is commenced by or
against the other party for relief under bankruptcy or similar laws and such
proceeding is not dismissed within sixty (60) days, or (iii) the other party is
adjudged bankrupt;
(B) the other party shall cease to carry on business; or
(C) an event described in Section 11.1 continues for a
period of three (3) months, provided that the party seeking a termination gives
the other party thirty (30) days prior written notice.
6.5 EFFECT OF A TERMINATION ON AGREEMENT AND OUTSTANDING ORDERS.
Termination or cancellation of this Agreement is not a release and shall not
relieve either party from any obligation under this Agreement which may have
accrued prior thereto, including any confidentiality obligation of either party
under Article XIII of this Agreement. In the event that Wyntek terminates, all
orders or portions thereof remaining unshipped as of the effective date of
termination shall automatically be canceled. If BioStar terminates, BioStar
shall have the option to require that all orders be fulfilled.
6.6 GUARANTEE OF SUPPLY TO BIOSTAR CONTRACT ACCOUNTS. In the
event that this Agreement is terminated by Wyntek for any reason, Wyntek agrees
to continue to supply Products to contracted accounts which BioStar identifies
to Wyntek for the term of and according to the terms and conditions of
BioStar's agreement with such contracted accounts.
6.7 PRODUCT DEPLETION IN THE EVENT OF TERMINATION. In the event
of termination of the Agreement by BioStar or by mutual agreement of the
parties, BioStar has the right to sell its remaining inventory.
ARTICLE VII
WARRANTIES AND INSPECTIONS
7.1 WARRANTIES. Wyntek covenants and warrants as follows:
7.
<PAGE> 8
(A) All Products supplied hereunder shall, at all times
(i) be approved/cleared by the FDA for marketing in the Territory, (ii) meet
the applicable Specifications and requirements set forth in Exhibit A hereto;
(iii) have a minimum shelf life equal to ten (10) months, and (iv) be free from
material faults and defects in workmanship. Notwithstanding the above, the
shelf life of Products added to this Agreement by the parties after the
Effective Date will be individually determined and mutually agreed to by the
parties.
(B) Wyntek guarantees that no Products supplied hereunder
will, at any time, (i) be adulterated, misbranded, banned or restricted within
the meaning of the Federal Food, Drug and Cosmetic Act, as amended, or (ii) be
a product which may not under the provisions of Section 404 or 505 of such Act
be introduced into interstate commerce. This guarantee shall be a continuing
guarantee and shall be binding upon merchandise shipped or delivered by Wyntek
to BioStar before the receipt by BioStar of written notice of revocation
thereof.
(C) All Products supplied hereunder will be manufactured
and packaged in accordance with, and will materially meet, all other applicable
federal, state and local laws, including but not limited to FDA regulations
covering good manufacturing practices.
(D) The required tests and quality control procedures
shall have been carried out by Wyntek on Product prior to delivery to BioStar
and the test results shall be available for inspection by BioStar.
(E) Human-based materials incorporated into any Product
shall have been tested and found free from HIV I+II and Hepatitis BsAg and HBC
viruses and other contaminants as agreed in the tests and quality control
procedures and any additional tests required for BioStar to sell the Products
in the Territory shall be completed.
(F) All animal derived materials incorporated into
Product shall have been obtained from sources acceptable to all relevant US
authorities for importation into and use in the US.
(G) Product shall be generally safe when used by trained
individuals in a clinical testing site in accordance with the procedures and
specifications included in its instructions.
(H) The Products shall not infringe any copyrights,
trademarks, trade secrets or patents of any third party.
7.2 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES,
INCLUDING LOSS OF PROFITS, REVENUE, DATA, OR USE, INCURRED BY EITHER PARTY OR
ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT OR BASED ON A
WARRANTY, EVEN IF THE OTHER PARTY OR ANY OTHER PERSON HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. SOME STATES DO NOT ALLOW THE LIMITATION FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION MAY NOT APPLY.
8.
<PAGE> 9
7.3 BIOSTAR RIGHT TO INSPECT.
(A) BioStar shall have the right during regular business
hours to inspect any facility on a biannual basis with appropriate advance
notice where Products are manufactured. Wyntek further agrees to cooperate
fully with, and to provide all data and records relating to the manufacture or
assembly of the Products, including but not limited to analytical methodologies
and quality assurance records reasonably requested by the authorized
representatives of BioStar, but not including any Wyntek proprietary
information.
(B) Notwithstanding anything herein to the contrary, any
failure on the part of BioStar to discover any non-conformance either during
the production process or upon inspection of shipments shall not relieve Wyntek
of its warranties hereunder.
ARTICLE VIII
WARRANTY CLAIMS
8.1 QUALITY ASSURANCE DOCUMENTATION. Each delivery of Products
shall be accompanied by documentation in a form agreed between the Managers of
Quality Assurance for both parties.
8.2 NOTICE OF PRODUCT FAILURE. Each party will immediately notify
the other, by rapid means of communication, and, in any event, within three (3)
business days, in the event of failure of the Products to meet the
Specifications or of any Product's failure to meet, or difficulties disclosed
by, the quality control tests carried out on the Product, or of any continued
stability testing, customer complaints or otherwise, the details of such
notification to be confirmed in writing.
8.3 REMEDY. Upon its verification of any claim or defect or
nonconformity of a unit of the Products, Wyntek will use its reasonable best
efforts to provide BioStar with a replacement unit or parts thereof to the
extent necessary to honor Wyntek's warranties contained in Section 7.1 within
ten (10) days of such determination. If Wyntek is unable to provide BioStar
with a replacement Product, BioStar will be entitled to a refund of the
purchase price paid for such Product. In the event that Wyntek decides to
recall, replace or take other action with respect to any Products, BioStar will
immediately cease sales of any units of Products in its possession or control
that are subject to the action until Wyntek determines the course of action to
be taken. BioStar will return to Wyntek, if so requested, by a reasonable
method, non-complying Product in accordance with the directions of and at the
cost of Wyntek. If the Product is found to be complying pursuant to Section
8.5, then all costs associated with having returned the Product to Wyntek shall
be borne by BioStar.
8.4 EFFECT OF ACCEPTANCE ON WARRANTY CLAIMS. BioStar's acceptance
of products pursuant to Section 5.2 above shall in no way prejudice BioStar's
right to a replacement in the event that Product does not conform to the
warranties given in Section 7.1.
8.5 RESOLUTION OF WARRANTY CLAIMS. In the event of any dispute
arising between the parties which they are unable to settle amicably as to the
quality and/or conformity of a Product to its Specifications when used in
accordance with the procedures included in the Product's instructions, taking
account of the terms of this Agreement and in particular the warranties of
9.
<PAGE> 10
Wyntek under Section 7.1, the matter shall be referred to a suitable,
independent, mutually agreed upon laboratory of repute in the United States,
which shall be requested to make a determination with respect to the quality
and/or conformity of the Product. If quality and/or conformity of the disputed
Product is found to be in accordance with the terms of this Agreement, the
laboratory expense shall be borne by BioStar; otherwise the laboratory expense
shall be borne by Wyntek. The parties agree that any such determination shall
be final and binding on both parties and that the laboratory shall act as
expert, not arbitrator.
8.6 BATCH SAMPLE RETENTION. Wyntek shall retain samples from each
batch of a Product for at least three (3) months after the expiration date
sufficient for the purpose of verification in the case of complaints from
purchasers or other users of the Product.
8.7 QUALITY CONTROL/QUALITY ASSURANCE INVESTIGATION.
(A) If BioStar reasonably considers it necessary in the
light of customer complaints it receives in respect of a Product (or when an
appropriate regulatory authority requires it), Wyntek shall at BioStar's
request instigate a quality control/quality assurance investigation in respect
of a Product and report its findings to BioStar as soon as such findings are
available and in any event provide a preliminary report within two (2) weeks
after the receipt of BioStar's request.
(B) If Wyntek's findings are not in BioStar's reasonable
opinion considered adequate to explain and resolve the problem or complaint
giving rise to BioStar's request, Wyntek shall allow BioStar the right to raise
specific questions about the complaint and the findings and any other matter
pertinent thereto, to examine relevant documentation and to audit relevant
manufacturing procedures at Wyntek's manufacturing premises and Wyntek shall
ensure that its relevant personnel shall provide BioStar with such reasonable
information and assistance as BioStar may require in this regard.
ARTICLE IX
PRODUCT WITHDRAWALS
9.1 PRODUCT WITHDRAWALS. Wyntek shall promptly notify BioStar of
and shall provide BioStar with copies of any correspondence and other
documentation received or prepared by Wyntek in connection with any of the
following events:
(A) receipt of a regulatory letter from the FDA in
connection with Wyntek's manufacture, or a third party's manufacture, of any
Product;
(B) the recall of any Product;
(C) the withdrawal of any Product from the market;
(D) any regulatory comments or inquiry from a government
entity requiring a response or action by Wyntek or a third party manufacturer
with respect to any Product; or
(E) receipt of repetitive complaints about a Product
which relate to the clinical efficacy of such Product.
10.
<PAGE> 11
9.2 PRODUCT CHANGES. Wyntek will notify BioStar thirty days in
advance of making any significant change in the composition of, the
manufacturing process for, or the labeling of any Product. Wyntek shall be
responsible for obtaining all relevant FDA or other US government approvals
prior to shipping such Product to BioStar for sale in the US. The following
constitutes significant change or modifications:
(A) A change or modification in the product that could
significantly affect the safety or effectiveness of the device, e.g., a
significant change or modification in design, material, chemical composition,
or manufacturing process.
(B) A major change or modification in the intended use of
the device.
9.3 COSTS OF PRODUCT WITHDRAWAL, NOTIFICATION OR LABELING CHANGE.
In the event of a recall, market withdrawal, notification, labeling change or
correction of a Product, Wyntek shall reimburse BioStar for all documented
costs and expenses associated with such action, including labeling and postage
cost. Such costs and expenses shall be substantiated in a reasonably
satisfactory manner.
ARTICLE X
INTELLECTUAL PROPERTY
10.1 OWNERSHIP OF WYNTEK INTELLECTUAL PROPERTY. Wyntek shall
retain all of its rights, title and interest in and to and ownership of all
copyrights, Wyntek trademarks, trade secrets, patents and all other industrial
and intellectual property embodied in the Products other than any BioStar
trademarks, packaging or marketing materials including any improvements or
enhancements to the Products developed by Wyntek (the "Wyntek Intellectual
Property"). Except as otherwise expressly provided in this Agreement, BioStar
has no right, title or interest in the Products or any Wyntek Intellectual
Property relating to the Products and shall not reproduce or otherwise use, in
whole or in part, the Products or the Wyntek Intellectual Property.
10.2 OWNERSHIP OF BIOSTAR INTELLECTUAL PROPERTY. BioStar shall
retain all of its rights, title and interest in and to and ownership of all
copyrights, trademarks, trade secrets, patents and all other industrial and
intellectual property embodied in the Products developed by BioStar including
any improvements or enhancements to the Products (the "BioStar Intellectual
Property"). Except as otherwise expressly provided in this Agreement, Wyntek
has no right, title or interest in the Products or any BioStar Intellectual
Property relating to the Products and shall not reproduce or otherwise use, in
whole or in part the BioStar Intellectual Property.
10.3 USE OF TRADEMARKS. In connection with the manufacturing of
the Products, Wyntek may use the Trademarks. The Trademarks shall bear the
designation (TM) or the designation specified by BioStar.
(A) Wyntek acknowledges the validity of the other party's
right, title and interest in the Trademarks and shall not have, assert or
acquire any right, title or interest in or to any of the Trademarks, except to
the extent expressly provided herein. If Wyntek acquires any goodwill or
reputation in any of the Trademarks, then at the expiration or termination of
this Agreement, all such goodwill or reputation automatically shall vest in
BioStar without any
11.
<PAGE> 12
separate payment or other consideration of any kind to Wyntek and Wyntek agrees
to take all such actions necessary to effect such vesting.
(B) Wyntek shall use the Trademarks only in connection
with the production of the products that will be shipped to BioStar for sale to
BioStar customers.
(C) Wyntek shall, at the request and expense of BioStar,
do such acts or things as BioStar may reasonably require for the purpose of
obtaining, maintaining, enforcing and preserving any of the Trademarks, trade
names or other proprietary rights of BioStar in the Territory; provided,
however, that Wyntek agrees that only BioStar has the right to enjoin any
infringement or registration by a third party of such Trademarks, trade names
or similar rights. Wyntek shall give BioStar notice of any infringement or
threatened infringement of the Trademarks used in connection with the Products.
Such notice shall include the full facts of the infringement or threatened
infringement known to Wyntek, including the identity of the suspected
infringer, the place of the asserted infringement and evidence thereof. Wyntek
agrees to cooperate fully with BioStar at the expense of BioStar if BioStar
sues to enjoin such infringement.
(D) Each party shall not (nor shall it attempt to) adopt,
use, or register any acronym, trademark, trade name or other marketing name of
the other party or any confusingly similar work or symbol as part of such
party's own name or the name of its affiliates or the names of the products
which it markets.
ARTICLE XI
EXCUSES FOR NONPERFORMANCE
11.1 FORCE MAJEURE. No party shall be held liable or responsible
for failure or delay in fulfilling or performing any obligation of this
Agreement in case such failure or delay is due to Acts of God, strikes or other
labor disputes, governmental regulations or actions, inability to obtain or
provide material, labor, equipment or transportation, or any other condition
beyond the reasonable control of the affected party.
(A) Each party agrees to give the other party prompt
written notice of the occurrence of any such condition, the nature thereof, and
the extent to which the affected party will be unable to fully perform its
obligations hereunder. Each party further agrees to use all reasonable efforts
to correct the condition as quickly as possible, and to give the other party
prompt written notice when it is again fully able to perform such obligations.
(B) All quantities of Products not shipped by Wyntek
hereunder due to any such condition shall be confirmed, in writing, by the
parties immediately after such condition has been corrected.
11.2 PRODUCT ALLOCATION. If, as a result of conditions as set
forth in Section 11.1 above, Wyntek at any time is unable fully to supply the
orders of BioStar and Wyntek's other customers, Wyntek shall equitably allocate
(by percentage of total sales for the three months prior to the occurrence) its
available resources and production capacity among BioStar and Wyntek' s other
customers.
12.
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ARTICLE XII
INSURANCE; INDEMNIFICATION
12.1 PRODUCT LIABILITY INSURANCE.
(A) Wyntek shall take out and maintain, at its own
expense, from the signing of this Agreement until November of 1997 product
liability insurance for one million dollars ($1,000,000) and after November of
1997 and for a minimum of two (2) years following the expiration, termination
or cancellation of this Agreement, at least two million dollars ($2,000,000) of
product liability coverage from an insurance company or companies reasonably
satisfactory to BioStar. The insurance policy relating to such coverage shall
name BioStar as an additional insured by endorsement. BioStar will notify
Wyntek prior to contacting Wyntek's insurance company for any reason.
(B) Promptly upon execution of this Agreement, Wyntek
shall cause to be delivered to BioStar an insurance certificate evidencing the
insurance coverage required by Section 12.1(A). Such insurance certificate
shall name BioStar as an additional insured and shall include a certification
that such insurance coverage includes contractual coverage for Wyntek's
liability under this Agreement. In the event of cancellation or modification
of Wyntek's policy thirty (30) days prior notification will be sent to BioStar.
12.2 INDEMNIFICATION BY WYNTEK. Wyntek shall indemnify, defend and
hold harmless BioStar and BioStar's directors, officers, employees and agents
from and against any and all losses, costs, liabilities or expenses (including
costs and reasonable fees of attorneys and other professionals) arising out of
or in connection with Wyntek's performance under or breach of this Agreement to
the extent caused by, in whole or in part, any negligent act or omission or
willful misconduct of Wyntek or Wyntek's employees or agents, including but not
limited to any act or omission that contributes to (i) any personal injury,
sickness, disease or death; (ii) any damage to or destruction of any property
of BioStar or BioStar's customers; or (iii) any violation of any statute,
ordinance or regulation. Wyntek shall indemnify, defend and hold harmless
BioStar and BioStar's directors, officers, employees and agents from and
against any and all losses, costs, liabilities or expenses (including costs and
reasonable fees of attorneys and other professionals) arising out of or in
connection with the infringement by the Products of copyrights, trade secrets
or patents of third parties.
12.3 INDEMNIFICATION BY BIOSTAR.
(A) BioStar shall indemnify, defend and hold harmless
Wyntek or Wyntek's directors, officers, employees and agents from and against
any and all losses, costs, liabilities or expenses (including costs and
reasonable fees of attorneys and other professionals) arising out of or in
connection with BioStar's performance under or breach of this Agreement to the
extent caused by, in whole or in part, any negligent act or omission or willful
misconduct of BioStar or BioStar's employees or agents, including but not
limited to any act or omission that contributes to (i) any personal injury,
sickness, disease or death; (ii) any damage to or destruction of any property
of Wyntek; or, (iii) any violation of any statute, ordinance or regulation.
13.
<PAGE> 14
(B) BioStar, at its own expense, will defend and hold
Wyntek harmless against a claim that any copy, bar codes or artwork supplied to
Wyntek by BioStar infringes the trademarks and/or copyrights of the claimant.
BioStar will pay all costs, damages and attorney's fees that a court finally
awards as a result of such claim. To qualify for such defense and payment,
Wyntek must give BioStar prompt written notice of any such claim and allow
BioStar to completely control, and fully cooperate with BioStar, in the defense
thereof and all related settlement negotiations. Wyntek agrees that if the
ownership or use of any of the BioStar supplied copy, bar codes or artwork
becomes or is likely to become the subject of such a claim, Wyntek will permit
BioStar, at BioStar's option and expense, to either secure the right to
continue to fully utilize all such copy, bar codes or artwork or to modify such
BioStar supplied copy, bar codes or artwork so that it is no longer subject to
such claim.
(C) Wyntek may retain counsel of its own choice, at its
own expense and option, with respect to its involvement in the disposition of
any claim made under Section 12 (B), but BioStar's right to completely control
and settle any claim indemnifiable under Section 12 (B) shall not be diminished
or altered in any fashion thereby.
(D) Not withstanding the foregoing, BioStar shall have no
indemnity obligation to Wyntek where the claim of infringement would not have
been made or sustained except for the copy, bar codes or artwork submitted by
BioStar to Wyntek.
(E) Not withstanding the foregoing, BioStar shall have no
indemnity obligation to Wyntek where the claim of infringement is covered by
insurance carried by Wyntek to the extent that Wyntek seeks to collect
reimbursement or indemnification from its insurance carrier therefore.
ARTICLE XIII
CONFIDENTIALITY
During the term of this Agreement and for a period of two (2) years
thereafter, any Confidential Information which is disclosed by one party
(either BioStar or Wyntek) (the "disclosing party") to the other party (either
BioStar or Wyntek), (the "recipient") shall be maintained in confidence by the
recipient and shall be used by the recipient only in carrying out the purposes
of this Agreement. For the purposes of this Agreement, the term "Confidential
Information" shall mean and include any and all proprietary information
relating to the design, development, manufacture, operation and marketing of
the Products, as well as other information relating to know-how, technologies,
process, assets, business plans, and financial information relating to the
Products and to each of the parties and all information which a party should
reasonably expect to be considered Confidential Information. Confidential
Information may be communicated orally, in writing or in any other recorded or
tangible form. The foregoing obligations regarding confidentiality and use of
Confidential Information shall not apply to Confidential Information (i) which
at the time of disclosure is in the public domain; (ii) which after disclosure
is published or otherwise becomes part of the public domain through no fault of
the recipient, but only after it is published or comes into the public domain;
(iii) which the recipient can document by written records as having been its
possession at the time of disclosure hereunder; (iv) which the recipient can
document by written records as having been received by it after the time of
disclosure from a third party who did not acquire it directly or indirectly
under
14.
<PAGE> 15
an obligation of confidence from the disclosing party; and (v) is required to
be disclosed in a judicial or administrative proceeding after all reasonable
legal remedies for maintaining such information in confidence have been
exhausted; or (vi) which the recipient can document by written records to have
been independently developed by the recipient. Each party acknowledges that
irreparable injury will result to the other in the event of a breach or
threatened breach of any of the provisions of this Article and agrees that in
the event of a breach or threatened breach, the complaining party shall be
entitled, in addition to any other available remedy, to seek injunctive and
other equitable relief from a court of competent jurisdiction. The obligations
contained in this Article shall survive the termination of this Agreement.
BioStar may disclose Confidential Information to third parties to the extent
necessary to perform its obligations under this Agreement.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 RELATIONSHIP OF THE PARTIES. Nothing herein contained shall
be deemed to constitute the relationship of partners, joint venturers nor of
principal and agent between Wyntek and BioStar.
14.2 ASSIGNMENT. Neither Wyntek nor BioStar shall assign this
Agreement without the prior written consent of the other, provided, however,
that either party, without such consent, may assign or sell this Agreement in
connection with the transfer or sale of all or substantially all of the assets
of its diagnostics business or a change in control of BioStar. Any permitted
assignee shall assume all assigned obligations of its assignor under this
Agreement. No assignment shall relieve either Wyntek or BioStar of
responsibility for the performance of any accrued obligation which it then has
hereunder. If either party is acquired by a competitor than the acquired party
must agree to the terms of the contract for twelve (12) months from the date of
the acquisition. Any consent required hereunder shall not be unreasonably
withheld.
14.3 WAIVER. Either party's waiver of any breach or failure to
enforce any of the terms and conditions of this Agreement, at any time, shall
in no way affect, limit or waive such party's right thereafter to enforce and
compel strict compliance with every term and condition of this Agreement.
14.4 SEVERABILITY. If any provision of this Agreement shall be
held invalid or unenforceable, such invalidity or unenforceability shall apply
only to such provision and shall not in any manner affect or render invalid or
unenforceable any other severable provision of this Agreement, and this
Agreement shall be carried out as if any such invalid or unenforceable
provision were not contained herein.
14.5 CAPTION. The captions at the beginning of the several
Articles of this Agreement have been inserted for convenience only and shall
not be used in any way to construe or interpret this Agreement.
14.6 NOTICE. All notices required or permitted to be given under
this Agreement shall be in writing and shall be sent by registered or certified
mail (return receipt requested), postage prepaid, by commercial overnight
courier, or by telex or facsimile (confirmed), and shall be
15.
<PAGE> 16
deemed to have been given upon mailing, deposit with the courier, or receipt of
facsimile confirmation, as the case may be. Any such notices shall be
addressed to the receiving party at such party's address set forth below or at
such other address as may from time to time be furnished by a similar notice by
either party.
If to Wyntek: If to BioStar:
Wyntek Diagnostics, Inc. BioStar, Inc.
6146 Nancy Ridge Drive 6655 Lookout Road
San Diego, CA 92121 Boulder, Colorado 80301-3838
Fax: (619) 452-3258 Fax: (303) 530-6641
14.7 SALES REPRESENTATION. Wyntek agrees not to hire any BioStar
sales representatives that have left the company within a prior three month
period of the proposed hiring date.
14.8 GOVERNING LAW AND VENUE. This Agreement shall be governed by
and construed under the laws of the State of Colorado (excluding the conflicts
of law thereof). Any matter subject to judicial review or enforcement shall be
heard in the state or federal court in the city of San Diego, CA.
14.9 COUNTERPARTS. Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original, but
all of which together shall constitute the same instrument.
14.10 ENTIRE AGREEMENT. This Agreement represents the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any prior agreement or understanding among them with respect to the
subject matter hereof. No provision hereof may be amended, modified, terminated
or revoked except by a writing signed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement
to be executed by their respective, duly authorized representatives as of this
day and year first above written.
Agreed to for and on behalf of: Agreed to for and on behalf of:
BIOSTAR, INC. WYNTEK DIAGNOSTICS, INC.
6655 Lookout Rd. 6146 Nancy Ridge Drive
Boulder, CO 80301 San Diego, CA 92121
By: /s/ Teresa W. Ayers By: /s/ Chris Fan
--------------------------------- ---------------------------------
Teresa W. Ayers Chris Fan
President/Chief Executive Officer President/Chief Executive Officer
Date: 6-29-97 Date: 6/30/97
--------------------------------- ---------------------------------
16.
<PAGE> 17
APPENDIX A
PRODUCTS, COST TO BIOSTAR
<TABLE>
<CAPTION>
PRODUCTS COST/TEST
- -------- ---------
<S> <C>
Wyntek OSOM Brand Strep A test-50 tests per kit-completely [ * ] delivered to
packaged with BioStar labels BioStar
Wyntek OSOM Brand Strep A-50 test strips in a BioStar-labeled [ * ] delivered to
tube container, BioStar-labeled reagents (reagents to include; BioStar
Reagents 1 and 2, and Positive and Negative Control), test tubes
and holder
Wyntek Perfecta Brand Pregnancy Test-20 tests per kit-completely [ * ] delivered to
packaged with Biostar labels BioStar
</TABLE>
17.
<PAGE> 18
EXHIBIT A
CONTENTS
Acceava Strep A Purchase Specification and Inspection Report
Acceava hCG Purchase Specification and Inspection Report
<PAGE> 19
PURCHASE SPECIFICATION AND INSPECTION REPORT
================================================================================
ACCEEVA HCG 20 TEST KIT DOC. NO. RMACCHCG
(PART # ACCHCG) REVISION NO. 00
SUPERSEDES NEW
PAGE 1 OF 3
================================================================================
Q.A. Approval
By:______________________ Date:_______________ Effective Date:______________
================================================================================
1. DESCRIPTION: Acceava hCG 20 test kit. BioStar labeling throughout.
Components as listed on Certificate of Analysis.
2. UNITS OF MEASURE: Each.
3. VENDOR LIST: Wyntek Diagnostics Cat. # ACCHCG
4. STORAGE CONDITIONS: Ambient
5. SHELF LIFE/EXPIRATION DATE: Based on Manufacturer's Dating and labeling;
Certificate of Analysis required.
6. SAMPLING: Mil Std 105E, 2.5% AQL, GEN, Level I1, Single/Normal sampling
for visual characteristics. One kit for performance, 2 kits
for retention.
7. TESTING METHOD:
<TABLE>
<S> <C> <C>
METHOD EXPECTED RESULT
------ ---------------
7.1 Visual
Material check Conforms to Certificate of Analysis (COA) description.
Label text check Matches current approved text (See Master Label Log).
Kit check Kit is clean and free of debris, spilled reagents, etc.
Expiration date Conforms to Manufacturer's expiration date from (COA).
Lot Number Conforms to Manufacturer's Lot Number from (COA).
7.2 Performance Testing (vs. QC Reference Chart) (See page 2 for procedure)
Negate Control Negative is clean
500mlp/mL LH < +
- -
25mlp/mL hCG > - 1.5 +
-
500mlp/mL hCG > 2 +
-
Control line Clearly visible red line
Test and Control Lines a. Should be inside result window.
b. Lines should have no major
breaks in line form.
8. PURCHASE SPECIFICATION: N/A
</TABLE>
<PAGE> 20
ACCEAVA HCG 20 TEST KIT DOC. NO. RMACCHCG.00
(PART # ACCHCG) PAGE 2 OF 3
================================================================================
2. PERFORMANCE TESTING PROCEDURE (7.2)
TEST MATERIALS LOT #
Test Sticks
------------------------------
Negative Control
------------------------------
500mlp/mL LH
------------------------------
25mlp/mL hCG
------------------------------
500mlp/mL hCG
------------------------------
TEST PROCEDURE
Test 3 sticks for each of the control samples.
Remove sufficient solution into a tube to dip the entire tip of the entire
absorbent tip of the stick into the test solution for 3 seconds. Place the
stick on a clean, fiat, dry disposable surface.
Other Inspections:
Inspect Control Line intensity during QC testing. The Control Line
should be a visible red line.
Inspect Test and Control Line location during QC testing. The Test
and Control Lines should be inside the result window with no major
break in the line form.
Record the results on the QC Testing Data Sheet. The lot is deemed acceptable
when all test results recorded on the sheets are within the specifications
listed. If any non-conforming result occurred, the lot should be withheld for
further review and disposition.
<PAGE> 21
ACCEAVA HCG 20 TEST KIT DOC. NO. RMACCHCG.00
(PART # ACCHCG) PAGE 3 OF 3
================================================================================
INSPECTION RECORD:
Manufacturer: ______________________ Date Received _____________________
Manufacturer Lot #: ________________ BioStar Lot #: ____________________
Manufacturer Exp. Date: ____________ BioStar Exp. Date: ________________
P.O. #: ____________________________ Quantity Received: ________________
================================================================================
<TABLE>
<CAPTION>
TEST RESULTS:
<S> <C> <C> <C>
1. VISUAL: YES NO
Conforms to Certificate of Analysis Description [ ] [ ]
Matches current approved test [ ] [ ]
Kit is clean and free of debris, spilled reagent, etc. [ ] [ ]
Lot and expiration conform to Certificate of Analysis [ ] [ ]
2. PERFORMANCE:
Negative clean [ ] [ ]
500mlp/mL LH < + [ ] [ ]
- -
25mlp/mL hCG > 1.5 + [ ] [ ]
-
500mlp/mL hCG > 2 + [ ] [ ]
-
Control line red and visible [ ] [ ]
Test and control lines in result window [ ] [ ]
Test and control lines have no major break in line form [ ] [ ]
</TABLE>
================================================================================
MATERIAL DOES/DOES NOT MEET PURCHASE SPECIFICATION IDENTIFICATION REQUIREMENTS.
================================================================================
Comments: ______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
[ ] ACCEPTED [ ] REJECT
Inspected By: _________________________ Reviewed By: ______________________
Date: _________________________________ Date: _____________________________
<PAGE> 22
PURCHASE SPECIFICATION AND INSPECTION REPORT
================================================================================
DOC. NO. RMACCGAS
ACCEAVA STREP A 50 TEST KIT REVISION NO. 00
(PART # ACCGAS) SUPERSEDES NEW
PAGE 1 OF 3
================================================================================
Q.A. Approval
By:___________________________ Date ______________ Effective __________________
================================================================================
1. DESCRIPTION: Acceava Strep A 50 test kit. BioStar labeling throughout.
Components as listed on Certificate of Analysis.
2. UNIT OF MEASURE: Each.
3. VENDOR LIST: Wyntek Diagnostics Cat. # ACCGAS
4. STORAGE CONDITIONS: Ambient
5. SHELF LIFE/EXPIRATION DATE: Based on Manufacturer's Dating and labeling;
Certificate of Analysis required.
6. SAMPLING: Mil Std 105E, 2.5% AQL, GEN, Level II, Single/Normal sampling
for visual characteristics. One kit for performance, 2 kits for retention.
7. TESTING METHOD:
<TABLE>
<S> <C> <C>
METHOD EXPECTED RESULT
------ ---------------
7.1 Visual
Material check Conforms to Certificate of Analysis (COA) description.
Label text check Matches current approved text (See Master Label Log).
Kit check Kit is clean and free of debris, spilled reagents, etc.
Expiration date Conforms to Manufacturer's expiration date from (COA).
Lot Number Conforms to Manufacturer's Lot Number from (COA).
7.2 Performance Testing (vs. QC Reference Chart) (See page 2 for procedure)
Negate Control Negative is clean
Positive Control ) 2.5 +
-
QC Control, Level II ) 2 +
-
QC Control, Level I ) +
- -
Control Line Clearly visible red line
Test and Control Lines a. Should be inside result window.
b. Lines should not touch either edge of
window.
c. There should be a minimum of 1mm spacing
between lines.
8. SPECIFICATIONS: N/A
</TABLE>
<PAGE> 23
ACCEAVA STREP A 50 TEST KIT DOC. NO. RMACCGAS.00
(PART # ACCGAS) PAGE 2 OF 3
================================================================================
2. PERFORMANCE TESTING PROCEDURE (7.2)
TEST MATERIALS LOT #
Test Sticks _____________________________
Reagent 1 _____________________________
Reagent 2 _____________________________
Negative Control _____________________________
Positive Control _____________________________
Quality Control, PN283, Level II _____________________________
Quality Control, Level I _____________________________
TEST PROCEDURE
Test 3 sticks for each of the control samples. Use the same lots of Reagent 1,
Reagent 2, Positive and Negative Controls found in the kit.
For testing Positive Control and Negative Control, place 3 drops each of
Reagent 1 and Reagent 2 into a tube followed by one drop of the Control. Mix
well with a clean swab and incubate for one minute. Remove the swab after
extraction and place a stick into the tube. Determine the results at 5
minutes.
For testing Strep A QC Control, Level II, place 20 mL of the control in a test
tube followed by 0.15 mL each of Reagent 1 and Reagent 2. Mix and incubate the
mixture for one minute. Place a stick into the mixture and leave in for 5
minutes. Determine the results at 5 minutes.
For testing Strap A QC Control, Level I, place 20 mL of the control in a test
tube followed by 0.60 mL each of Reagent 1 and Reagent 2. Mix and incubate the
mixture for one minute. Remove 0.3 mL to a clean tube. Place a stick into
sample and leave in for 5 minutes. Determine the results at 5 minutes.
Other Inspections
Inspect Control Line intensity during QC testing. The Control Line should
be a visible red line.
Inspect Test and Control Line location during QC testing. The Test and
Control Lines should be inside the result window and not touched to either
edge of the window. There should be a minimum of 1 mm space between the
Test Line and the Control Line.
Record the results on the QC Testing Data Sheet. The lot is deemed acceptable
when all test results recorded on the sheets are within the specifications
listed. If any non-conforming result occurred, the lot should be withheld for
further review and disposition.
<PAGE> 24
ACCEAVA STREP A 50 TEST KIT DOC. NO. RMACCGAS.00
(PART # ACCGAS) PAGE 3 OF 3
================================================================================
INSPECTION RECORD:
Manufacturer: ______________________ Date Received _____________________
Manufacturer Lot #: ________________ BioStar Lot #: ____________________
Manufacturer Exp. Date: ____________ BioStar Exp. Date: ________________
P.O. #: ____________________________ Quantity Received: ________________
================================================================================
<TABLE>
<CAPTION>
TEST RESULTS:
<S> <C> <C> <C>
1. VISUAL: YES NO
Conforms to Certificate of Analysis Description [ ] [ ]
Matches current approved test [ ] [ ]
Kit is clean and free of debris, spilled reagent, etc. [ ] [ ]
Lot and expiration conform to Certificate of Analysis [ ] [ ]
2. PERFORMANCE:
Negative clean [ ] [ ]
Positive Control > = 2.5 + [ ] [ ]
QC Control, Level II > = 2 [ ] [ ]
QC Control, Level I > = + [ ] [ ]
Control line red and visible [ ] [ ]
Test and control lines in result window [ ] [ ]
Test and control lines do not touch edge of window [ ] [ ]
Test and control lines are minimum of 1mm apart [ ] [ ]
</TABLE>
================================================================================
MATERIAL DOES/DOES NOT MEET PURCHASE SPECIFICATION IDENTIFICATION REQUIREMENTS.
================================================================================
Comments: ______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
[ ] ACCEPTED [ ] REJECT
Inspected By: _________________________ Reviewed By: ______________________
Date: _________________________________ Date: ____________________________
<PAGE> 25
[WYNTEK LETTERHEAD]
June 30, 1997
Ms. Teresa Ayers
President And Chief Executive Officer
BioStar, Inc.
6655 Lookout Road
Boulder, CO 80301
Ms Ayers:
This letter is intended to clarify several issues on the Distribution Agreement
between our two companies (as referenced in section 14.10).
1. 3.2.C: The repurchase of packaging material by BioStar will cover all
products stated in the Distribution Agreement and up to six months
inventory of BioStar labeled and labeling material.
2. 9.3: BioStar will bear all costs of any product recall, market
withdrawal, notification or correction product that is BioStar's fault.
3. 14.8: The entire Distribution agreement shall be governed by and
construed under the laws of the State of California.
Sincerely:
/s/ BRUCE S. GARDNER
Bruce S. Gardner
Vice President Sales and Marketing
Agreed to for and on the behalf of:
BioStar, Inc. Wyntek Diagnostics, Inc.
6655 Lookout Road 6146 Nancy Ridge Drive
Boulder, CO 80301 San Diego, CA 92121
By: /s/ Teresa W. Ayers By: /s/ Chris Fan
-------------------------------- -------------------------------
Teresa W. Ayers Chris Fan
President and Chief Executive Officer President and Chief
Executive Officer
<PAGE> 26
FIRST AMENDMENT TO DISTRIBUTION AGREEMENT
The First Amendment to Distribution Agreement (the "Agreement") is
entered into this 17th day of November, 1997, by and between BioStar, Inc., a
Delaware corporation (the "COMPANY") and Wyntek Diagnostics, Inc., a California
corporation ("WYNTEK").
WHEREAS, the company and Wyntek entered into a Distribution Agreement
dated July 1, 1997 (the "DISTRIBUTION AGREEMENT") pursuant to which Wyntek
granted the Company a license to distribute certain Wyntek products to certain
customers in the United States (as further defined in the Distribution
Agreement, the "TERRITORY"); and
WHEREAS, the Company and Wyntek desire to amend the Distribution
Agreement to expand the definition of the Territory to include certain customers
worldwide.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. THE TERRITORY
Section 2.2 of the Distribution Agreement shall be amended to read in
full as follows:
"2.2 TERRITORY. The license granted to BioStar set forth in
Section 2.1 above shall be for the right and license to distribute the
Products in the Territory. "Territory" shall mean the world, including
without limitation managed care outpatient facilities, physician
offices, urgent care facilities, clinics, student health centers,
public school facilities, public health facilities, hospitals, and
reference laboratories located anywhere in the world. The rights to
sell the Products in additional markets may be discussed and agreed to
separate from this contract."
2. REGULATORY APPROVAL
BioStar shall be responsible for obtaining regulatory clearance to
sell all Products in the Territory outside of the United States in which they
intend to sell Product. Wyntek shall inform BioStar of any countries in the
Territory in which Wyntek or any of Wyntek's licensees, successors of assigns
has obtained regulatory approval. In addition, BioStar will inform Wyntek if
BioStar obtains any regulatory approvals.
3. OTHER TERMS
The Distribution Agreement shall remain in full force and effect
except as modified by this Amendment.
1.
<PAGE> 27
In Witness Whereof, Wyntek and the Company, intending to be legally
bound by the terms of this Amendment, have caused this Amendment to be executed
by their duly authorized representatives.
WYNTEK DIAGNOSTICS, INC.
By: /s/ Chris Fan
--------------------------------------
Name: Chris Fan
Title: President
BIOSTAR, INC.
By: /s/ Teresa W. Ayers
---------------------------------------
Name: Teresa W. Ayers
Title: President/CEO
<PAGE> 1
<TABLE>
<S> <C> <C>
1. DATE ISSUED |2. CFDA No. |
| |
09/29/95 | 93.856 | DEPARTMENT OF HEALTH AND HUMAN SERVICES
- -----------------------------------------------------------| PUBLIC HEALTH SERVICE
|
3. SUPERSEDES AWARD NOTICE dated ______________________ | NATIONAL INSTITUTES OF HEALTH
except that any additions or restrictions previously |
imposed remain in effect unless specifically rescinded.| NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES EXTRAMURAL
- -----------------------------------------------------------|
4. GRANT NO. | 5. ADMINISTRATIVE CODES| NOTICE OF GRANT AWARD
| |
1 U01 AI39223-01 | 37X750B | AUTHORIZATION (Legislation/Regulation)
| |
- -----------------------------------------------------------| 42 USC 241 31 USC 6305 & 6306
6. GRANT PERIOD Mo./Day/Yr. | Mo./Day/Yr. | RESEARCH PROJECT COOPERATIVE AGREEMENT
From 09/30/95 | Through 08/31/98 |
- -----------------------------------------------------------|
7. BUDGET PERIOD Mo./Day/Yr. | Mo./Day/Yr. |
From 09/30/95 | Through 08/31/96 |
- ------------------------------------------------------------------------------------------------------------------------------------
8. TITLE OF PROJECT (OR PROGRAM) (Limit to 56 spaces)
CHLAMYDIA OIA FOR TESTING NON-INVASIVE GENITAL S SRC (48)
- ------------------------------------------------------------------------------------------------------------------------------------
9. GRANTEE NAME AND ADDRESS |10. DIRECTOR OF PROJECT (PROGRAM DIRECTOR/PRINCIPAL
| INVESTIGATOR) (LAST NAME FIRST AND ADDRESS)
|
a. BIOSTAR INC | CROSBY, MARK A BS
b. 6655 LOOKOUT ROAD | BIOSTAR INC
c. | RESEARCH AND DEVELOPMENT
d. BOULDER e. CO f. 80301 | 6655 LOOKOUT ROAD
| BOULDER, CO 80301
|
- ------------------------------------------------------------------------------------------------------------------------------------
11. GRANTEE NAME AND ADDRESS |12. AWARD COMPUTATION FOR FINANCIAL ASSISTANCE
- -----------------------------------------------------------|------------------------------------------------------------------------
I PHS Grant Funds Only [ I ] | a. Amount of PHS Financial Assistance (from Item 11.0)...$ 553,544
|
II Total project costs including grant funds and | b. Less Unobligated Balance From Prior Budget Periods....$ 0
all other financial participation |
| c. Less Cumulative Prior Award(s) This Budget Period.....$ 0
(Select one and place NUMERAL in box.) | -------------
- -----------------------------------------------------------| d. AMOUNT OF FINANCIAL ASSISTANCE THIS ACTION..........| $ 553,544
a. Salaries and Wages...........$ 137,000 |------------------------------------------------------------------------
|13. RECOMMENDED FUTURE SUPPORT (SUBJECT TO THE AVAILABILITY OF FUNDS AND
b. Fringe Benefits.............. 24,210 | SATISFACTORY PROGRESS OF THE PROJECT.)
|------------------------------------------------------------------------
c. Total Personnel Costs....$ 161,210 | YEAR | TOTAL DIRECT COSTS/STIPENDS | YEAR | TOTAL DIRECT COSTS/STIPENDS
|------|-----------------------------|------|----------------------------
d. Consultant Costs.............$ 0 |a. 02 | 434,979 |d. |
| | | |
e. Equipment....................$ 102,500 |b. 03 | 428,513 |e. |
| | | |
f. Supplies.....................$ 22,500 |c. | |f. |
|------------------------------------------------------------------------
g. Travel.......................$ 31,500 |14. APPROVED DIRECT ASSISTANCE BUDGET (IN LIEU OF CASH)
|
h. Patient Care - Inpatient.....$ 0 | a. Amount of PHS Direct Assistance.......................$
|
i. Patient Care - Outpatient....$ 0 | b. Less Unobligated Balance From Prior Budget Periods....$
|
j. Alterations and Renovations..$ 20,000 | c. Less Cumulative Prior Award(s) This Budget Period.....$
| -------------
k. Other........................$ 31,200 | d. AMOUNT OF DIRECT ASSISTANCE THIS ACTION.............| $
|------------------------------------------------------------------------
l. Consortium/Contractual Costs.$ 81,339 |15. PROGRAM INCOME SUBJECT TO 45 CFR PART 74, SUBPART F, OR 45 CFR
| 92.25, SHALL BE USED IN ACCORD WITH ONE OF THE FOLLOWING
m. Trainee Related Expenses.....$ | ALTERNATIVES (Select One and Place LETTER in box.)
|
n. Trainee Supplies.............$ 0 | a. DEDUCTION
|
o. Trainee Tuition and Fees.....$ 0 | b. ADDITIONAL COSTS
|
p. Trainee Travel...............$ 0 | c. MATCHING [ D ]
|
-----------------------| d. OTHER RESEARCH (Add/Deduct Option)
| |
q. TOTAL DIRECT COSTS.....| $ 450,249 | e. OTHER (See REMARKS)
- ------------------------------------|-----------------------------------------------------------------------------------------------
r. INDIRECT COSTS | |16. THIS AWARD IS BASED ON AN APPLICATION SUBMITTED TO, AND AS APPROVED
(Rate * % of S&W/TADC)...| $ 103,295 | BY, THE PHS ON THE ABOVE TITLED PROJECT AND IS SUBJECT TO THE TERMS
- ------------------------------------|----------------------| AND CONDITIONS INCORPORATED EITHER DIRECTLY OR BY REFERENCE IN THE
| | FOLLOWING:
s. TOTAL APPROVED BUDGET......| $ 553,544 | a. The grant program legislation cited above.
- ------------------------------------|----------------------| b. The grant program regulation cited above.
| | c. This award notice including terms and conditions, if any, noted
t. SBIR Fee...................| $ 0 | below under REMARKS.
- -----------------------------------------------------------| d. PHS Grants Policy Statement including addenda in effect as of the
| beginning date of the budget period.
u. Federal Share................$ 553,544 | e. 45 CFR Part 74 or 45 CFR Part 92 as applicable.
| IN THE EVENT THERE ARE CONFLICTING OR OTHERWISE INCONSISTENT
v. Non-Federal Share............$ | POLICIES APPLICABLE TO THE GRANT, THE ABOVE ORDER OF PRECEDENCE
| SHALL PREVAIL. ACCEPTANCE OF THE GRANT TERMS AND CONDITIONS IS
| ACKNOWLEDGED BY THE GRANTEE WHEN FUNDS ARE DRAWN OR OTHERWISE
| OBTAINED FROM THE GRANT PAYMENT SYSTEM.
- ------------------------------------------------------------------------------------------------------------------------------------
REMARKS: (Other Terms and Conditions Attached - [X] Yes [ ] No)
BASE X RATE ($413,179 X 25.00)
TS GRANT IS EXCLUDED FROM EXPANDED AUTHORITIES.
- ------------------------------------------------------------------------------------------------------------------------------------
TS GRANTS MANAGEMENT OFFICER: (Signature) (Name-Typed/Print) (Title)
/s/ Victoria C. Putprush TODD C. BALL, MICROBIOLOGY GMO, GMB, DEA, NIAID
- ------------------------------------------------------------------------------------------------------------------------------------
17. CBJ CLASS |18. CRS - EIN |19. LIST NO:
41.4I | 184200265A1 |
- ------------------------------------------------------------------------------------------------------------------------------------
FY-CAN | DOCUMENT NO. | ADMINISTRATIVE CODE | AMT. ACTION FIN. ASST. | AMT. ACTION DIR. ASST.
| | | |
20. a. 95 8425921 | b. U1AI39223A | c. | d. | e.
| | | |
21. a. | b. | c. | d. | e.
| | | |
22. a. | b. | c. | d. | e.
- ------------------------------------------------------------------------------------------------------------------------------------
PHS-5152-5 (Rev. 7/92) 950926 1356 (Note: See reverse for payment information.) LAB
</TABLE>
<PAGE> 2
ATTACHMENT GRANT #: 1 U01 AI 39223-01
TERMS OF AWARD
General program income that may be generated from this grant is subject to the
deductive alternative as defined in CFR Title 45, Part 74, Subpart F.
Pursuant to the NIH Revitalization Act (P.L. 103-43, June 10, 1993), section
2004, when purchasing equipment or products under this assistance award, the
recipient should, whenever possible, purchase only American-made items.
"NOTICE: Under governing policy, Federal funds administered by the Public Health
Service (PHS) shall not be expended for research involving live vertebrate
animals without prior approval by the Office for Protection from Research Risks
of an assurance to comply with the PHS policy on humane care and use of
laboratory animals. This restriction applies to all performance sites without
OPRR-approved assurances, whether domestic or foreign.
"NOTICE: Under governing regulations, Federal funds administered by the
Department of Health and Human Services shall not be expended for and
individuals shall not be enrolled in research involving human subjects, without
prior approval by the Office for Protection from Research Risks of an assurance
to comply with the requirements of 45 CFR 46 to protect human research subjects.
This restriction applies to all performance sites without OPRR-Approved
assurances, whether domestic or foreign.
All funds awarded for indirect costs ($103,295) are restricted pending the
negotiation of an approved indirect cost rate agreement with the NIH Financial
Advisory Services Branch.
Approved travel funds must include travel for the Principal Investigator and two
other scientists to two Steering Committee meetings in Bethesda, MD for two
meetings per year.
Budgets for projects at University of California, Irvine are shown on attached
spreadsheet.
Use of funds for the subcontract are restricted pending acceptance of a properly
endorsed consortium agreement between the University of California, Irvine and
BioStar, Inc.
Indirect Costs for the subcontract for future years are calculated at the
currently effective rate. Adjustments will be made due to fluctuations at time
of award.
Estimated indirect costs for future years for the subcontract are not available
for direct cost purposes.
Consortia are to be established and administered in accordance with the NIH
Consortium Policy (NIH Guide for Grants and Contracts Vol. 14 No. 7, June 21,
1985)
No funds may be used for consortium activity at University of Alabama,
Birmingham. All evaluation activity will be handled by the evaluation site
funded under this RFA.
1.
<PAGE> 3
No funds may be used for Alterations and Renovations until additional
justification is provided to and approved by the NIAID.
Future year escalation has been calculated at 4%.
Additional justification must be provided for consultant costs budgeted for
future years.
Grants Management Contact:
Sharie Bernard
(301) 402-5540
(301) 480-3780 (Fax)
Program Official Contact
Penelope J. Hitchcock, D.V.M.
(301) 402-0443
Please see attached for Terms and Conditions and spreadsheets specific to this
cooperative agreement.
2.
<PAGE> 4
SPECIAL TERMS AND CONDITIONS OF AWARD - RFA 95-001
These special Terms of Award are in addition to, and not in lieu of, otherwise
applicable OMB administrative guidelines, HHS Grant Administration Regulations
at 45 CFR part 74 and 92, and other HHS, PHS, and NIH Grant Administration
policy statements.
The administrative and funding instrument used for this program is the
Cooperative Agreement (U01), an "assistance" mechanism (rather than an
"acquisition" mechanism), in which substantial NIH scientific and/or
programmatic involvement with the awardee is anticipated during the performance
of the activity.
Under the Cooperative Agreement, the NIH purpose is to support and/or stimulate
the recipient's activity by involvement in and otherwise working jointly with
the award recipient in a partner role, but it is not to assume direction, prime
responsibility, or a dominant role in the activity.
Consistent with this concept, the dominant role and prime responsibility for the
activity resides with the awardee(s) for the project as a whole, although
specific tasks and activities in carrying out the study will be shared among the
awardees and the NIAID Scientific Coordinator.
Under the cooperative agreement, a relationship will exist between the award
recipient(s) and the NIAID in which the performers of the activities (1) are
responsible for the requirements and conditions described below and (2) agree to
accept program assistance from the named NIAID Scientific Coordinator in
achieving project objectives.
Failure of an awardee to meet the performance requirements, including these
special terms and conditions of award, or significant changes in the level of
performance, may result in a reduction in budget, withholding of support, or
suspension and/or termination of the award.
1. AWARDEE RIGHTS AND RESPONSIBILITIES
The awardee is responsible for:
a. Research design and development, including definition of objectives and
approaches, planning, implementation, data collection, quality control, interim
data and safety monitoring, final data analysis and interpretation, and
publication of results.
b. Establishing a mandatory Steering Committee to coordinate and manage the
test development and test evaluation studies.
c. Implementing the data collection strategy and methods collectively
decided upon by the Steering Committee. For each study involving multiple
institutions, it is the responsibility of each awardee/site to ensure that data
will be collected and submitted in a timely way following such procedures as
agreed to by the Steering Committee.
d. Establishing mechanisms for quality control and monitoring. Awardees are
responsible for ensuring the accurate and timely assessment of the progress of
the study, including development of procedures to ensure that data collection
and management are adequate for quality control and analysis.
3.
<PAGE> 5
e. Preparing and submitting interim progress reports, when requested (not
more than quarterly), to the NIAID Scientific Coordinator including, as a
minimum, summary data on diagnostic test performance results. Such reports are
in addition to the annual awardee noncompeting continuation progress reports.
f. Establishing procedures, where applicable, for all participating
institutions in coordinated awards to comply with FDA regulations for studies
involving investigational agents or devices and to comply with the requirements
of 45 CFR Part 46 for the protection of human subjects.
g. Cooperating in the reporting of the study findings. The NIAID will have
access to and may periodically review all data generated under an award. Where
warranted by appropriate participation, plans for joint publication with NIAID
of pooled data and conclusions, are to be developed by the Principal
Investigator or Steering Committee, as applicable. NIH policies governing
possible co-authorship of publications with NIAID staff will apply in all cases.
In general, to warrant co-authorship, NIAID staff must have contributed to each
of following areas: (a) design of the experiments or concepts being tested; (b)
performance of significant portions of the activity; and (c) preparation and
authorship of pertinent manuscripts. The awardee will retain custody of and have
primary rights to the data developed under these awards, subject to Government
right of access consistent with current HHS, PHS, and NIH policies. Contents of
reports of study results are solely the responsibility of the authors and do not
necessarily represent the views of NIAID.
2. NIAID STAFF RESPONSIBILITIES
It is expected that the dominant role and prime responsibility for the activity
will reside with the awardee(s) for the project as a whole. However, specific
tasks and activities will be shared among the awardee(s) and the NIAID
Scientific Coordinator. As required for the coordination of activities and to
expedite progress, the NIAID Scientific Coordinator may designate additional
NIAID staff to provide advice or assistance to the awardee(s) on specific
scientific, technical, or management issues. The NIAID Scientific Coordinator
shall retain overall programmatic responsibility for the award(s) and will
clearly specify to the awardee(s) the name(s) and role(s) of any such additional
individuals and the lines of reporting authority.
a. Interacting with the principal investigator(s) on a regular basis to
monitor study progress. Monitoring may include: (a) regular communications with
the principal investigator and staff, (b) periodic site visits for discussions
with awardee research teams, (c) observation of laboratory, manufacturing, data
collection and management techniques, quality control, fiscal review, and other
relevant matters, as well as (d) attendance at and participation in Scientific
Steering Committee.
b. Convening the first meeting of and subsequent participation in the
Scientific Steering Committee that oversees study conduct. The NIAID Scientific
Coordinator will be a full participant and voting member of the Scientific
Steering Committee.
c. Serving as a resource with respect to ongoing NIAID activities that may
be relevant to the research to facilitate compatibility and avoid unnecessary
duplication.
4.
<PAGE> 6
[FN]
d. Substantial assistance in the design and coordination of research
activities for awardees including:
1. Assisting by providing advice on the management and technical
performance of the investigations.
2. Providing access to and use of, when appropriate, reagents and
assays, and other resources available through NIAID contractors and awardees.
3. Technical advice and assistance with meeting FDA requirements.
4. Reviewing and approving study designs to insure that they are within
the scope of peer review and for adequacy of safety, human subjects, and
representation of women and minorities, as required by Federal regulations.
5. Reviewing and providing advice regarding the establishment of
mechanisms for quality control and study monitoring.
e. Making recommendations for continued funding based on: (1) overall study
progress, including study subject and/or data accrual; (2) cooperation in
carrying out the research (e.g., attendance at Steering Committee meetings,
implementation of group decisions, compliance with terms of award and reporting
requirements); and/or (3) maintenance of a high quality of research which will
allow pooling of data and comparisons across multiple cooperative agreement
awards for common data elements.
3. JOINT RESPONSIBILITIES
In addition to the interactions defined above, awardees and NIAID staff shall
share responsibility for the organization of and participation on a Scientific
Steering Committee. A Scientific Steering Committee for each SDDG organized by
the Principal Investigators of a test development awardee and the test
evaluation awardee and the NIAID Scientific Coordinator will be the main
oversight body of the study. The steering committee will be comprised of the
Principal Investigators from a development and the evaluation cooperative
agreements, the NIAID Scientific Coordinator, and two to three peers from the
scientific community. The peers from the scientific community shall be selected
jointly by the Principal Investigators and the NIAID Scientific Coordinator.
The Steering Committee has primary responsibility to design joint research
activities, establish priorities, develop common methods and procedures
including data recording forms, establish and maintain quality control among
awardees, review progress, coordinate and standardize data management, and
cooperate on the publication of results. Major scientific decisions regarding
data will be determined by the Steering Committee. The Steering Committee will
document progress in written reports to the NIAID Scientific Coordinator and
will provide periodic supplementary reports upon NIAID request.
An initial meeting of the Steering Committee will be convened early after award
by the NIAID Scientific Coordinator. The final structure of the Steering
Committee will be established at the
5.
<PAGE> 7
first meeting. The NIAID Program Officer will have voting membership on the
Steering Committee. After the initial meeting, the Steering Committee will meet
1-2 times per year.
A Chairperson, other than the NIAID Program Officer, will be selected by vote of
the members. The Chairperson is responsible for coordinating the Committee
activities, for preparing meeting agendas, for scheduling and chairing meetings,
and for preparing and disseminating a concise summary of each meeting to members
of the Committee.
4. PATENT COVERAGE
Because the discovery of innovative, non-invasive, rapid, sensitive, specific
and reliable diagnostic tests to identify active infection due to N. gonorrhoeae
or C. trachomatis is the goal of this effort, and since active involvement by
the private sector is facilitated by the existence of adequate patent coverage,
it is essential that applicants provide plans to ensure such coverage. With the
potential for involvement of several institutions, the patent situation could be
complicated. Each applicant for a test development award must, therefore,
provide a detailed description of the approach to be used for obtaining patent
coverage and for licensing where appropriate, in particular where the invention
may involve investigators from more than one institution. Each applicant must
provide a detailed description of the procedures to be followed for the
resolution of legal problems that may develop. Attention is drawn to the
reporting requirements of 35 U.S.C. Parts 200-212 and 37 CFR Part 401 or FAR
52.227-11. Instructions were also published in the NIH Guide for Grants and
Contracts, Vol. 19, No. 23, June 22, 1990. Note that non-profit organizations
(including universities) and small business firms retain the rights to any
patent resulting from Government contracts, grants, or cooperative agreements.
It is also noted that a Presidential memorandum of February 18, 1983 extended to
all business concerns, regardless of size, the first option to the ownership of
rights to inventions as provided in P.L. 96-517. As a result of this memorandum,
the relationships among industrial organizations and other participants are
simplified, since all Group members can now be full partners in the research and
in any inventions resulting therefrom. The specific patenting arrangements among
institutions may vary and could include joint patent ownership, exclusive
licensing arrangements, etc. Applicants are encouraged to develop an arrangement
that is most suitable for their own particular circumstances.
Federal regulation clause 37 CFR 401 and HHS Inventions regulations at 45 CFR
Parts 6 and 8 require that NIH be informed of inventions and licensing occurring
under NIH funded research. Invention and licensing reports must be submitted to
Extramural Invention Reports Office, Office of Extramural Research, Building 31,
Room 5B41, NIH, 9000 Rockville Pike, Bethesda, MD 20892.
5. ARBITRATION PROCESS
Any disagreement that may arise on scientific/programmatic matters (within the
scope of the award), between award recipients and the NIAID may be brought to
arbitration. An arbitration panel will be composed of three members -- one
awardee designee, one NIAID designee, and a third designee with expertise in the
relevant area and chosen by the other two. This special arbitration procedure in
no way affects the awardee's right to appeal an adverse action that is
6.
<PAGE> 8
otherwise appealable in accordance with PHS regulations 42 CFR Part 50, Subpart
D and HHS regulation at 45 CFR Part 16.
7.
<PAGE> 9
NIAID GRANTS MANAGEMENT 10/16/95
DETAILED BUDGET RECOMMENDATIONS
Prepared by: SHARIE BERNARD
GRANT NUMBER: I U01 AI 39223-01
P.I.: CROSBY, MARK A
INSTITUTION: BIOSTAR, INC.
<TABLE>
<CAPTION>
MAIN BUDGET YEAR 1 YEAR 2 YEAR 3
========================================================================================
<S> <C> <C> <C>
Salaries 137,000 167,480 174,179
Fringe Benefits 24,210 30,146 31,352
========================================================================================
PERSONNEL 161,210 197,626 205,531
CONSULTANTS 0 20,000 10,000
EQUIPMENT 102,500 75,000 65,000
SUPPLIES 22,500 23,400 24,336
TRAVEL, D. 31,500 32,760 34,070
TRAVEL, F. 0 0 0
INPATIENT 0 0 0
OUTPATIENT 0 0 0
ALTERATIONS 20,000 0 0
3RD PARTY DIRECT 54,262 56,433 58,690
3RD PARTY INDIRECT 27,077 28,160 29,286
OTHER 31,200 1,600 1,600
========================================================================================
TOTAL DIRECT COSTS 450,249 434,979 428,513
FUNDING PLAN 100% 450,249 434,979 428,513
</TABLE>
Annual increases for personnel, consultants, supplies, travel, and other
expenses have been calculated at 4%.
REVIEWERS' RECOMMENDATIONS
8.
<PAGE> 10
1 UO1 AI 39223-01
<TABLE>
<CAPTION>
CONSORTIUM YEAR 1 YEAR 2 YEAR 3
=====================================================================================
<S> <C> <C> <C>
Salaries 37,415 38,912 40,468
Fringe Benefits 9,154 9,520 9,901
=====================================================================================
PERSONNEL 46,569 48,432 50,369
CONSULTANTS 0 0 0
EQUIPMENT 0 0 0
SUPPLIES 7,325 7,618 7,923
TRAVEL, D. 0 0 0
TRAVEL, F. 0 0 0
INPATIENT 0 0 0
OUTPATIENT 0 0 0
ALTERATIONS 0 0 0
THIRD PARTY 0 0 0
OTHER 368 383 398
=====================================================================================
TOTAL DIRECT COSTS 54,262 56,433 58,690
TOTAL INDIRECT COST 27,077 28,160 29,286
=====================================================================================
TOTAL COSTS 81,339 84,593 87,976
</TABLE>
9.
<PAGE> 1
<TABLE>
<S> <C> <C>
1. DATE ISSUED |2. CFDA No. |
| |
09/30/97 | 93.856 | DEPARTMENT OF HEALTH AND HUMAN SERVICES
- -----------------------------------------------------------| PUBLIC HEALTH SERVICE
|
3. SUPERSEDES AWARD NOTICE dated ______________________ | NATIONAL INSTITUTES OF HEALTH
except that any additions or restrictions previously |
imposed remain in effect unless specifically rescinded.| NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES EXTRAMURAL
- -----------------------------------------------------------|
4. GRANT NO. | 5. ADMINISTRATIVE CODES| NOTICE OF GRANT AWARD
| |
1 R44 AI41939-01 | M37 | AUTHORIZATION (Legislation/Regulation)
| |
- -----------------------------------------------------------| 42 USC 241 42 CFR PART 52 15 USC 638
6. GRANT PERIOD Mo./Day/Yr. | Mo./Day/Yr. | SMALL BUSINESS INNOVATION RESEARCH PROG
From 09/30/97 | Through 03/31/98 |
- -----------------------------------------------------------|
7. BUDGET PERIOD Mo./Day/Yr. | Mo./Day/Yr. |
From 09/30/97 | Through 03/31/98 |
- ------------------------------------------------------------------------------------------------------------------------------------
8. TITLE OF PROJECT (OR PROGRAM) (Limit to 56 spaces)
RAPID OIA FOR DETECTION OF CHLAMYDIA AND GONORRHEA ZRG5 VR (1)
- ------------------------------------------------------------------------------------------------------------------------------------
9. GRANTEE NAME AND ADDRESS |10. DIRECTOR OF PROJECT (PROGRAM DIRECTOR/PRINCIPAL
| INVESTIGATOR) (LAST NAME FIRST AND ADDRESS)
|
a. BIOSTAR INC | MAYNARD, JAMES E BS
b. 6655 LOOKOUT ROAD | BIOSTAR INC
c. | 6655 LOOKOUT ROAD
d. BOULDER e. CO f. 80301 | BOULDER, CO 80301
|
|
- ------------------------------------------------------------------------------------------------------------------------------------
11. APPROVED BUDGET (Excludes PHS Direct Assistance) |12. AWARD COMPUTATION FOR FINANCIAL ASSISTANCE
- -----------------------------------------------------------|------------------------------------------------------------------------
I PHS Grant Funds Only [ I ] | a. Amount of PHS Financial Assistance (from Item 11.u.)..$ 100,000
|
II Total project costs including grant funds and | b. Less Unobligated Balance From Prior Budget Periods....$ 0
all other financial participation |
| c. Less Cumulative Prior Award(s) This Budget Period.....$ 0
(Select one and place NUMERAL in box.) | -------------
- -----------------------------------------------------------| d. AMOUNT OF FINANCIAL ASSISTANCE THIS ACTION..........| $ 100,000
a. Salaries and Wages...........$ 32,999 |------------------------------------------------------------------------
|13. RECOMMENDED FUTURE SUPPORT (SUBJECT TO THE AVAILABILITY OF FUNDS AND
b. Fringe Benefits.............. 5,940 | SATISFACTORY PROGRESS OF THE PROJECT.)
|------------------------------------------------------------------------
c. Total Personnel Costs....$ 38,939 | YEAR | TOTAL DIRECT COSTS/STIPENDS | YEAR | TOTAL DIRECT COSTS/STIPENDS
|------|-----------------------------|------|----------------------------
d. Consultant Costs.............$ |a. | |d. |
| | | |
e. Equipment....................$ |b. | |e. |
| | | |
f. Supplies.....................$ 6,000 |c. | |f. |
|------------------------------------------------------------------------
g. Travel.......................$ 2,000 |14. APPROVED DIRECT ASSISTANCE BUDGET (IN LIEU OF CASH)
|
h. Patient Care - Inpatient.....$ | a. Amount of PHS Direct Assistance.......................$
|
i. Patient Care - Outpatient....$ | b. Less Unobligated Balance From Prior Budget Periods....$
|
j. Alterations and Renovations..$ | c. Less Cumulative Prior Award(s) This Budget Period.....$
| -------------
k. Other........................$ 11,700 | d. AMOUNT OF DIRECT ASSISTANCE THIS ACTION.............| $
|------------------------------------------------------------------------
l. Consortium/Contractual Costs.$ |15. PROGRAM INCOME SUBJECT TO 45 CFR PART 74.24 OR 45 CFR
| 92.25, SHALL BE USED IN ACCORD WITH ONE OF THE FOLLOWING
m. Trainee Related Expenses.....$ | ALTERNATIVES (Select One and Place LETTER in box.)
|
n. Trainee Supplies.............$ | a. DEDUCTION
|
o. Trainee Tuition and Fees.....$ | b. ADDITIONAL COSTS
|
p. Trainee Travel...............$ | c. MATCHING [ B ]
|
-----------------------| d. OTHER RESEARCH (Add/Deduct Option)
| |
q. TOTAL DIRECT COSTS.....| $ 58,639 | e. OTHER (See REMARKS)
- ------------------------------------|-----------------------------------------------------------------------------------------------
r. INDIRECT COSTS | |16. THIS AWARD IS BASED ON AN APPLICATION SUBMITTED TO, AND AS APPROVED
(Rate % of S&W/TADC)...| $ 41,361 | BY, THE PHS ON THE ABOVE TITLED PROJECT AND IS SUBJECT TO THE TERMS
- ------------------------------------|----------------------| AND CONDITIONS INCORPORATED EITHER DIRECTLY OR BY REFERENCE IN THE
| | FOLLOWING:
s. TOTAL APPROVED BUDGET......| $ 100,000 | a. The grant program legislation cited above.
- ------------------------------------|----------------------| b. The grant program regulation cited above.
| | c. This award notice including terms and conditions, if any, noted
t. SBIR Fee...................| $ 0 | below under REMARKS.
- -----------------------------------------------------------| d. PHS Grants Policy Statement including addenda in effect as of the
| beginning date of the budget period.
u. Federal Share................$ 100,000 | e. 45 CFR Part 74 or 45 CFR Part 92 as applicable.
| IN THE EVENT THERE ARE CONFLICTING OR OTHERWISE INCONSISTENT
v. Non-Federal Share............$ | POLICIES APPLICABLE TO THE GRANT, THE ABOVE ORDER OF PRECEDENCE
| SHALL PREVAIL. ACCEPTANCE OF THE GRANT TERMS AND CONDITIONS IS
| ACKNOWLEDGED BY THE GRANTEE WHEN FUNDS ARE DRAWN OR OTHERWISE
| OBTAINED FROM THE GRANT PAYMENT SYSTEM.
- ------------------------------------------------------------------------------------------------------------------------------------
REMARKS: (Other Terms and Conditions Attached - [X] Yes [ ] No)
TS GRANT IS EXCLUDED FROM EXPANDED AUTHORITIES.
- ------------------------------------------------------------------------------------------------------------------------------------
TS GRANTS MANAGEMENT OFFICER: (Signature) (Name-Typed/Print) (Title)
/s/ Victoria C. Putprush VICTORIA PUTPRUSH, GMO, GMB, DEA, NIAID
- ------------------------------------------------------------------------------------------------------------------------------------
17. CBJ CLASS |18. CRS - EIN |19. LIST NO:
41.4A | 1841200265A1 |
- ------------------------------------------------------------------------------------------------------------------------------------
FY-CAN | DOCUMENT NO. | ADMINISTRATIVE CODE | AMT. ACTION FIN. ASST. | AMT. ACTION DIR. ASST.
| | | |
20. a. 97 8425744 | b. R4AI41939A | c. | d. | e.
| | | |
21. a. | b. | c. | d. | e.
| | | |
22. a. | b. | c. | d. | e.
- ------------------------------------------------------------------------------------------------------------------------------------
PHS-5152-5 (Rev. 3/96) 970925 1417 (Note: See reverse for payment information.) PMF
</TABLE>
<PAGE> 2
1 R44 AI 41939-01
TERMS OF AWARD
The terms and conditions include the requirements of the Omnibus Consolidated FY
1997 Appropriations Act (P.L. 104-208) as explained in the NIH Guide for Grants
and Contracts, Volume 26, Number 4, February 7, 1997.
"NOTICE: Under governing regulations, Federal funds administered by the
Department of Health and Human Services shall not be expended for and
individuals shall not be enrolled in research involving human subjects, without
prior approval by the Office for Protection from Research Risks of an assurance
to comply with the requirements of 45 CFR 46 to protect human research subjects.
This restriction applies to all performance sites without OPRR-Approved
assurances, whether domestic or foreign."
Funding of the SBIR Phase II is subject to determination that the Phase I goals
were achieved: an updated and verification of the commitment and Product
Development Plan appendices to the Phase II application: the project's potential
for meeting the mission of the awarding component and for commercial success;
and the availability of Federal Funds.
Therefore, to help NIAID make a determination on Phase II funding for this
project, we need you to submit by February 15, 1998, the Phase I progress report
and an update of the Commitment and Product Development Plans to:
Sharie Bernard
Grants Management Specialist
NIH/NIAID/DEA/GMB
Solar Building, Room 4C40
6003 Executive Boulevard - MSC 7610
Bethesda, MD 20892-7610
General program income that may be generated from this grant is to be treated
under the additional cost alternative.
The total costs (direct, indirect, and fixed fee) for Phase I of this SBIR may
not exceed $100,000.
PAYMENT INFORMATION: The awardee organization will receive information and forms
from the Payment Management System of the Department of Health and Human
Services regarding requests for cash, manners of payment, and associated
reporting requirements. Payment may be made on a cost-reimbursement or advance
basis. Cost reimbursements may be requested monthly, quarterly, or at other
periodic intervals. Advance payments may be requested on a monthly basis only.
The telephone number for the Payment Management System Office is (301) 443-1660.
1.
<PAGE> 3
TERMS OF AWARD continued
Normally, the awardee organization retains the principal worldwide patent rights
to any invention developed with United States government support. Under Title 37
Code of Federal Regulations Part 401, the Government receives a royalty-free
license for its use, reserves the right to require the patent holder to license
others in certain circumstances, and requires that anyone exclusively licensed
to sell the invention in the United States must normally manufacture it
substantially in the United States. To the extent authorized by Title 35 United
States Code Section 205, the Government will not make public any information
disclosing a Government-supported invention for a 4-year period to allow the
awardee organization a reasonable time to file a patent application, nor will
the Government release any information that is part of that application.
When purchasing equipment or products under this SBIR award, the grantee shall
use only American-made items whenever possible.
If you have a question on the award calculation or the terms and conditions of
the award, your grants management contact should be Pat Felner at (301)
496-7075.
Grants Management Contact: Program Official Contact:
Sharie Bernard Penelope J. Hitchcock, D.V.M.
(301) 402-5540 (301) 402-0443
<PAGE> 4
================================================================================
NIAID GRANTS MANAGEMENT
FUNDING PLAN
Prepared by:
GRANT NUMBER: I R44 AI 41939-01 PAT FELNER
P.I.: MAYNARD, JAMES E
INSTITUTION: BIOSTAR INC
<TABLE>
<CAPTION>
YEAR 1
========================================================
<S> <C>
Salaries 32,999
Fringe Benefits 5,940
- --------------------------------------------------------
PERSONNEL 38,939
CONSULTANTS 0
EQUIPMENT 0
SUPPLIES 6,000
TRAVEL, D. 2,000
TRAVEL, F. 0
INPATIENT 0
OUTPATIENT 0
ALTERATIONS 0
THIRD PARTY 0
OTHER 11,700
- --------------------------------------------------------
TOTAL DIRECT COSTS 58,639
TOTAL INDIRECT COSTS 0
- --------------------------------------------------------
TOTAL COSTS 58,639
INDIRECT COST CALCULATION
TOTAL BASE 58,639
- --------------------------------------------------------
BASE 1 0
RATE 1 0.00%
SUBTOTAL 0
- -------------------------------------------------------
</TABLE>
1.
<PAGE> 5
The Small Business Innovative Research (SBIR) and Small Business Technology
Transfer (STTR) programs have successfully achieved many of the goals of the
Bayh-Dole Act by promoting the utilization of inventions arising from Federally
supported research, bringing these products to market and encouraging maximum
participation of small business firms. Recently, however, concern has been
expressed that many of the inventions made with SBIR/STTR funding have not been
reported to National Institutes of Health (NIH) in compliance with the Bayh-Dole
Act. This attachment is a reminder to award recipients of their invention
reporting responsibilities to NIH.
The Bayh-Dole Act is implemented by the patent rights clause. This clause is a
part of the SBIR and STTR funding agreement and its full text can be found in
Appendix 9 of the PHS Grants Policy Statement. Under the Act principal worldwide
patent rights to an invention supported in whole or in part with Federal funds
(called a "subject invention") may be retained by the grantee. However, the
grantee must promptly report to the Government all subject inventions made under
the grant. Subject inventions made under NIH grants should be reported to:
Sue Ohata, Director
Division of Extramural Inventions and Technology Resources
Office of Policy for Extramural Research Administration (OPERA)
National Institutes of Health
6701 Rockledge Drive, MSC 7750
Bethesda, MD 20892-7750
These subject inventions include not only new inventions made during the SBIR or
STTR grant, but also inventions on which a patent application may have been
previously filed, but which have been first actually reduced to practice under
the SBIR or STTR grant. When the grantee retains title to a subject invention,
the Federal Government has a nonexclusive, nontransferable, irrevocable, paid-up
license to practice or have practiced for or on behalf of the United States the
subject invention throughout the world. A model confirmatory license is enclosed
that should be submitted to the NIH. Once received, the NIH sends the license to
the U.S. Office of Public Record for recording.
There are several other actions that the patent rights clause requires grantees
to take in order to protect the Government's interests. Grant recipients are
required to send to OPERA, at the address listed above, an invention disclosure
sufficiently complete in technical detail two months after an invention is made.
In addition, at the time of filing a patent application, the grantee agrees to
include within the specification of any U.S. patent application or patent
issued, the following statement, "This invention was made with government
support under (grant/contract number) awarded by (institute, agency). The
Government has certain rights in the invention." NIH requires that a copy of the
page of the patent application containing this Federal support clause be sent to
OPERA. Finally, if the grantee or contractor does not elect to retain title to
the invention or decides not to continue the prosecution of the patent
application, pay maintenance fees, or defend a reexamination or opposition
proceeding on the patent, the Government must be notified within the time limits
specified in the patent rights clause in the event that it may decide to take
title. The enclosed summary of grantee invention responsibilities provides
information on the time limits placed by law and identifies specific invention
reporting actions that must be taken.
1.
<PAGE> 6
For additional information, please contact Sue Ohata, Director, Division of
Extramural Inventions and Technology Resources, at (301) 435-1986.
<PAGE> 7
LICENSE TO THE UNITED STATES GOVERNMENT
Invention Title:
Inventor(s):
Patent or Application Serial No.
U.S. Filing/Issue Date:
Grant/Contract Identification Number(s):
Foreign Applications filed/intended in (countries):
The invention identified above is a Subject Invention under 35 U.S.C. 200, et
seq., and the Standard Patent Rights clause at 37 CFR 401.14 or FAR 52.227-11,
which are included among the terms of the above-identified grant/contract award
from the Public Health Service/National Institutes of Health. This document is
confirmatory of:
I. The nonexclusive, nontransferable, irrevocable, paid-up
license to practice or have practiced for or on behalf of the
United States the invention described in any patent
application and in any and all divisions, continuations, and
continuations in part, and in any and all patents and
re-issues granted thereon throughout the world; and
II. All other rights acquired by the Government by reason of the
above identified grant/contract award and the laws and
regulations which are applicable to the award.
The Government is hereby granted an irrevocable power to inspect and make copies
of the above-identified patent application.
Signed this __________ day of _______________ 199___.
By:
------------------------------------------------
(Grantee/Contractor Official and Title)
For:
-----------------------------------------------
(Organization)
At:
------------------------------------------------
(Business Address)
<PAGE> 8
GRANTEE RESPONSIBILITIES FOR INVENTION REPORTING
- --------------------------------------------------------------------------------
ACTION WHEN
- --------------------------------------------------------------------------------
EMPLOYEE AGREEMENT TO DISCLOSE ALL INVENTIONS: Upon acceptance of NIH funding.
Require written agreement with all employees,
except clerical and nontechnical, to promptly
disclose inventions. Institution must identify
grantee institution personnel to whom
disclosures must be made.
- --------------------------------------------------------------------------------
INVENTION DISCLOSURE: A hard copy of the Within 2 MONTHS of inventor's
invention disclosure that is complete in initial report to the
technical detail must be sent to NIH. It organization
should identify inventor(s), NIH grant or
contract number(s), any date of public
disclosure.
- --------------------------------------------------------------------------------
ELECTION OF TITLE TO INVENTION: Must be Within 2 YEARS of disclosure to
given in writing to NIH or sent NIH. For inventions disclosed
electronically to Edison. to the public, notify NIH 60
days prior to the statutory bar
date which is usually one year
after the date of publication,
on sale, or public use.
Publications include abstracts
and posters.
- --------------------------------------------------------------------------------
NONELECTION OF TITLE TO INVENTION: Must be For inventions not disclosed to
given to NIH in writing or sent electronically the public, notify NIH 60 DAYS
to Edison. In the event that the inventor(s) prior to the end of the 2 year
would like to obtain title, justification disclosure period.
should be provided on their ability to
commercialize the invention.
- --------------------------------------------------------------------------------
PATENT APPLICATION: Provide NIH with a hard Within ONE YEAR of election of
copy of the 1) confirmatory license to the title or publication, whichever
government and 2) page of the patent is earlier.
application that contains the Federal support
clause, "This invention was made with
government support under (grant/contract
number) awarded by (agency). The
government has certain rights in the
invention." Upon request, provide the entire
patent application. The confirmatory license
must include the patent application number.
- --------------------------------------------------------------------------------
<PAGE> 9
- --------------------------------------------------------------------------------
ACTION WHEN
- --------------------------------------------------------------------------------
ISSUED PATENT: Provide NIH with patent At time of issuance of patent.
number and issue date in writing or
electronically. Upon request, provide
NIH with the issued patent.
- --------------------------------------------------------------------------------
REQUEST FOR EXTENSION OF TIME: Make Prior to deadline for election
request in writing or electronically of title or patent
for extension of time to report filing.
election or filing.
- --------------------------------------------------------------------------------
DISCONTINUATION OF PATENT APPLICATION, No less than 30 DAYS of the
PAYMENT OF MAINTENANCE FEES, OR DEFENSE response period required by
IN A REEXAMINATION OR OPPOSITION PROCEEDING the relevant patent office.
ON A PATENT: Must notify NIH in
writing or electronically.
- --------------------------------------------------------------------------------
ANNUAL UTILIZATION REPORT: Required for all Every year subsequent to
inventions where patent applications have filing a patent application or
been filed or where it has been licensed as licensing invention as a
a biological material, but not patented. biological material.
Includes status of development, date of first
commercial sale or use and gross royalties.
Must be reported electronically.
- --------------------------------------------------------------------------------
FINAL INVENTION STATEMENT AND CERTIFICATION Within 90 days after
(FORM HHS 568): List all inventions made under termination of the grant.
the grant or indicate that there were none.
- --------------------------------------------------------------------------------
<PAGE> 10
NIAID GRANT AWARD INFORMATION SHEET
Dear Award Recipient:
You have been awarded support for your research project by the National
Institute of Allergy and Infectious Diseases (NIAID). Your notification of award
is attached. The notification consists of two parts: 1) the Notice of Grant
Award which provides the fiscal award by direct and indirect costs and 2) the
Terms of Award which provides detailed information (including restrictions) to
facilitate the proper execution of the award.
If you need any assistance from the NIAID, please contact either your grants
management specialist or the individual listed as the responsible program
official on the Terms of Award. Their areas of expertise are as follows:
GRANTS MANAGEMENT SPECIALIST: The NIAID representative responsible for
all business management matters associated with the negotiation, award,
and administration of the project and the interpretation of grant
policy provisions.
PROGRAM OFFICIAL: The NIAID official who is responsible for the
technical, scientific or programmatic aspects of a grant. This
individual deals with grantee staff to assure programmatic progress and
works closely with grants management staff in the overall
administration of this award.
AWARD INFORMATION:
The funding level for this award is based on an NIAID assessment of the amount
required to achieve the goals and objectives of the project, within the total
funds available for research project grants allocated to the NIAID. Particular
weight is given to those applications requesting support in programmatic areas
of special interest to the NIAID, the Congress, and other interested
organizations. In addition, an analysis of the specific costs requested in the
budget was performed to ensure that the costs are reasonable and allowable.
PRIOR APPROVAL REQUESTS:
Please note that PHS policy requires that all requests needing the prior
approval of the NIAID, must be submitted in writing to the grants management
specialist. A copy of the letter should also be provided to the program
official. To expedite the review of the request, the grant number should be
referenced (e.g., 1 R01 AI 12345-01), and must be signed by both the principal
investigator and the authorized grantee business official.
<PAGE> 11
FUTURE CONTINUATION AWARDS:
Prior to making an award in response to any future non-competing or competing
application all required documentation and certifications must be received and
accepted by the Grants Management Branch. If the required information is not
received prior to the requested budget start date, that date will be changed to
reflect the time period necessary to implement the award after receipt of the
documentation. If the documentation is significantly overdue, not only will the
budget period be adjusted, but the level of support may be prorated
/s/ Mary C. Kirker
Mary C. Kirker
Grants Management Officer
<PAGE> 1
SUBORDINATED SECURITY AGREEMENT
THIS SUBORDINATED SECURITY AGREEMENT dated as of May 3, 1995, is made
by BIOSTAR, INC., a Delaware corporation, with its principal place of business
located at 6655 Lookout Road, Boulder, Colorado 80301 (the "Grantor"), in favor
of COMDISCO, INC., a Delaware corporation, with its principal place of business
located at 6111 North River Road, Rosemont, Illinois 60018 (the "Secured
Party").
RECITALS
A. Concurrently herewith, Grantor is issuing to Secured Party that
certain Subordinated Promissory Note in the principal amount of TWO MILLION
FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($2,500,000.00) (the "Note")
substantially in the form of Exhibit A hereto, pursuant to which Secured Party
will make available to Grantor certain sums of money (the "Loan") upon
satisfaction or waiver of all of the conditions specified in Section 3 hereof
and upon the terms and subject to the conditions set forth herein and in the
Note on the Closing Date (as hereinafter defined).
B. Secured Party is willing to enter into the Note with Grantor, but
only upon the condition, among others, that Grantor shall have executed and
delivered to Secured Party this Security Agreement.
AGREEMENT
NOW, THEREFORE, in order to induce Secured Party to make the Loan, and
for other good and valuable consideration, and intending to be legally bound,
Grantor hereby represents, warrants, covenants and agrees as follows:
SECTION 1. DEFINED TERMS. Unless otherwise defined herein, (a) the capitalized
terms defined in the Subordinated Note are used herein as therein defined and
(b) the following capitalized terms shall have the following meanings (such
meanings being equally applicable to both the singular and plural forms of the
terms defined):
"Account Debtor" means any "account debtor," as such term is defined in
Section 9105(1)(a) of the UCC.
"Account" means any "account," as such term is defined in Section 9106 of
the UCC, now owned or hereafter acquired by Grantor or in which Grantor now
holds or hereafter acquires any interest and, in any event, shall include,
without limitation, all accounts receivable, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Grantor (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Grantor or from any other transaction, whether or not the same
involves the sale of goods or services by Grantor (including, without
<PAGE> 2
limitation, any such obligation which may be characterized as an account or
contract right under the UCC) and all of Grantor's rights in, to and under all
purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and all of Grantor's rights to any goods represented by any of the
foregoing (including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned, reclaimed
or repossessed goods), and all monies due or to become due to Grantor under all
purchase orders and contracts for the sale of goods or the performance of
services or both by Grantor (whether or not yet earned by performance on the
part of Grantor or in connection with any other transaction), now in existence
or hereafter occurring, including, without limitation, the right to receive the
proceeds of said purchase orders and contracts, and all collateral security and
guarantees of any kind given by any Person with respect to any of the
foregoing.
"Chattel Paper" means any "chattel paper," as such term is defined in
Section 9105(1)(b) of the UCC, now owned or hereafter acquired by Grantor or in
which Grantor now holds or hereafter acquires any interest.
"Closing Date" means the date of funding of the Loan.
"Collateral" shall have the meaning assigned to such term in Section 3 of
this Security Agreement.
"Contracts" means all contracts, undertakings, franchise agreements or
other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Grantor may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
"Copyrights" means all of the following now owned or hereafter acquired
by Grantor or in which Grantor now holds or hereafter acquires any interest:
(i) all copyrights, whether registered or unregistered, held pursuant to the
laws of the United States, any State thereof or of any other country; (ii)
registrations, applications and recordings in the United States Copyright
Office or in any similar office or agency of the United States, any state
thereof or any other country; (iii) any continuations, renewals or extensions
thereof; and (iv) any registrations to be issued in any pending applications.
"Copyright License" means any written agreement granting any right to use
any Copyright or Copyright registration now owned or hereafter acquired by
Grantor or in which Grantor now holds or hereafter acquires any interest.
"Documents" means any "documents," as such term is defined in Section
9105(1)(f) of the UCC, now owned or hereafter acquired by Grantor or in which
Grantor now holds or hereafter acquires any interest.
"Equipment" means any "equipment," as such term is defined in Section
9109(2) of the UCC, now or hereafter owned or acquired by Grantor or in which
Grantor now holds or hereafter acquires any interest and any and all additions,
substitutions and replacements of any of the
2.
<PAGE> 3
foregoing, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.
"Event of Default" shall mean:
(i) a failure of Grantor to promptly pay any of the Secured
Obligations when due and such failure shall continue for a period
of five (5) calendar days; or
(ii) Grantor's failure to comply with the covenants in this Security
Agreement, or any other written agreement between Grantor and
Secured Party, and such failure shall continue for a period of ten
(10) calendar days after receipt of notice thereof from Secured
Party; or
(iii) any representation made by Grantor in writing herein or in
connection herewith shall be untrue and shall remain so for ten
(10) calendar days after written notice thereof to the Grantor; or
(iv) the Grantor shall make an assignment for the benefit of creditors,
or shall admit in writing its inability to pay its debts as they
become due, or shall file a voluntary petition in bankruptcy, or
shall be adjudicated as bankrupt or insolvent, or shall file any
petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or
regulation pertinent to such circumstances, or shall file any
answer admitting or not contesting the material allegations of a
petition filed against any answer admitting or not contesting the
material allegations of a petition filed against the Grantor in
any such proceedings, provided such proceedings are not dismissed
within ninety (90) days of their institution, or shall seek or
consent to or acquiesce in the appointment of any trustee,
receiver, or liquidator of the Grantor or of all or any
substantial part (20 % or more) of the properties of the Grantor;
or the Grantor or its directors or majority shareholders shall
take any action initiating the dissolution or liquidation of the
Grantor; or
(v) sixty (60) days shall have expired after the commencement of an
action against the Grantor seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation
without such action being dismissed or all orders or proceedings
thereunder affecting the operations or the business of the Grantor
being stayed; or a stay of any such order or proceedings shall
thereafter be set aside and the action setting it aside shall not
be timely appealed; or
(vi) sixty (60) days shall have expired after the appointment, without
the consent of acquiescence of the Grantor, of any Trustee,
receiver or liquidator of the Grantor or of all or any substantial
part of the properties of the Grantor without such appointment
being vacated; or
3.
<PAGE> 4
(vii) declaration of any default (after expiration of any applicable
notice and/or grace periods) under any Senior Debt Agreement or
under any material lease or other material agreement or obligation
of the Grantor or the entry of any final material judgment against
the Grantor; provided, however for the purposes of this Security
Agreement, a default shall have occurred under the Senior Debt
Agreement only in the event that (a) there exists a payment
default on the Senior Debt, (b) there exists a breach of one or
more of the financial covenants set forth in the Senior Debt
Agreement, or (c) there has been a default under the Senior Debt
Agreement, the result of which has been an acceleration of the
Senior Debt by the Senior Creditor.
"Fixtures" means "fixtures," as such term is defined in Section
9313(1)(a) of the UCC, now or hereafter owned or acquired by Grantor or in
which Grantor now holds or hereafter acquires any interest and, now or
hereafter attached or affixed to or constituting a part of, or located in or
upon, real property wherever located, together with all right, title and
interest of Grantor in and to all extensions, improvements, betterments,
renewals, substitutes, and replacements of, and all additions and appurtenances
to any of the foregoing property, and all conversions of the security
constituted thereby, immediately upon any acquisition or release thereof or any
such conversion, as the case may be.
"General Intangibles" means any "general intangibles," as such term is
defined in Section 9106 of the UCC, now owned or hereafter acquired by Grantor
or in which Grantor now holds or hereafter acquires any interest and, in any
event, shall include, without limitation, all right, title and interest which
Grantor may now or hereafter have in or under any Contract, all customer lists,
Copyrights, Trademarks, Patents, rights to intellectual property, interests in
partnerships, joint ventures and other business associations, Licenses,
permits, copyrights, trade secrets, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, software, data bases, data, skill,
expertise, recipes, experience, processes, models, drawings, materials and
records, goodwill (including, without limitation, the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark
License), claims in or under insurance policies, including unearned premiums,
uncertificated securities, cash and other forms of money or currency, deposit
accounts (including as defined in Section 9105(e) of the UCC), rights to sue
for past, present and future infringement of Copyrights, Trademarks and
Patents, rights to receive tax refunds and other payments and rights of
indemnification.
"Instruments" means any "instrument," as such term is defined in Section
9105(1)(i) of the UCC now owned or hereafter acquired by Grantor or in which
Grantor now holds or hereafter acquires any interest.
"Intellectual Property" means all Copyrights, Trademarks, Patents, trade
secrets, source codes, customer lists, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, software, data bases, skill,
expertise, experience, processes, models, drawings, materials and records.
4.
<PAGE> 5
"Inventory" means any "inventory," as such term is defined in Section
9109(4) of the UCC, wherever located, now or hereafter owned or acquired by
Grantor or in which Grantor now holds or hereafter acquires any interest, and,
in any event, shall include, without limitation, all inventory, goods and other
personal property which are held by or on behalf of Grantor for sale or lease
or are furnished or are to be furnished under a contract of service or which
constitute raw materials, work in process or materials used or consumed or to
be used or consumed in Grantor's business, or the processing, packaging,
promotion, delivery or shipping of the same, and all furnished goods whether or
not such inventory is listed on any schedules, assignments or reports furnished
to Secured Party from time to time and whether or not the same is in transit or
in the constructive, actual or exclusive occupancy or possession of Grantor or
is held by Grantor or by others for Grantor's account, including, without
limitation, all goods covered by purchase orders and contracts with suppliers
and all goods billed and held by suppliers and all inventory which may be
located on premises of Grantor or of any carriers, forwarding agents, truckers,
warehousemen, vendors, selling agents or other persons.
"License" means any Copyright License, Patent License, Trademark License
or other license of rights or interests now held or hereafter acquired by
Grantor or in which Grantor now holds or hereafter acquires any interest and
any renewals or extensions thereof.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, levy, lien or charge
of any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any property, any conditional sale or other title retention
agreement, any lease in the nature of a security interest, and the filing of
any financing statement (other than a precautionary financing statement with
respect to a lease that is not in the nature of a security interest) under the
UCC or comparable law of any jurisdiction.
"Loan Documents" means this Security Agreement and the Note executed as
of the date hereof in connection with the transactions completed hereby.
"Material Adverse Effect" means a material adverse effect upon: (i) the
business, operations, properties, assets or conditions (financial or otherwise)
of Grantor; or (ii) the ability of Grantor to perform, or of Secured Party to
enforce the Secured Obligations.
"Patent License" means any written agreement granting any right with
respect to any invention on which a Patent is in existence now owned or
hereafter acquired by Grantor or in which Grantor now holds or hereafter
acquires any interest.
"Patents" means all of the following now owned or hereafter acquired by
Grantor or in which Grantor now holds or hereafter acquires any interest: (a)
letters patent of, or rights corresponding thereto in, the United States or any
other county, all registrations and recordings thereof, and all applications
for letters patent of, or rights corresponding thereto in, the United States or
any other country, including, without limitation, registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof or any other country;
(b) all reissues, continuations, continuations-in-part or extensions thereof;
(c) all petty patents, divisionals, and patents of addition; and (d) all
patents to issue in any such applications.
5.
<PAGE> 6
"Permitted Liens" means any and all of the following: (a) Liens in favor
of Secured Party, (b) Liens existing as of the date hereof (as set forth on
Exhibit B), or (c) Liens related to, or arising in connection with, Senior
Debt.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, firm, joint stock company, estate,
entity or governmental authority.
"Proceeds" means "proceeds," as such term is defined in Section 9306(1)
of the UCC and, in any event, shall include, without limitation, (a) any and
all Accounts, Chattel Paper, Instruments, cash or other forms of money or
currency or other proceeds payable to Grantor from time to time in respect of
the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty
or guaranty payable to Grantor from time to time with respect to any of the
Collateral, (c) any and all payments (in any form whatsoever) made or due and
payable to Grantor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), (d) any claim of Grantor against third parties (i) for
past, present or future infringement of any Copyright, Patent or Patent License
or (ii) for past, present or future infringement or dilution of any Trademark
or Trademark License or for injury to the goodwill associated with any
Trademark, Trademark registration or Trademark licensed under any Trademark
License and (e) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
"Secured Obligations" means all liabilities and other obligations for
monetary amounts owed by Grantor to Secured Party, whether due or to become
due, matured or unmatured, liquidated or unliquidated, contingent or non-
contingent, and all covenants and duties regarding such amounts, of any kind or
nature, present or future, arising under the Security Agreement, whether or not
evidenced by any note, agreement or other instrument.
"Security Agreement" means this Security Agreement as the same may from
time to time be amended, modified, supplemented or restated.
"Senior Debt" means (i) all indebtedness and other obligations of Grantor
now existing or hereafter arising in favor of any bank, financial institution
or other Person engaged in the business of lending money (each, a "Senior
Creditor"); (ii) all amounts due or to become due relating to any of the
foregoing, including, without limitation, all interest, all loan and other
fees, expenses and costs (including attorneys' fees), including costs of
enforcement, amounts reimbursable and other liabilities (including interest,
fees, professional fees and costs which would become due but for the operation
of Title 11 of the United States Code, the Bankruptcy Rules promulgated
pursuant thereto, or any subsequent bankruptcy law of the United States (the
"Bankruptcy Code"); and (iii) any and all obligations pursuant to any amendment
of any of the foregoing in favor of the Senior Creditor.
"Senior Debt Agreement" means the agreement that evidences the Senior
Debt as defined herein.
6.
<PAGE> 7
"Trademark License" means any written agreement granting any right to use
any Trademark registration now owned or hereafter acquired by Grantor or in
which Grantor now holds or hereafter acquires any interest.
"Trademarks" means any of the following now owned or hereafter acquired
by Grantor or in which Grantor now holds or hereafter acquires any interest:
(a) any and all trademarks, tradenames, corporate names, business names, trade
styles, service marks, logos, other source or business identifiers, prints and
labels on which any of the foregoing have appeared or appear, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof and (b) any reissues, extensions
or renewals thereof.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of Illinois.
"Warrant Agreement" means the agreement dated of even date herewith
pursuant to which Grantor granted Secured Party the right to purchase 214,285
shares of Series E Preferred Stock of Grantor as more particularly set forth
therein.
"Warrants" shall have the meaning set forth in the Warrant Agreement.
SECTION 2. CONDITIONS TO CLOSING. The obligation of Secured Party to fund
the Loan shall be subject to satisfaction by Grantor or waiver by Secured
Party, in Secured Party's sole discretion, of the following conditions:
(a) DOCUMENT DELIVERY. Grantor, on or prior to the Closing Date
shall have delivered the following:
(1) certified copy of resolutions of Grantor's board of
directors evidencing approval of the borrowing and other
transactions evidenced by the Loan Documents and the
Warrant Agreement;
(2) certified copies of the Charter and Bylaws of Grantor;
(3) certificate of good standing for Grantor from its state
of incorporation and similar certificates from all other
jurisdictions in which it does business and where the
failure to be qualified would have a Material Adverse
Effect;
(4) an opinion of counsel in the form attached as Exhibit B
hereto;
(5) incumbency certificate regarding Grantor's officers;
(6) executed originals of all Loan Documents;
7.
<PAGE> 8
(7) a facility fee in an amount equal to Fifty Thousand
Dollars ($50,000) (the "Facility Fee"). Secured Party
acknowledges that prior to the date hereof Grantor has
paid a commitment fee in the amount of Ten Thousand
Dollars ($10,000), which amount shall be applied on the
Closing Date towards payment of the Facility Fee; and
(8) such other documents as Lender may reasonably request.
(b) PERFECTION OF SECURITY INTERESTS. Grantor shall have taken or
caused to be taken such actions in such a manner so that
Secured Party has a valid and perfected security interest in
all of the Collateral, subject only to Permitted Liens. Such
actions shall include, without limitation the delivery to
Secured Party of all appropriate financing statements,
executed by Grantor, as to the Collateral granted by Grantor
for all jurisdictions as may be necessary or desirable to
perfect security interest of Secured Party in such Collateral
SECTION 3. GRANT OF SECURITY INTEREST. As security for the prompt, complete
and indefeasible payment when due (whether at stated payment dates or
otherwise) of all the Secured Obligations and in order to induce Secured Party
to make the Loan upon the terms and subject to the conditions of the Note,
Grantor hereby assigns, conveys, mortgages, pledges, hypothecates and transfers
to Secured Party for security purposes only, and hereby grants to Secured
Party, a security interest in and to all of Grantor's right, title and interest
in, to and under each of the following (all of which being hereinafter
collectively called the "Collateral"):
(a) All Accounts;
(b) All Chattel Paper;
(c) All Contracts;
(d) All Documents;
(e) All Equipment;
(f) All Fixtures;
(g) All General Intangibles;
(h) All Instruments;
(i) All Inventory;
(j) All other goods and personal property of Grantor whether tangible
or intangible and whether now or hereafter owned or existing,
leased, consigned by or to, or acquired by, Grantor and wherever
located; and
8.
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(k) To the extent not otherwise included, all Proceeds of each of
the foregoing and all accessions to, substitutions and
replacements for, and rents, profits and products of each of
the foregoing.
SECTION 4. RIGHTS OF SECURED PARTY; COLLECTION OF ACCOUNTS.
(a) Notwithstanding anything contained in this Security Agreement
to the contrary, Grantor expressly agrees that it shall remain liable under
each of its Contracts and each of its Licenses to observe and perform all the
conditions and obligations to be observed and performed by it thereunder and
that it shall perform all of its duties and obligations thereunder, all in
accordance with and pursuant to the terms and provisions of each such Contract
or License, unless contested in good faith. Secured Party shall not have any
obligation or liability under any Contract or License by reason of or arising
out of this Security Agreement or the granting to Secured Party of a security
interest therein or the receipt by Secured Party of any payment relating to any
Contract or License pursuant hereto, nor shall Secured Party be required or
obligated in any manner to perform or fulfill any of the obligations of Grantor
under or pursuant to any Contract or License, or to make any payment, or to
make any inquiry as to the nature or the sufficiency of any payment received by
it or the sufficiency of any performance by any party under any Contract or
License, or to present or file any claim, or to take any action to collect or
enforce any performance or the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
(b) Secured Party authorizes Grantor to collect its Accounts,
provided that Secured Party may, upon the occurrence and during the
continuation of any Event of Default, limit or terminate said authority at any
time. If required by Secured Party at any time during the continuation of any
Event of Default, any Proceeds, when first collected by Grantor, received in
payment of any such Account or in payment for any of its Inventory or on
account of any of its Contracts or Licenses shall be promptly deposited by
Grantor in precisely the form received (with all necessary endorsements) in an
account designated by Secured Party, subject to withdrawal by Secured Party
only, as hereinafter provided, and until so turned over shall be deemed to be
held in trust by Grantor for and as Secured Party's property, on behalf and for
the benefit of Secured Party, and shall not be commingled with Grantor's other
funds or properties. Such Proceeds, when deposited, shall continue to be
collateral security for all of the Secured Obligations and shall not constitute
payment thereof until applied as hereinafter provided. Upon the occurrence and
during the continuation of any Event of Default, Secured Party may, in its sole
discretion, apply all or a part of the funds on deposit in said special account
to the payment of any of the Secured Obligations in accordance with the
provisions of Subsection 7(d), below, and any part of such funds which Secured
Party elects not so to apply and deems not required as collateral security for
the Secured Obligations shall be paid over by Secured Party to Grantor.
(C) Secured Party may at any time, upon the occurrence and during
the continuation of any Event of Default, after first notifying Grantor of its
intention to do so, notify Account Debtors of Grantor that the Accounts have
been assigned to Secured Party, and that payments shall be made directly to
Secured Party. Upon the request of Secured Party, Grantor shall so notify such
Account Debtors. Upon the occurrence and during the continuation of an
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<PAGE> 10
Event of Default, Secured Party may, in its name, or in the name of others
communicate with such Account Debtors to verify with such parties, to Secured
Party's satisfaction, the existence, amount and terms of any such Accounts.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Grantor hereby represents and
warrants to Secured Party that:
(a) Grantor is the sole legal and equitable owner or, as to
Intellectual Property licensed from other Persons, licensee, of each item of
the Collateral in which it purports to grant a security interest hereunder,
having good and marketable title or rights thereto free and clear of any and
all Liens, except for the Permitted Liens.
(b) No effective security agreement, financing statement,
equivalent security or lien instrument or continuation statement covering all
or any part of the Collateral exists, except such as may have been filed by
Grantor in favor of Secured Party pursuant to this Security Agreement or such
as relate to other Permitted Liens.
(c) Grantor is duly incorporated, validly existing and in good
standing under the laws of the state of Delaware having a Certificate of
Incorporation, as amended, and Bylaws (all terms of which are in full force and
effect), copies of which have been delivered to Secured Party pursuant to
Section 2(a) and Grantor is duly qualified to conduct business its business and
is in good standing as a foreign corporation in all jurisdictions in which the
nature of its business or location of its properties require such
qualifications and where the failure to be qualified would have a Material
Adverse Effect.
(d) Grantor has full power and authority to enter into this
Security Agreement, to borrow money as contemplated hereby and to carry out the
provisions hereof, to enter into the other Loan Documents, to issue the Warrant
Agreement, upon exercise thereof to issue the Series E Preferred Stock pursuant
thereto, otherwise comply with the provisions of the Warrant Agreement, and it
has taken all corporate action necessary for the execution and performance of
each of the foregoing (including the issuance and sale of the Warrants, the
reservation of shares of stock and the issuance thereof upon the exercise of
the Warrants), as evidenced by the resolution of other authentication delivered
to Secured Party, pursuant to Section 2(a); and each document above-named will
constitute a valid and binding obligation of the Grantor enforceable in
accordance with its respective terms when executed and delivered.
(e) As of the Closing Date, there shall not be pending or, to the
knowledge of Grantor, threatened, any action, suit, proceeding, governmental
investigation or arbitration against or affecting Grantor or any property of
Grantor that has not been disclosed by Grantor on Exhibit 5(e) hereto, and
there shall have occurred no development not so disclosed in any such action,
suit, proceeding, governmental investigation or arbitration so disclosed, that,
in either event, would reasonably be expected to have a Material Adverse
Effect; and no injunction or other retraining order shall have been issued and
no hearing to cause an injunction or other restraining order to be issued shall
be pending or noticed with respect to any action, suit or proceeding seeking to
enjoin or otherwise prevent the consummation of, or to recover any
10.
<PAGE> 11
damages or obtain relief as a result of the transactions contemplated by this
Security Agreement or the making of the Loan hereunder.
(f) Grantor has filed all tax returns, federal, state and local,
which it is required to file and has duly paid or fully reserved for all taxes
or installments thereof (including any interest or penalties) as and when due,
which have or may become due pursuant to such returns or pursuant to any
assessment received by Grantor for the three (3) years preceding the Closing
Date, if any.
(g) The audited financial statements for Grantor for the year
ended December 31, 1994, were audited by Ernst and Young, whose opinion states
they were prepared in accordance with generally accepted accounting principals
consistently applied, are true and correct in all material respects, and fairly
present the operating income and financial condition of Grantor, at such date
and for the period then ended; none of the financial statements understates the
true costs and expenses of conducting the business, fails to disclose all
material contingent liabilities, or inflates the revenue of Grantor because of
the provision of services of the bearing of costs or expenses or the payment of
fees or for any other reasons.
(h) As of the date hereof, and giving effect to the transactions
contemplated by this Security Agreement, the present fair market value of
Grantor's assets (including the business) is greater than the amount required
to pay Grantor's total indebtedness, and is greater than the amount that will
be required to pay such indebtedness as it matures and as it becomes absolute
and matured; the transactions contemplated hereby were effectuated without
actual intent to hinder, delay or defraud present or future creditors of
Grantor; it is Grantor's intention that it will maintain such solvent financial
condition, giving effect to the debt incurred hereunder, as long as the Note
remains outstanding; the Grantor has sufficient capital to carry on its
business and transactions as now conducted and as planned to be conducted in
the future.
(i) The execution, delivery and performance by Grantor of the
Warrant Agreement, and the execution, delivery and performance of the Loan
Documents and the consummation of the transactions contemplated hereby and
thereby, do not and will not require any registration with, consent of approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body, except for any of the foregoing
which will be made or obtained by Grantor on or before the Closing Date.
(j) Exhibit 5(j), hereto sets forth a complete and accurate list
of all policies of insurance in effect as of the Closing Date for Grantor. No
notice of cancellation had been received with respect to such policies, Grantor
is in compliance with all conditions contained in such policies and Grantor has
sufficient insurance as dictated by sound business practices for similar
businesses with similar assets, activities and liabilities.
(k) To Borrower's knowledge there have been no reportable events
as set forth in Section 4043(b) of the Employee Retirement Income Security Act
of 1974 ("ERISA") in respect of any plan, as described in 4021(a), and no
termination of any such plan since the effective date of ERISA, which could
result in any tax, penalty or liability being imposed upon Grantor; neither
Grantor nor any of its predecessors in interest has participated in, and the
11.
<PAGE> 12
issuance of the Note and the Warrants by Grantor will not involve any
"prohibited transaction" (as defined in Section 4975 of the Internal Revenue
Code of 1986, as amended) that could subject Grantor or Lender to any tax or
penalty imposed by said Section 4975; since the effective date of ERISA,
neither Grantor nor any of its predecessors in interest has incurred any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA, to which Grantor could be subject or for which it might be liable;
Grantor is not, and immediately after the Closing Date will not be, a party to,
and none of the operations of Grantor is or after Closing Date will be covered
by, a multi-employer plan, as defined in Section 3(37) of ERISA.
(l) This Security Agreement creates a legal and valid security
interest on and in all of the Collateral in which Grantor now has rights. This
Security Agreement will create a legal and valid security interest in the
Collateral in which Grantor later acquires rights, when Grantor acquires those
rights, subject only to the Permitted Liens.
(m) Grantor's chief executive office, principal place of business,
and the place where Grantor maintains its records concerning the Collateral are
presently located at 6655 Lookout Road, Boulder, Colorado 80301. Grantor shall
not change such chief executive office or principal place of business without
prior written notice to Secured Party.
SECTION 6. COVENANTS. Grantor covenants and agrees with Secured Party that
from and after the date of this Security Agreement and until the Secured
Obligations have been paid and performed in full:
6.1 FURTHER ASSURANCES; PLEDGE OF INSTRUMENTS. At any time and from
time to time, upon the written request of Secured Party, and at the sole
expense of Grantor, Grantor shall promptly and duly execute and deliver any and
all such further instruments and documents and take such further action as
Secured Party may reasonably deem desirable to obtain the full benefits of this
Security Agreement and of the rights and powers herein granted, including,
without limitation, filing any financing or continuation statements under the
UCC with respect to the security interests granted hereby, and transferring
Collateral to Secured Party's possession (if a security interest in such
Collateral must be perfected by possession). Grantor also hereby authorizes
Secured Party to file any such financing or continuation statement without the
signature of Grantor. If any amount payable under or in connection with any of
the Collateral is or shall become evidenced by any Instrument, such Instrument,
other than checks and notes received in the ordinary course of business, shall
be duly endorsed in a manner satisfactory to Secured Party and delivered to
Secured Party promptly upon Grantor's receipt thereof, if so requested by
Secured Party.
6.2 MAINTENANCE OF RECORDS. Grantor shall keep and maintain at its
own cost and expense satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received and all
credits granted with respect to the Collateral and all other dealings with the
Collateral. Grantor shall mark its books and records pertaining to the
Collateral to evidence this Security Agreement and the security interests
granted hereby.
6.3 LIMITATION ON LIENS ON COLLATERAL. Grantor shall further defend
the right, title and interest of Secured Party in and to any of Grantor's
rights under the Chattel Paper, Contracts,
12.
<PAGE> 13
Documents, General Intangibles and Instruments and to the Equipment, Fixtures
and Inventory and in and to the Proceeds thereof against the claims and demands
of all Persons whomsoever.
6.4 LIMITATIONS ON MODIFICATIONS OF ACCOUNTS. Upon the occurrence and
during the continuation of any Event of Default, Grantor shall not, without
Secured Party's prior written consent, grant any extension of the time of
payment of any of the Accounts, compromise, compound or settle the same for
less than the full amount thereof, release, wholly or partly, any Person liable
for the payment thereof, or allow any credit or discount whatsoever thereon
other than trade discounts granted in the ordinary course of business of
Grantor.
6.5 MAINTENANCE OF INSURANCE. Grantor shall maintain, with
financially sound and reputable companies, the insurance policies with limits
and coverage provisions as reasonably requested by Secured Party.
6.6 TAXES, ASSESSMENTS, ETC. Grantor shall pay promptly when due all
property and other taxes, assessments and government charges or levies imposed
upon, and all claims (including claims for labor, materials and supplies)
against, the Equipment, Fixtures or Inventory, except to the extent the
validity thereof is being contested in good faith and adequate reserves are
being maintained in connection therewith.
6.7 NOTICES. Grantor shall advise Secured Party promptly, in
reasonable detail, of (a) any material Lien, other than Permitted Liens,
attaching to or asserted against any of the Collateral, and (b) the occurrence
of any other event which is reasonably likely to have or result in a material
adverse change with respect to the Collateral or the security interest created
hereunder.
6.8 MAINTENANCE OF FACILITIES. Grantor shall maintain and protect its
properties, assets and facilities, including without limitation, its Equipment
and Fixtures in good order and working repair and condition (taking into
consideration ordinary wear and tear) and from time to time make or cause to be
made all needful and proper repairs, renewals and replacements thereto and
shall competently manage and care for its property in accordance with prudent
industry practices.
6.9 CONTINUOUS PERFECTION. Grantor shall not change its name,
identity or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of Section 9402(7) of the UCC (or any other then applicable
provision of the UCC) unless Grantor shall have given Secured Party at least
the (30) days' prior written notice thereof and shall have taken all action (or
made arrangements to take such action substantially simultaneously with such
change if it is impossible to take such action in advance) necessary or
reasonably requested by Secured Party to amend such financing statement or
continuation statement so that it is not seriously misleading.
6.10 ANNUAL AUDIT. Grantor shall forward, or cause to be forwarded, to
Secured Party the Grantor's audited year-end consolidated financial statements
(including a year-end balance sheet, profit and loss statement and cash flow
statements), without qualification thereof, as soon as practicable (and in any
event within one hundred twenty (120) days) after the end of such
13.
<PAGE> 14
year, which shall be prepared at the Grantor's expense by an independent
outside accounting firm according to generally accepted accounting principles
consistently applied.
6.11 NOTICE OF LITIGATION. Grantor shall notify Secured Party of any
material litigation to which the Grantor is a party by mailing to Secured
Party, by registered mail, within thirty (30) days of receipt thereof, a copy
of the Complaint, Motion for Judgment or other such pleadings served on or by
the Company; and any litigation to which the Grantor is not a party but which
is reasonably likely to have a Material Adverse Effect on the Grantor's
business or the Collateral pledged under this Security Agreement, including
collateral securing any guarantees, by mailing to Secured Party by registered
mail, a copy of all pleadings obtained by the Grantor in regard to such
litigation, or if no pleadings are obtained, a letter setting out the facts
known about the litigation within thirty (30) days of receipt thereof, provided
that the Grantor shall not be obliged by this paragraph to give notice of (i)
any litigation that does not entail damages or other monetary relief totaling
less than One Hundred Thousand Dollars ($100,000), or (ii) injunctive relief,
the granting or denial of which would not reasonably be expected to have a
Material Adverse Effect on the Grantor or its business.
6.12 NOTICE OF DEFAULTS OR JUDGMENTS. Grantor shall give Secured Party
notice of material default declared in regard to any loan or lease of the
Grantor or any material judgment entered against the Grantor by mailing a copy
to Secured Party within ten (10) days of receipt thereof.
6.13 BOARD OF DIRECTORS/INTERIM FINANCIALS. Upon acceptance by the
directors of the minutes of the Board of Directors, Grantor shall provide to
Secured Party the executive summary and minutes of the Board of Directors
meetings, including all attachments so distributed. In addition, the following
statements will be provided to Secured Party on a monthly basis: Profit and
Loss Statement, Balance Sheet, Cash Flow Statement and Pro Forma Operating Plan
(as developed).
6.14 ACCESS TO RECORDS. Grantor shall permit any authorized
representative of Secured Party and their attorneys and accountants on five (5)
business days written notice to inspect, examine and make copies and abstracts
of the books of account and records of the Grantor at reasonable times during
normal business hours. In addition, such representative of Secured Party and
their attorneys and accountants shall have the right to meet with management
and officers of the Company to discuss such books of account and records.
6.15 PROTECTION OF COLLATERAL. Grantor shall take all necessary steps
to administer, supervise, preserve and protect the Collateral herein and to
perfect and maintain the Secured Party's security interest in the Collateral;
regardless of any action taken by Secured Party there shall be no duty upon
Secured Party in this respect.
6.16 DIVIDENDS; DISTRIBUTION OF ASSETS. Grantor shall not, without the
prior written consent of the Secured Party, such consent not to be unreasonably
withheld, declare or pay any cash, stock or other dividend or make a
distribution on any class of stock, other than pursuant to employee repurchase
plans, or transfer, sell, lease, lend or in any other manner convey any
equitable, beneficial or legal interest in any of the assets of the Grantor
(except inventory sold in
14.
<PAGE> 15
the normal course of business); provided that if no default exists hereunder or
under the Note, the Grantor may make sales of equipment in the ordinary course
of business which do not exceed Fifty Thousand Dollars ($50,000) in the
aggregate in any fiscal year if the proceeds of such sales (i) are used to
replace such equipment; or (ii) are paid to the Senior Creditor and applied to
the Senior Debt.
6.17 JUDGMENTS. Grantor shall not permit any material judgment
obtained against the Grantor to remain unpaid for over thirty (30) days without
obtaining a stay of execution or bond.
SECTION 7. SECURED PARTY'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) Subject to Section 7(b) below, Grantor hereby irrevocably
constitutes and appoints Secured Party, and any officer or agent thereof, with
full power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Grantor and in the
name of Grantor or in its own name, from time to time at Secured Party's
discretion, for the purpose of carrying out the terms of this Security
Agreement, to take any and all appropriate action and to execute and deliver
any and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Security Agreement and, without limiting the
generality of the foregoing, hereby gives Secured Party the power and right, on
behalf of Grantor, without notice to or assent by Grantor to do the following:
(i) to ask, demand, collect, receive and give
acquittances and receipts for any and all monies
due or to become due under any Collateral and, in
the name of Grantor, in its own name or otherwise,
to take possession of, endorse and collect any
checks, drafts, note, acceptances or other
Instruments for the payment of monies due under any
Collateral and to file any claim or to take or
commence any other action or proceeding in any
court of law or equity or otherwise deemed
appropriate by Secured party for the purpose of
collecting any and all such monies due under any
Collateral whenever payable;
(ii) to pay or discharge any Liens, including, without
limitation, any tax lien, levied or placed on or
threatened against the Collateral, to effect any
repairs or any insurance called for by the terms of
this Security Agreement and to pay all or any part
of the premiums therefor and the costs thereof,
which actions shall be for the benefit of Secured
Party and not Grantor; and
(iii) to (1) direct any person liable for any
payment under or in respect of any of the
Collateral to make payment of any and all
monies due or to become due thereunder
directly to Secured Party or as Secured Party
shall direct, (2) receive payment of any and
all monies, claims and other amounts due or
to become due at any time arising out of or
in respect of any Collateral, (3) sign and
endorse any invoices, freight or express
bills, bills of lading,
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<PAGE> 16
storage or warehouse receipts, drafts against
debtors, assignments, verifications and
notices in connection with Accounts and other
Instruments and Documents constituting or
relating to the Collateral, (4) commence and
prosecute any suits, actions or proceedings
at law or in equity in any court of competent
jurisdiction to collect the Collateral or any
part thereof and to enforce any other right
in respect of any Collateral, (5) defend any
suit, action or proceeding brought against
Grantor with respect to any Collateral, (6)
settle, compromise or adjust any suit, action
or proceeding described above and, in
connection therewith, give such discharges or
releases as Secured Party may deem
appropriate, (7) license or, to the extent
permitted by an applicable license,
sublicense, whether general, special or
otherwise, and whether on an exclusive or
non- exclusive basis, any Patent or Trademark
throughout the world for such term or terms,
on such conditions and in such manner as
Secured Party shall in its discretion
determine and (8) sell, transfer, pledge,
make any agreement with respect to or
otherwise deal with any of the Collateral as
fully and completely as though Secured Party
were the absolute owner thereof for all
purposes, and to do, at Secured Party's
option and Grantor's expense, at any time, or
from time to time, all acts and things which
Secured Party may reasonably deem necessary
to protect, preserve or realize upon the
Collateral and Secured Party's security
interest therein in order to effect the
intent of this Security Agreement, all as
fully and effectively as Grantor might do.
(b) Secured Party agrees that, except upon the occurrence and
during the continuation of an Event of Default, it shall not exercise the power
of attorney or any rights granted to Secured Party pursuant to this Section 7.
The power of attorney granted pursuant to this Section 7 is a power coupled
with an interest and shall be irrevocable until the Secured Obligations are
completely and indefeasibly paid and performed in full.
(c) The powers conferred on Secured Party hereunder are solely to
protect Secured Party's interests in the Collateral and shall not impose any
duty upon Secured Party to exercise any such powers. Secured Party shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers and neither it nor any of its officers, directors,
employees, agents or representatives shall be responsible to Grantor for any
act or failure to act, except for its own gross negligence or willful
misconduct.
(d) If Grantor fails to perform or comply with any of its
agreements contained herein and Secured Party, as provided for by the terms of
this Security Agreement, shall perform or comply, or otherwise cause
performance or compliance, with such agreement, the reasonable expenses,
including attorney fees and costs, of Secured Party incurred in connection with
such performance or compliance, together with interest thereon at the maximum
rate of interest
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permissible by law, shall be payable by Grantor to Secured Party within (3)
three business days of demand and shall constitute Secured Obligations secured
hereby.
SECTION 8. RIGHTS AND REMEDIES UPON DEFAULT.
(a) If any Event of Default shall occur and be continuing, Secured
Party may exercise in addition to all other rights and remedies granted to it
under this Security Agreement, the Agreement and under any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the UCC. Without limiting the
generality of the foregoing, Grantor expressly agrees that in any such event
Secured Party, without demand of performance or other demand, advertisement or
notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon Grantor or any other person (all and each of
which demands, advertisements and notices are hereby expressly waived to the
maximum extent permitted by the UCC and other applicable law), may forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and may forthwith sell, lease, assign, give an option or options to
purchase or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange or broker's board or at any of Secured
Party's offices or elsewhere at such prices as it, in its reasonable
discretion, may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. Secured Party shall have the right upon any
such public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of said Collateral so
sold, free of any right or equity of redemption, which equity of redemption
Grantor hereby releases. Grantor further agrees, at Secured Party's request,
to assemble the Collateral and make it available to Secured Party at places
which Secured Party shall reasonably select, whether at Grantor's premises or
elsewhere. Secured Party shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale as provided in Subsection
8(d), below, Grantor remaining liable for any deficiency remaining unpaid after
such application, and only after so paying over such net proceeds and after the
payment by Secured Party of any other amount required by any provision of law,
including Section 9504(1)(c) of the UCC, need Secured Party account for the
surplus, if any, to Grantor. To the maximum extent permitted by applicable
law, Grantor waives all claims, damages, and demands against Secured Party
arising out of the repossession, retention or sale of the Collateral except
such as arise out of the gross negligence or willful misconduct of Secured
Party. Grantor agrees that Secured Party need not give more than ten (10)
days' notice of the time and place of any public sale or of the time after
which a private sale may take place and that such notice is reasonable
notification of such matters. Grantor shall remain liable for any deficiency
if the proceeds of any sale or disposition of the Collateral are insufficient
to pay all amounts to which Secured Party is entitled, Grantor also being
liable for the fees and expenses of any attorneys employed by Secured Party to
collect such deficiency.
(b) Grantor also agrees to pay all fees, costs and expenses of
Secured Party, including, without limitation, fees and expenses of attorneys,
incurred in connection with the enforcement of any of its rights and remedies
hereunder.
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(c) Grantor hereby waives presentment, demand, protest or any
notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.
(d) The Proceeds of any sale, disposition or other realization
upon all or any part of the Collateral shall be distributed by Secured Party in
the following order of priorities:
FIRST, to Secured Party in an amount sufficient to pay
in full the reasonable costs of Secured Party in connection
with such sale, custody, preservation, disposition or other
realization, including all fees, costs, expenses, liabilities
and advances incurred or made by Secured Party in connection
therewith, including, without limitation, attorney fees;
SECOND, to Secured Party in an amount equal to the then
unpaid amount of the Secured Obligations; and
FINALLY, upon payment in full of all of the Secured
Obligations, to Grantor or its representatives or as a court
of competent jurisdiction may direct.
SECTION 9. LIMITATION ON SECURED PARTY'S DUTY IN RESPECT OF COLLATERAL.
Secured Party shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it complies with the
obligations of a secured party under Section 9207 of the UCC.
SECTION 10. REINSTATEMENT. This Security Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against Grantor for liquidation or reorganization, should Grantor become
insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of Grantor's
property and assets, and shall continue to be effective or be reinstated, as
the case may be, if at any time payment and performance of the Secured
Obligations, or any part thereof, is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee of
the Secured Obligations, whether as a "voidable preference," "fraudulent
conveyance," or otherwise, all as though such payment or performance had not
been made. In the event that any payment, or any part thereof, is rescinded,
reduced, restored or returned, the Secured Obligations shall be reinstated and
deemed reduced only by such amount paid and not so rescinded, reduced, restored
or returned.
SECTION 11. MISCELLANEOUS.
11.1 NOTICES. Any notice or other communication hereunder to any party
shall be in writing and mailed, faxed or delivered to the address or facsimile
number specified on the signature pages hereto; or to such other address as
shall be designated by such party in a written notice to the other party.
Except as otherwise provided herein, all notices and service of process
required, contemplated, or permitted hereunder with respect to the subject
matter hereof shall be in writing, and shall be deemed to have been validly
served, given or delivered upon the earlier
18.
<PAGE> 19
of: (a) the first business day after transmission by facsimile or hand
delivery or deposit with an overnight express service or overnight mail
delivery service; or (b) the third calendar day after deposit in the United
States mails, with proper first class postage prepaid.
11.2 SEVERABILITY. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.3 HEADINGS. The various headings in this Security Agreement are
inserted for convenience only and shall not affect the meaning or
interpretation of this agreement or any provisions hereof.
11.4 NO WAIVER; CUMULATIVE REMEDIES.
(a) Secured Party shall not by any act, delay, omission or
otherwise be deemed to have waived any of its respective rights or remedies
hereunder, nor shall any single or partial exercise of any right or remedy
hereunder on any one occasion preclude the further exercise thereof or the
exercise of any other right or remedy.
(b) The rights and remedies hereunder provided are cumulative
and may be exercised singly or concurrently, and are not exclusive of any
rights and remedies provided by law.
(c) None of the terms or provisions of this Security Agreement
may be waived, altered, modified or amended except by an instrument in writing,
duly executed by Grantor and Secured Party.
11.5 TIME IS OF THE ESSENCE. Time is of the essence for the
performance of each of the terms and provisions of this Security Agreement.
11.6 TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section 9,
above, this Security Agreement shall terminate upon and the complete and
indefeasible payment and performance in full of the Secured Obligations.
11.7 SUCCESSOR AND ASSIGNS. This Security Agreement and all
obligations of Grantor hereunder shall be binding upon the successors and
assigns of Grantor, and shall, together with the rights and remedies of Secured
Party hereunder, inure to the benefit of Secured Party and its successors and
assigns.
11.8 FURTHER INDEMNIFICATION. Grantor agrees to pay, and to save
Secured Party harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all excise, sales or other similar
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Security Agreement.
19.
<PAGE> 20
11.9 GOVERNING LAW. THIS SECURITY AGREEMENT HAS BEEN DELIVERED TO AND
ACCEPTED BY SECURED PARTY IN THE STATE OF ILLINOIS. THIS SECURITY AGREEMENT
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO ANY CONFLICT
OF LAWS PRINCIPLE OR RULE THAT MIGHT REQUIRE THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION.
11.10 ALL JUDICIAL PROCEEDINGS ARISING IN OR UNDER OR RELATED TO THIS
AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION LOCATED IN COOK COUNTY OF ILLINOIS. BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH PARTY HERETO GENERALLY AND UNCONDITIONALLY (A) CONSENTS TO
PERSONAL JURISDICTION IN COOK COUNTY, ILLINOIS; (B) WAIVES ANY OBJECTION AS TO
JURISDICTION OR VENUE IN THE COUNTY OF ILLINOIS; (C) AGREES NOT TO ASSERT ANY
DEFENSE BASED ON LACK OF JURISDICTION OR VENUE IN THE AFORESAID COURTS, AND (D)
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREMENT. SERVICE OF PROCESS ON ANY PARTY HERETO IN ANY ACTION
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE EFFECTIVE IF GIVEN IN
ACCORDANCE WITH THE REQUIREMENTS FOR NOTICE SET FORTH IN SUBSECTION 11.1 HEREOF
AND SHALL BE DEEMED EFFECTIVE AND RECEIVED AS SET FORTH IN SUBSECTION 11.1.
NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF HOLDER TO BRING PROCEEDINGS IN THE
COURTS OF ANY OTHER JURISDICTION.
11.11 COUNTERPARTS. This Security Agreement may be executed in any
number of counterparts, each of which when so delivered shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument. Each such agreement shall become effective upon the execution of a
counterpart hereof or thereof by each of the parties hereto.
11.12 ENTIRE AGREEMENT. This Security Agreement, the Warrant Agreement,
the Warrants, the Note, the Exhibits hereto and the related agreements
contemplated hereby set forth the entire agreements and understandings of the
parties hereto in respect of this transaction. Any prior agreements are hereby
terminated. The terms herein may not be changed verbally but only by an
instrument in writing signed by the party against which enforcement of the
change is sought.
20.
<PAGE> 21
IN WITNESS WHEREOF, each of the parties hereto has caused this Security
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.
GRANTOR BIOSTAR, INC.
By: /s/ Teresa W. Ayers
----------------------------------
Printed Name: Teresa W. Ayers
------------------------
Title: Vice President Finance
-------------------------------
Address for notices:
BioStar, Inc.
6655 Lookout Road
Boulder, CO 80301-3371
Attn: Vice President Finance
Fax: (303) 530-6601
Accepted and acknowledged by:
COMDISCO, INC., as Secured Party
By: /s/ James P. Labe
----------------------------------------------
Printed Name: James P. Labe
-------------------------------------
Title: President/Comdisco Venture Lease Division
--------------------------------------------
Address for notices:
Comdisco, Inc.
6111 North River Road
Rosemont, IL 60018
Attn: General Counsel
Fax: (708) 518-5088
21.
<PAGE> 22
EXHIBIT A
SUBORDINATED PROMISSORY NOTE
$2,500,000.00 May 3, 1995
Chicago, Illinois
FOR VALUE RECEIVED, BIOSTAR, INC., a Delaware corporation, with its
principal place obligate financial statement located at 6655 Lookout Road,
Boulder, Colorado 80301 ("Borrower"), hereby promises to pay to the order of
COMDISCO, INC., a Delaware corporation, with its principal place of business at
6111 North River Road, Rosemont, Illinois 60018 ("Lender"), in lawful money of
the United States of America and in immediately available funds, the principal
sum of Two Million Five Hundred Thousand Dollars ($2,500,000.00) (the "Loan")
together with accrued and unpaid interest thereon, payable on the dates and in
the manner set forth below.
This Subordinated Promissory Note is the Note referred to in and is
executed and delivered in connection with that certain Security Agreement dated
as of even date herewith, by and between Borrower and Lender (as the same may
from time to time be amended, modified or supplemented in accordance with its
terms, the "Security Agreement"). All terms defined in the Security Agreement
shall have the same definitions when used herein, unless otherwise defined
herein.
1. LOAN REPAYMENT. The outstanding principal amount of the Loan,
together with interest thereon, shall be due and payable in thirty-six (36)
equal monthly installments of $85,450.00, payable in advance on the first day
of each month, commencing June 1, 1995, and on the first day of each successive
month thereafter, to and including May 1, 1998 (each, a "Payment Date"). If
any payment under this Note shall be payable on a day other than a business
day, then such payment shall be due and payable on the next succeeding business
day.
2. INTEREST RATE. Interest on the outstanding principal amount
hereof from the date hereof until maturity, whether by acceleration or
otherwise, or a default (as hereinafter defined), shall be payable at the rate
of fourteen percent (14.00%) per annum or the maximum rate permissible by law
(which under the laws of the State of Illinois shall be deemed to be the laws
relating to permissible rates of interest on commercial loans), whichever is
less (the "Applicable Rate"). In the event that the amount of interest
contracted for, charged or received from Borrower or otherwise in connection
with the Loan evidenced hereby exceeds the Applicable Rate, then at Lender's
option, such amount shall either be applied as a credit against any then unpaid
amounts hereof or refunded to Borrower and the effective rate of interest will
be automatically reduced to the Applicable Rate. Upon the occurrence of an
event of default, this Note shall thereafter bear interest at the rate of
nineteen percent (19%) per annum or the maximum rate permissible by law (which
under the laws of the State of Illinois shall be deemed to be the laws relating
to permissible rates of interest on commercial loans), whichever is less. IN
ANY EVENT, INTEREST PAYABLE HEREUNDER SHALL BE COMPUTED ON THE BASIS OF A 360-
DAY YEAR AND TWELVE 30-DAY MONTHS.
1.
<PAGE> 23
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable
at the office of Lender, P.O. Box 91744, Chicago, IL 60693, unless another
place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied
first to costs of Lender incurred in collection of this Note, if any, then to
pay accrued interest, and thereafter to the outstanding principal balance
hereof.
5. PREPAYMENT. Borrower may prepay the entire balance of principal
owed under this Note in whole or in part without paying any prepayment penalty
and without paying a premium or interest charge on the amount of prepaid
principal.
6. SECURED NOTE. This Note is secured by the Collateral identified
and described as security therefor in the Security Agreement executed by and
delivered by Borrower. Borrower shall not, directly or indirectly, suffer or
permit to be created or to remain, and shall promptly discharge, any lien on or
in the Collateral, or in any portion thereof, except as permitted pursuant to
the Security Agreement. In addition, Borrower shall not suffer any other
matter whereby an interest of Lender under the Security Agreement in the
Collateral or in any lien pursuant to the Security Agreement or any part of the
foregoing might be impaired, except as permitted pursuant to such Security
Agreement.
7. SUBORDINATED NOTE. THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF
THAT CERTAIN SUBORDINATION AGREEMENT BY AND BETWEEN LENDER AND BORROWER DATED
AS OF EVEN DATE HEREWITH. IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY
BETWEEN THIS NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE
SUBORDINATION AGREEMENT SHALL CONTROL.
8. DEFAULT. Any of the following events shall constitute a default
under this Note: (a) Borrower's failure to pay timely any of the principal
amount due under this Note or any accrued interest or other amounts due under
this Note on the date the same becomes due and payable, by maturity,
acceleration or otherwise, or within five (5) calendar days thereafter, or (b)
the occurrence of an Event of Default under the Security Agreement or the
Master Lease Agreement or any other written agreement between Lender and
Borrower. Upon the occurrence of a default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of
Lender, be immediately collectible by Lender pursuant to applicable law.
9. WAIVER. Borrower waives, to the extent permitted by law, (a)
presentment and demand for payment, notice of dishonor, protest and notice of
protest any other notice as permitted under the UCC or any applicable law; (b)
the right, if any, to the benefit of, or to direct application of, any of the
Collateral until all indebtedness of the Borrower to Lender, however arising,
has been paid; (c) all defenses and rights to discharge under the UCC and all
other suretyship defenses or rights to discharge; (d) Borrower shall pay to
Lender, when incurred, all costs of collection and enforcement or protection of
Lender's security interest in the Collateral including, without limitation,
reasonable attorneys' fees, costs and other expenses.
The right to plead any and all statutes of limitations as a defense to
any demands hereunder is hereby waived to the full extent permitted b law; and
(e) such other waivers as are set forth in the Security Agreement.
2.
<PAGE> 24
10. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of Illinois, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
11. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure
to the benefit of and be binding on Borrower and any of its permitted assigns,
and shall extend to any holder hereof. Lender may assign its rights hereunder
without prior notice to Borrower.
12. AMENDMENT. The terms and conditions of this Note may not be
amended, waived or modified except in a writing signed by an authorized agent
of Lender which writing expressly states that the writing constitutes an
amendment, waiver or modification of this Note.
13. WAIVER OF JURY TRIAL. BORROWER AND LENDER ACKNOWLEDGE THAT THE
RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.
EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH
COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OF ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE.
BORROWER BIOSTAR, INC.
By
-----------------------------------
Printed Name
-------------------------
Title
--------------------------------
3.
<PAGE> 25
[COOLEY GODWARD LLP LETTERHEAD]
EXHIBIT B
May 3, 1995
Comdisco, Inc.
6111 N. River Road
Rosemont, IL 60018
RE: BIOSTAR, INC.
Ladies and Gentlemen:
We have acted as counsel to BioStar, Inc., a Delaware corporation (the
"Company"), in connection with (i) that certain Master Lease Agreement (the
"Lease") and (ii) that certain Subordinated Promissory Note in the original
principal amount of $2,500,000 (the "Note"), each dated as of May 3, 1995 by
and between the Company and you. This opinion is rendered to you in compliance
with Section 14.14 of the Lease. Capitalized terms used herein without
definition have the same meanings as in the Lease.
As used herein, the term "Credit Documents" shall mean the Lease, the Note and
each of the following agreements, each executed by Company and you and dated as
of May 3, 1995, unless otherwise specified:
1. Equipment Schedule No. VL-1;
2. Warrant Agreement issued in connection with Equipment Schedule VL-
1;
3. Warrant Agreement issued in connection with the Note (Items 2 and
3 being collectively referred to as the "Warrants");
4. Subordinated Security Agreement (the "Security Agreement"); and
5. Subordination Agreement.
<PAGE> 26
[COOLEY GODWARD LLP LOGO]
Comdisco, Inc.
May 3, 1995
Page 2
With your consent, in connection with this opinion, we have examined and relied
upon the representations and warranties as to factual matters contained in and
made pursuant to the Credit Documents by the parties thereto and upon originals
or copies certified to our satisfaction of such records, documents,
certificates, opinions, memoranda and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinions expressed below.
Where we render an opinion "to the best of our knowledge" or concerning an item
"known to us" or our opinion otherwise refers to our knowledge, it is based
solely upon (a) an inquiry of attorneys within this firm who perform legal
services for the Company, (b) receipt of a certificate executed by an officer
of the Company covering such matters, and (c) such other investigation, if any,
that we specifically set forth herein.
In rendering this opinion, we have assumed the genuineness and authenticity of
all signatures on original documents (other than the signatures of the Company
on the Credit Documents); the authenticity of all documents submitted to us as
originals; the conformity to originals of all documents submitted to us as
copies; the accuracy, completeness and authenticity of certificates of public
officials; and the due authorization, execution and delivery of all documents
(except the due authorization, execution and delivery by the Company of the
Credit Documents) where authorization, execution and delivery are prerequisites
to the effectiveness of such documents. We have also assumed that all
individuals executing and delivering documents in their individual capacity had
the legal capacity to so execute and deliver; that the Credit Documents are
obligations binding upon you; that you have filed any required California
franchise or income tax returns and have paid any required California franchise
or income taxes; and that there are no extrinsic agreements or understandings
among the parties to the Credit Documents that would modify or interpret the
terms of the Credit Documents or the respective rights or obligations of the
parties thereunder.
We have assumed that on the date hereof, you will disburse to the Company the
amount of the Note.
We have assumed that the descriptions of the personal property in the Security
Agreement are accurate and sufficient to enable a subsequent purchaser or
mortgagee to identify them. We have assumed the due filing, at the time the
Note is issued, of a financing statement in the appropriate form in the
appropriate jurisdiction as required by law for perfection of the personal
property security interest contemplated in the Security Agreement. We have
assumed (but do not express any opinion with respect thereto) that the Lease is
a true lease and that the Equipment constitutes personal property and has not
and will not become affixed to the real property on which it is located in any
manner (whether as a trade fixture or otherwise). We have further assumed that
<PAGE> 27
[COOLEY GODWARD LLP LOGO]
Comdisco, Inc.
May 3, 1995
Page 3
you or any person asserting your rights (i) will act fairly, in good faith and
in a commercially reasonable and prudent manner in exercising your rights and
(ii) will not trespass or commit any breach of peace in any taking of
possession of the Equipment or any of the Collateral (as defined in the
Security Agreement).
Our opinion is expressed with respect only to United States federal law, the
General Corporation Law of the State of Delaware and the laws of the State of
California. We express no opinion as to whether the laws of any particular
jurisdiction apply; and no opinion to the extent that the laws of any
jurisdiction other than those identified above are applicable to the subject
matter hereof. Our opinion is expressed only as to the outcome that would
pertain were federal law, the General Corporation Law of the State of Delaware
and California law (excluding choice of law principles and excluding the effect
of any law other than federal law, the General Corporation Law of the State of
Delaware and California law) the sole law applicable to the subject matter
hereof.
With regard to our opinion in paragraphs 3 and 4, below, we express no opinion
regarding any law or governmental rule or regulation regarding maximum
allowable interest rates.
Except as set forth in paragraph 9, we express no opinion relative to the
applicability or effect of any law, rule or regulation relating to securities
or to the sale or issuance thereof.
We express no opinion with respect to (a) any statute, order, decree, rule or
regulation applicable to the Company solely by reason of the nature of the
business conducted by the Company or any sublessee of the Equipment or by
reason of the particular use that the Company or any such sublessee may make of
the Equipment, or (b) the approval of, giving of notice to, registration with
or the taking of any action in respect of or by any governmental authority
having jurisdiction over the Company solely by reason of the nature of the
business conducted by the Company or any sublessee of the Equipment or by
reason of the particular use that the Company or any such sublessee may make of
the Equipment.
We express no opinion regarding compliance with any law, rule or regulation
regarding the titling or registration of motor vehicles, aircraft, or
watercraft of any kind.
We assume for purposes of our opinion that the Company has rights to the
Collateral. We express no opinion with respect to the existence or nature of
such rights, or as to the relative priority of the liens created by the
Security Agreement or any other Credit Document, or as to the effect on your
security interests of any rights or interests, if any, entitled to seniority
thereto.
<PAGE> 28
[COOLEY GODWARD LLP LOGO]
Comdisco, Inc.
May 3, 1995
Page 4
On the basis of the foregoing, and in reliance thereon and subject to the
foregoing qualifications, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own its property and
assets and to conduct its business as it is currently being conducted
and, to the best of our knowledge, is qualified as a foreign corporation
to do business and is in good standing in each jurisdiction in the United
States in which the ownership of its property or the conduct of its
business requires such qualification and where any statutory fines or
penalties or any corporate disability imposed for the failure to qualify
would materially and adversely affect the Company.
3. The execution and delivery of, and performance by the Company of the
terms of, the Credit Documents, including its obligation to repay the
Note, do not violate any provision of the Company's Restated Certificate
of Incorporation or Bylaws, and, to the best of our knowledge, do not
violate or contravene (i) any governmental statue, rule or regulation
applicable to the Company or (ii) any order, writ, judgement, injunction,
decree, determination or award which has been entered against the Company
and of which we are aware, the violation or contravention of which would
have a Material Adverse Effect (as defined in the Security Agreement).
4. The execution, delivery and performance of the Credit Documents have been
duly authorized by all necessary corporate action on the part of the
Company, and the Credit Documents have been duly executed and delivered
by the Company and constitute the legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with their
respective terms, except as enforceability may be subject to or limited
by (a) general equity principles and to limitations on the availability
of equitable relief including specific performance; (b) the effect of
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting the rights of creditors generally,
including but not limited to those affecting the rights of secured
creditor; (c) compliance with the requirements, and the effect of the
limitations, of California law relating to the exercise of remedies by a
secured creditor (e.g., California Uniform Commercial Code Sections 9501
through 9508 regarding the exercise of rights with respect to the
personal property); (d) limitations on a borrower's ability to waive
rights or benefits given by statute or otherwise; (e) limitations on the
ability of a secured creditor to enforce rights under a security
agreement where a requisite to such enforcement is that
<PAGE> 29
[COOLEY GODWARD LLP LOGO]
Comdisco, Inc.
May 3, 1995
Page 5
the security is or will be impaired, or where such enforcement would in
the circumstances result in a penalty or forfeiture; (f) limitations on
the right to impose added charges for late payments or defaults, where it
is determined that such charges bear no reasonable relation to the damage
suffered as a result of such late payments or defaults or where the
requirements of California Civil Code Section 2954.5 are not met; (g) the
effect of applicable law governing personal property leases generally;
(h) applicable laws limiting rights to indemnity; (i) the effect of
California Civil Code Section 1717 on the recovery of attorneys' fees in
contract actions; (j) limitations on the ability of a lessor or secured
creditor to enter, take possession of, or deal as owner with respect to
the security without judicial authorization; (k) limitations imposed by
California law on the appointment of receivers; (l) the effect of
California Civil Code Section 3433; and (m) any other limitations which,
in the event of a default by the Company in its obligations under the
Credit Documents, while not preventing you from exercising your rights
under California Uniform Commercial Code Sections 9501 through 9508 with
respect to the Collateral, would act as a limitation on your rights, each
in accordance with California law.
5. The Lessee has duly authorized and reserved for issuance 271,428 shares
of its Series E Preferred Stock issuable upon the exercise of the
Warrants (the "Exercise Shares") and the shares of its Common Stock
issuable upon conversion of the Exercise Shares. The Exercise Shares
shall be validly issued and fully paid and nonassessable when issued and
paid for in accordance with the terms of the Warrants, and the shares of
Common Stock issuable upon conversion of the Exercise Shares shall, upon
conversion of the Exercise Shares according to the terms thereof, be
validly issued, fully paid and nonassessable.
6. The Security Agreement creates in your favor a security interest in such
of the Collateral (as defined in the Security Agreement) of the Company
that is of a type in which a security interest can be created under
Division 9 of the Uniform Commercial Code as in effect in the State of
California.
7. To the best of our knowledge, there is no action, proceeding or
investigation pending or overtly threatened against the Company before
any court or administrative agency that questions the validity of the
Credit Documents or that might result, either individually or in the
aggregate, in any material adverse change in the assets, financial
condition, or operations of the Company.
8. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or
governmental body in the United States
<PAGE> 30
[COOLEY GODWARD LLP LOGO]
Comdisco, Inc.
May 3, 1995
Page 6
required for the execution and delivery by the Company of the Credit
Documents, have been made or obtained.
9. Subject to the accuracy of your representations in Section 10 of the
Warrant, the issuance, sale and delivery of the Warrants are exempt from
the registration requirements of the Securities Act of 1933, as amended.
This opinion is intended solely for your benefit and is not to be made
available to or be relied upon by any other person, firm, or entity without our
prior written consent.
Very truly yours,
COOLEY GODWARD CASTRO
HUDDLESON & TATUM
By ___________________________
Alan C. Mendelson
<PAGE> 31
EXHIBIT 1
EXISTING LIENS
None.
<PAGE> 32
EXHIBIT 5(E)
ACTIONS, SUITS, PROCEEDINGS, ETC.
BIOSTAR - Spain On June 23, 1994, the Company was advised
that Laboratorios Novag, S.A. ("Novag")
opposed the Company's applications to
register "BIOSTAR" in Class 1 and Class 10
based on Novag's Class 5 BIOSTAR
registration for "pharmaceutical and
veterinary products; dietetic products for
medicinal use for children and the sick;
disinfectants; preparations for killing
weeds and destroying vermin."
BioStar, Inc.'s Spanish trademark counsel
filed a response to the opposition on July
16, 1994. No decision has been rendered by
the Spanish trademark office yet.
BIOSTAR - Canada In or about 1994, the Company commenced
negotiations with Biostar, Inc., a company
located in Saskatchewan, Canada ("BI
Saskatchewan") and owner of a Canadian
Trademark Registration for the trademark
BIOSTAR covering "operation of a business
for the provision of research, development,
testing, and manufacturing for others
according to customer specifications with
respect to pharmaceuticals, drugs and
biological products, namely, vaccines, viral
proteins for carrying drugs and vaccines to
targeted cells or organs, biological
response modifiers, immunoprognosticators,
and gene expression system" and "biological
products for animal use, namely, vaccines,
viral proteins for carrying drugs and
vaccines to targeted cells or organs, and
biological products for human use comprising
reagents for medical laboratories and
products sold to physicians and hospitals
requiring administration by professionals,
namely, viral proteins for carrying drugs
and vaccines to target cells of organs" The
negotiations concerned use by the Company in
Canada of its name and mark "BIOSTAR." The
negotiations have not to date resulted in
acquisition of BI Saskatchewan's rights in
the BIOSTAR mark or otherwise resolved the
issue of the Company's use of its name and
mark in Canada.
DDx Incorporated In recent correspondence to its
shareholders, DDx Incorporated ("DDx")
stated that, in connection with a license
agreement between DDx and the Company, which
agreement terminated as of January 1, 1994,
DDx and its President have allegedly
suffered damage. DDx stated that it was
seeking legal counsel in connection with
this matter, however, neither DDx nor its
President have asserted any claim against
the Company.
<PAGE> 33
EXHIBIT 5(J)
INSURANCE POLICIES
Prudential Employee Group Medical, Dental and LTD
Insurance
Fortis Insurance Employee Group Life Insurance in amount of 2x
annual salary up to $50,000 per employee
Standard Insurance Voluntary life insurance
St. Paul Insurance Co. Workers Compensation and Employers Liability
Insurance Policy
Lockton Silversmith, Inc.
and St. Paul Insurance Co. Broad form Business insurance including
property, crime, commercial, general
liability, and automobile
<PAGE> 34
AMENDMENT TO SUBORDINATED SECURITY AGREEMENT
This Amendment to Subordinated Security Agreement ("Amendment") is dated
as of March 20, 1996 by and between BioStar, Inc., a Delaware corporation, with
its principal place of business located at 6655 Lookout Road, Boulder, Colorado
80301 ("Grantor") and Comdisco, Inc., a Delaware corporation, with its
principal place of business located 6111 North River Road, Rosemont, Illinois
60018 ("Secured Party") and it supplements and amends that certain Subordinated
Security Agreement dated as of May 3, 1995 between the Grantor and Secured
party (the "Security Agreement").
RECITALS
WHEREAS, the Grantor and the Secured Party have entered into the Security
Agreement in connection with a loan by the Secured Party to the Grantor, which
loan is evidenced by the Grantor's Subordinated Promissory Note in the original
principal amount of $2,500,000, a copy of which is attached as Exhibit A (the
"Old Note"); and
WHEREAS, the Grantor has granted to the Secured Party a security interest
in and to the Collateral (as defined in Section 3 of the Security Agreement)
securing payment of the Old Note and the other Secured Obligations under the
Security Agreement; and
WHEREAS, Grantor and Secured Party have agreed (i) to convert Five
Hundred Thousand and 00/100 ($500,000.00) of the total principal owed by
Grantor to Secured Party under the Old Note into a convertible subordinated
promissory note in favor of Secured Party in the form attached hereto as
Exhibit B and (ii) to restructure payments of the remaining principal balance
of the Old Note effective with the payment due April 1, 1996; and
WHEREAS, the parties desire to amend the Security Agreement to modify the
terms and conditions as set forth herein:
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereby agree as follows:
1. Unless otherwise defined herein, all capitalized terms appearing
in the Amendment shall have the definition and meaning ascribed thereto in the
Security Agreement.
2. On March 20, 1996, (a) the Grantor shall issue and deliver to the
Secured Party an amended and restated Subordinated Promissory Note in the form
of Exhibit C attached hereto ("New Note") in substitution for the Old Note, and
(b) the Secured Party shall deliver the Old Note marked "Canceled" to the
Grantor; provided, however, that notwithstanding anything to the
<PAGE> 35
contrary contained herein, it is the agreement of Grantor and Secured Party
that cancellation of the Old Note to the extent of the reduction in principal
outstanding of $500,000.00 is conditioned upon the receipt by Secured Party of
(i) payment on or by April 1, 1996 of the payment by Grantor of $85,450.00 as
principal and interest and (ii) Grantor delivering or causing to be delivered:
(A)(1) the New Note; (2) a Note and Warrant Purchase Agreement; (3) a
convertible subordinated promissory note in favor of Secured Party in the
original principal amount of $500,000; and (4) a Warrant Agreement to purchase
shares of Common Stock of Grantor, all in form and substance satisfactory to
Secured Party; and (B) any consents required by Silicon Valley Bank as Senior
Creditor pursuant to the terms of the Subordination Agreement dated as of May
3, 1995 between Grantor as "Borrower" and Secured Party as "Subordinated
Creditor" for the benefit of the Senior Creditor (as defined therein). Each of
the foregoing actions shall be deemed to occur simultaneously, and no one such
action shall be deemed to have occurred unless all such actions shall have
occurred.
3. Effective March 20, 1996, (a) Exhibit A to the Security Agreement
is hereby amended by substituting therefor Exhibit C hereto, and (b) all
references in the Security Agreement to the Note shall be deemed to refer to
the New Note.
4. The Grantor represents and warrants that its representations and
warranties contained in the Security Agreement are true and correct as of the
date of this Amendment as if made on the date hereof.
5. The Grantor covenants and agrees to take such other actions as the
Secured Party may reasonably require in order to effectuate the intention of
the parties hereunder and under the Security Agreement, including without
limitation the execution of Uniform Commercial Code financing statements in
order to maintain the perfection of the Secured Party's security interest in
and to the Collateral.
6. This Amendment may be executed in any number of counterparts, each
of which when so delivered shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. Each such
agreement shall become effective upon the execution of a counterpart hereof or
thereof by each of the parties hereto.
7. Except as amended hereby, the terms and provisions of the Security
Agreement as originally executed are hereby reaffirmed and remain in full force
and effect, and from and after the date hereof the term "Security Agreement"
shall mean the Security Agreement as amended by this Amendment.
<PAGE> 36
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
to be executed and delivered by its duly authorized officer on the date first
above written.
GRANTOR: BIOSTAR, INC.
By: /s/ Teresa W. Ayers
-----------------------------------
Printed Name: Teresa W. Ayers
-------------------------
Title: President/COO
--------------------------------
Accepted and Acknowledged by:
COMDISCO, INC.,
As Secured Party
By: /s/ James P. Labe
-----------------------------------------
Printed Name: James P. Labe
-------------------------------
Title: President Venture Lease Division
-------------------------------------
<PAGE> 37
EXHIBIT A
SUBORDINATED PROMISSORY NOTE
$2,500,000.00 May 3, 1995
Chicago, Illinois
FOR VALUE RECEIVED, BioStar, Inc., a Delaware corporation, with its
principal place of business located at 6655 Lookout Road, Boulder, Colorado
80301 ("Borrower"), hereby promises to pay to the order of Comdisco, Inc., a
Delaware corporation, with its principal place of business at 6111 North River
Road, Rosemont, Illinois 60018 ("Lender"), in lawful money of the United States
of America and in immediately available funds, the principal sum of Two Million
Five Hundred Thousand Dollars ($2,500,000.00) (the "Loan") together with
accrued and unpaid interest thereon, payable on the dates and in the manner set
forth below.
This Subordinated Promissory Note is the Note referred to in and is
executed and delivered in connection with that certain Security Agreement dated
as of even date herewith, by and between Borrower and Lender (as the same may
from time to time be amended, modified or supplemented in accordance with its
terms, the "Security Agreement"). All terms defined in the Security Agreement
shall have the same definitions when used herein, unless otherwise defined
herein.
8. LOAN REPAYMENT. The outstanding principal amount of the Loan,
together with interest thereon, shall be due and payable in thirty-six (36)
equal monthly installments of $85,450.00, payable in advance on the first day
of each month, commencing June 1, 1995, and on the first day of each successive
month thereafter, to and including May 1, 1998 (each, a "Payment Date"). If
any payment under this Note shall be payable on a day other than a business
day, then such payment shall be due and payable on the next succeeding business
day.
9. INTEREST RATE. Interest on the outstanding principal amount
hereof from the date hereof until maturity, whether by acceleration or
otherwise, or a default (as hereinafter defined), shall be payable at the rate
of fourteen percent (14.00%) per annum or the maximum rate permissible by law
(which under the laws of the State of Illinois shall be deemed to be the laws
relating to permissible rates of interest on commercial loans), whichever is
less (the "Applicable Rate"). In the event that the amount of interest
contracted for, charged or received from Borrower or otherwise in connection
with the Loan evidenced hereby exceeds the Applicable Rate, then at Lender's
option, such amount shall either be applied as a credit against any then unpaid
amounts hereof or refunded to Borrower and the effective rate of interest will
be automatically reduced to the Applicable Rate. Upon the occurrence of an
event of default, this Note shall thereafter bear interest at the rate of
nineteen percent (19%) per annum or the maximum rate permissible by law (which
under the laws of the State of Illinois shall be deemed to be the laws relating
to permissible rates of interest on commercial loans), whichever is less. IN
ANY EVENT, INTEREST PAYABLE HEREUNDER SHALL BE COMPUTED ON THE BASIS OF A
360-DAY YEAR AND TWELVE 30-DAY MONTHS.
1.
<PAGE> 38
10. PLACE OF PAYMENT. All amounts payable hereunder shall be payable
at the office of Lender, P.O. Box 91744, Chicago, Illinois 60693, unless
another place of payment shall be specified in writing by Lender.
11. APPLICATION OF PAYMENTS. Payment on this Note shall be applied
first to costs of Lender incurred in collection of this Note, if any, then to
pay accrued interest, and thereafter to the outstanding principal balance
hereof.
12. PREPAYMENT. Borrower may prepay the entire balance of principal
owed under this Note in whole or in part without paying any prepayment penalty
and without paying a premium or interest charge on the amount of prepaid
principal.
13. SECURED NOTE. This Note is secured by the Collateral identified
and described as security therefor in the Security Agreement executed by and
delivered by Borrower. Borrower shall not, directly or indirectly, suffer or
permit to be created or to remain, and shall promptly discharge, any lien on or
in the Collateral, or in any portion thereof, except as permitted pursuant to
the Security Agreement. In addition, Borrower shall not suffer any other
matter whereby an interest of Lender under the Security Agreement in the
Collateral or in any lien pursuant to the Security Agreement or any part of the
foregoing might be impaired, except as permitted pursuant to such Security
Agreement.
14. SUBORDINATED NOTE. THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF
THAT CERTAIN SUBORDINATION AGREEMENT BY AND BETWEEN LENDER AND BORROWER DATED
AS OF EVEN DATE HEREWITH. IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY
BETWEEN THIS NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE
SUBORDINATION AGREEMENT SHALL CONTROL.
15. DEFAULT. Any of the following events shall constitute a default
under this Note: (a) Borrower's failure to pay timely any of the principal
amount due under this Note or any accrued interest or other amounts due under
this Note on the date the same becomes due and payable, by maturity,
acceleration or otherwise, or within five (5) calendar days thereafter, or (b)
the occurrence of an Event of Default under the Security Agreement or the
Master Lease Agreement or any other written agreement between Lender and
Borrower. Upon the occurrence of a default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of
Lender, be immediately collectible by Lender pursuant to applicable law.
16. WAIVER. Borrower waives, to the extent permitted by law, (a)
presentment and demand for payment, notice of dishonor, protest and notice of
protest and any other notice as permitted under the UCC or any applicable law;
(b) the right, if any, to the benefit of, or to direct the application of, any
of the Collateral until all indebtedness of the Borrower to Lender, however
arising, has been paid; (c) all defenses and rights to discharge under the UCC
and all other suretyship defenses or rights to discharge; (d) Borrower shall
pay to Lender, when incurred, all costs of collection and enforcement or
protection of Lender's security interest in the Collateral including, without
limitation, reasonable attorneys' fees, costs and other expenses.
2.
<PAGE> 39
The right to plead any and all statutes of limitations as a defense to
any demands hereunder is hereby waived to the full extent permitted by law; and
(e) such other waivers as are set forth in the Security Agreement.
17. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of Illinois, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
18. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure
to the benefit of and be binding on Borrower and any of its permitted assigns,
and shall extend to any holder hereof. Lender may assign its rights hereunder
without prior notice to Borrower.
19. AMENDMENT. The terms and conditions of this Note may not be
amended, waived or modified except in a writing signed by an authorized agent
of Lender which writing expressly states that the writing constitutes an
amendment, waiver or modification of this Note.
20. WAIVER OF JURY TRIAL. Borrower and Lender acknowledge that the
right to trial by jury is a constitutional one, but that it may be waived.
Each party, after consulting (or having had the opportunity to consult) with
counsel of their choice, knowingly and voluntarily, and for their mutual
benefit, waives any right to trial by jury in the event of litigation regarding
the performance or enforcement of, or in any way related to, this Note.
BORROWER: BIOSTAR, INC.
By:
----------------------------------
Printed Name:
-----------------------
Title:
-----------------------------
3.
<PAGE> 40
EXHIBIT B
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR
AN OPINION OF COUNSEL SATISFACTORY TO THE BORROWER THAT SUCH REGISTRATION IS
NOT REQUIRED.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$_______________ March ___, 1996
Boulder, Colorado
FOR VALUE RECEIVED, BioStar, Inc., a Delaware corporation ("Borrower"),
hereby unconditionally promises to pay to the order of ____________________, a
____________ ("Lender"), in lawful money of the United States of America and in
immediately available funds, the principal sum of $__________ (the "Loan")
together with accrued and unpaid interest thereon, payable on the dates and in
the manner set forth below.
This convertible note (the "Note") is non-negotiable and is executed and
delivered in connection with that certain Note and Warrant Purchase Agreement
dated as of March ___, 1996, by and between Borrower and Lender (as the same
may from time to time be amended, modified or supplemented, the "Purchase
Agreement"). This Note is delivered to Borrower in full satisfaction of all
amounts due and owing to the Lender under the Purchase Agreement. All terms
defined in the Purchase Agreement shall have the same definitions when used
herein, unless otherwise defined herein. In the event of any conflict between
the terms of this Note and the terms of the Purchase Agreement, the terms of
the Purchase Agreement shall control.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan
shall be payable as follows: on the earlier of (a) March ___, 1999, or (b) on
the closing of a Corporate Event (as defined below), subject to the conversion
of the Note into Borrower's capital stock as further described in Section 7
below. A "Corporate Event" shall mean either (i) the Company's initial public
offering or (ii) the closing of a consolidation or merger of the Borrower with
or into any other corporation or corporations, or a sale, conveyance or
disposition of all or substantially all of the assets of the Borrower. The
Borrower may prepay this Note at any time without penalty upon the prior
written consent of Silicon Valley Bank.
2. INTEREST RATE. Borrower further promises to pay interest on the
sum of the unpaid principal balance of the Loan outstanding on each day, from
the date of this Note until all such principal amounts shall have been repaid
in full, which interest shall be payable at the prime rate as announced by the
Bank of America for commercial loans plus two percent 2% or the maximum rate
permissible by law (which under the laws of the State of Colorado shall be
1.
<PAGE> 41
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less. Interest shall be payable at maturity and shall be
calculated on the basis of a 365-day year for the actual number of days
elapsed.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable
to Lender at the address it specifies to Borrower in writing.
4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal balance
HEREOF.
5. DEFAULT. Borrower's failure to pay timely any of the principal
amount due under this Note on the date the same becomes due and payable or any
accrued interest or other amounts due under this Note on the date the same
becomes due and payable or within ten (10) calendar days after written receipt
of notice of failure to pay shall constitute a default under this Note. If a
default is not cured within thirty (30) days of the receipt of notice of
failure to pay, all unpaid principal, accrued interest and other amounts owing
thereunder shall, at the option of Lender, be immediately collectible by Lender
pursuant to applicable law.
6. NOTE.
(a) AGREEMENT TO SUBORDINATE. The Borrower, for itself, its
successors and assigns, covenants and agrees, and the Lender, by acceptance
hereof, likewise covenants and agrees that the payment of the principal of and
interest on this Note is hereby expressly subordinated to the extent and in the
manner hereinafter set forth in right of payment to the prior payment in full
of certain other obligations of Borrower owed at any time to commercial banks
or other financial institutions (including but not limited to the Borrower's
current obligations to Silicon Valley Bank and Comdisco, Inc.) (the "Senior
Indebtedness"), and that such subordination is for the benefit of the holders
of Senior Indebtedness. All persons who, in reliance upon such provisions,
become holders of, or continue to hold, Senior Indebtedness, shall be entitled
to rely hereon, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and they or any of them may proceed to enforce such
provisions directly against the Lender.
(b) SUBORDINATION IN THE EVENT OF DEFAULT ON SENIOR
INDEBTEDNESS. No payment shall be made on this Note at such time as any
default exists (or would exist after giving effect to such payment) with
respect to the Senior Indebtedness. If any such payment is made, Lender (or
its assignee) shall remit to the holder of the Senior Indebtedness all such
money so received, which shall be applied to amounts due under the Senior
Indebtedness.
(c) DISTRIBUTION ON DISSOLUTION, LIQUIDATION AND
REORGANIZATION SUBROGATION OF NOTE. Upon any distribution of assets of
Borrower (or Borrower's assignee), upon any dissolution, winding up,
liquidation or reorganization of Borrower (or Borrower's assignee), whether in
bankruptcy, insolvency, reorganization or receivership proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of Borrower (or Borrower's assignee) or otherwise:
2.
<PAGE> 42
1. The holder of all Senior Indebtedness shall first be
entitled to receive payment in full thereof before Lender is entitled to
receive any payment upon the principal of and premium, if any, or interest on
indebtedness evidenced by this Note;
2. Any payment or distribution of assets of Borrower (or
Borrower's assignee) of any kind or character, whether in cash, property or
securities, to which Lender would be entitled except for the provisions of this
Section 6 shall be paid or delivered by Borrower (or Borrower's assignee) or
any liquidating trustee, trustee in bankruptcy, receiver, agent or other person
making such payment or distribution directly to the holder of Senior
Indebtedness or their representative or representatives or to the trustee or
trustees under any indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, as their interests appear, to the
extent necessary to make payment in full of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness; and
3. In the event that, notwithstanding the foregoing, any
payment or distribution of assets of Borrower (or Borrower's assignee) of any
kind or character, whether in cash, property or securities, shall be received
by Lender before all Senior Indebtedness is paid in full, such payment or
distribution shall be paid over or delivered to the holder of such Senior
Indebtedness or their representative or representatives or to the trustee or
trustees under any indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, as their interests appear, for
application to the payment of all Senior Indebtedness remaining unpaid until
all such Senior Indebtedness shall have been paid in full, after giving effect
to any concurrent payment or distribution to the holder of such Senior
Indebtedness.
Subject to the prior payment in full of all Senior Indebtedness, Lender
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of cash, property or securities of Borrower
(or Borrower's assignee) applicable to the Senior Indebtedness until the
principal of, premium, if any, and interest on this Note shall be paid in full
and no such payments or distributions to Lender of cash, property or securities
otherwise distributable to the Senior Indebtedness shall, as between Borrower
(or Borrower's assignee), its creditors other than the holder of Senior
Indebtedness, and Lender, be deemed to be a payment by Borrower (or Borrower's
assignee) to or on account of this Note. It is understood that the provisions
of this Section 6 are and are intended solely for the purpose of defining the
relative rights of the Lender, on the one hand, and the holder of Senior
Indebtedness, on the other hand. Nothing contained in this Section 6 or
elsewhere in this Note is intended to or shall impair, as between Borrower (or
Borrower's assignee), its creditors other than the holder of Senior
Indebtedness, and Lender, the obligation of Borrowers (or Borrower's assignee),
which is unconditional and absolute, to pay to Lender the principal of,
premium, if any, and interest on this Note as and when the same shall become
due and payable in accordance with its terms or to affect the relative rights
of Lender and creditors of Borrower (of Borrower's assignee) other than the
holder of Senior Indebtedness, nor shall anything herein or in this Note
prevent Lender from exercising all remedies otherwise permitted by applicable
law upon default hereunder, subject to the rights, if any, under this Section 6
of the holder of Senior Indebtedness in respect of cash, property or securities
of Borrower (or Borrower's assignee) received upon the exercise of any such
remedy. Upon any
3.
<PAGE> 43
payment or distribution of assets of Borrower (or Borrower's assignee) referred
to in this Section 6, Lender shall be entitled to rely upon any order or decree
of a court of competent jurisdiction in which any proceedings of the nature
referred to in this Section are pending or upon a certificate of the
liquidating trustee, trustee in bankruptcy, receiver, agent or other person
making any distribution to Lender, for the purpose of ascertaining the persons
entitled to participate in such payment or distribution, the holder of Senior
Indebtedness and other indebtedness of Borrower (or Borrower's assignee), the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Section 6.
(d) AGREEMENT TO EFFECT SUBORDINATION. Lender by acceptance
of this Note agrees to take such action and execute such documents as may be
necessary or appropriate to effectuate the subordination as provided in this
Section 6.
7. ADDITIONAL TERMS.
(a) OPTIONAL CONVERSION. This Note may be converted at the
option of the Lender (or Lender's assignee), in whole or in part, at any time
or upon the closing of a Corporate Event, into fully paid and nonassessable
shares of either the next series of Preferred Stock sold by Borrower at a price
per share of less than $1.75 (the "Next Round Preferred") or the Borrower's
Series E Preferred Stock (the "Series E") (the Next Round Preferred and the
Series E are referred to collectively herein as the "Applicable Preferred").
(b) MANDATORY CONVERSION. The Notes will automatically
convert at any time upon the election by a majority in interest of the Lenders
into shares of Applicable Preferred.
(c) CONVERSION PRICE. The number of shares issuable to the
holder upon conversion shall be equal to the principal balance and accrued but
unpaid interest that is being converted, divided by the lesser of the price per
share of the Series E or the price per share at which Borrower sells the Next
Round Preferred (the "Conversion Price").
(d) MECHANICS OF CONVERSION. In the event that Lender shall
give written notice to Borrower that it elects to convert the Note pursuant to
Section 7(a) above, Lender shall surrender the Note, duly endorsed at the
office of Borrower, and shall give written notice to Borrower at such office of
the series of Applicable Preferred (i.e., Series E or Next Round Preferred),
into which the holder is electing to convert this Note and the name or names in
which he wishes the certificate or certificates for shares of Applicable
Preferred to be issued. In the event this Note is automatically converted
pursuant to Section 7(b) above, the holder shall give written notice to
Borrower of the series of Applicable Preferred (i.e., Series E or Next Round
Preferred) into which the holder is electing to convert this Note and such
conversion shall be deemed to have been made and the person or persons entitled
to receive the shares of Applicable Preferred issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Applicable Preferred on such date.
4.
<PAGE> 44
(e) ADJUSTMENTS TO CONVERSION PRICE FOR CERTAIN EVENTS. The
Conversion Price shall be subject to adjustment from time to time as follows:
1. If the number of outstanding shares of the
Preferred Stock of Borrower is increased by a stock dividend, stock split-up or
by a subdivision of shares, then, following the record date fixed for the
determination of holders of Preferred Stock entitled to receive such stock
dividend, split-up or subdivision, the Conversion Price shall be appropriately
decreased so that the number of shares of Applicable Preferred issuable on
conversion of this Note shall be increased in proportion to such increase of
outstanding shares of Preferred Stock.
2. If the number of shares of Preferred Stock
outstanding is decreased by a combination of the outstanding shares of
Preferred Stock, then, following the record date of such combination, the
Conversion Price shall be appropriately increased so that the number of shares
of Applicable Preferred issuable on conversion of this Note shall be decreased
in proportion to such decrease in outstanding shares of Preferred Stock.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this
Section 7, Borrower at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to the Lender a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. Borrower shall,
upon the written request at any time of Lender, furnish or cause to be
furnished to Lender a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price, at the time in effect, and (iii) the
number of shares of Applicable Preferred, the amount, if any, of other property
which at the time would be received upon the conversion of this Note.
(g) NOTICES OF RECORD DATE. In the event of any taking by
Borrower of a record of the holders of any class of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, any security or right
convertible into or entitling the holder thereof to receive Preferred Stock or
other securities of Borrower, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, Borrower shall mail to Lender at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution, security or right, and the amount and character of such dividend,
distribution, security or right.
(h) ISSUE TAXES. Borrower shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares
of Applicable Preferred on conversion of this Note pursuant hereto; provided,
however, that Borrower shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
conversion.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. Borrower
shall at all times reserve and keep available out of its authorized but
unissued shares of Preferred Stock or other securities, solely for the purpose
of effecting the conversion of this Note, such number of its shares of
Preferred Stock or other securities from time to time issuable upon such
conversion;
5.
<PAGE> 45
and if at any time the number of authorized but unissued shares of Preferred
Stock or other securities shall not be sufficient to effect the conversion of
this Note, the Company will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Preferred Stock or other securities to such number of shares as shall be
sufficient for such purpose, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary amendment
to the Certificate of Incorporation.
(j) FRACTIONAL SHARES. No fractional share shall be issued
upon the conversion of this Note. All shares of Applicable Preferred
(including fractions thereof) issuable upon conversion of this Note 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 Applicable Preferred, Borrower shall, in lieu of issuing any
fractional share, pay Lender who is 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
Company).
8. WAIVER. Borrower waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Note, and shall pay
all costs of collection when incurred, including, without limitation,
reasonable attorneys' fees, costs and other expenses.
The right to plead any and all statutes of limitations as a defense to
any demands hereunder is hereby waived to the fullest extent permitted by law.
9. ATTORNEY'S FEES. In the event of default by the Borrower (or its
assignee) in the payment of principal or interest due on this Note, Lender
shall be entitled to receive and Borrower (or its assignee) agrees to pay all
costs of collection incurred by Lender, including, without limitation,
reasonable attorneys' fees for consultation and suit.
10. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of Colorado, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
11. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure
to the benefit of and be binding on any successor to Borrower and shall extend
to any holder hereof.
BORROWER
BIOSTAR, INC.
By: Teresa W. Ayers
----------------------------------------
Title: President/Chief Operating Officer
-------------------------------------
6.
<PAGE> 46
EXHIBIT C
SUBORDINATED PROMISSORY NOTE
$1,406,679.59 March ___, 1996
Chicago, Illinois
This Subordinated Promissory Note amends and restates that Subordinated
Promissory Note dated May 3, 1995 between the parties hereto.
FOR VALUE RECEIVED, BIOSTAR, INC., a Delaware corporation, with its
principal place of business located at 6655 Lookout Road, Boulder, Colorado
80301 ("Borrower"), hereby promises to pay to the order of COMDISCO, INC., a
Delaware corporation, having its principal place of business at 6111 North
River Road, Rosemont, Illinois 60018 ("Lender"), in lawful money of the United
States of America and in immediately available funds, the principal sum of One
Million Four Hundred Six Thousand Six Hundred Seventy-Nine and 59/100 Dollars
($1,406,679.59) (the "Loan"), together with accrued and unpaid interest thereon
payable on the dates and in the manner set forth below.
This Subordinated Promissory Note is the Note referred to in, and is
executed and delivered in connection with, that certain Subordinated Security
Agreement dated as of May 3, 1995 and the Amendment to Subordinated Security
Agreement dated as of March ___, 1996, by and between Borrower and Lender (as
the same may from time to time be amended, modified or supplemented in
accordance with its terms, the "Security Agreement"). All terms defined in the
Security Agreement shall have the same definitions when used herein, unless
otherwise defined herein.
1. LOAN REPAYMENT. The outstanding principal amount of the Loan,
together with interest thereon, shall be due and payable in advance on the
first day of each month in accordance with the payment schedule set forth
below. Payments shall consist of one (1) monthly installment of principal and
interest in the amount of $85,450.00 on April 1, 1996; followed by eight (8)
equal monthly installments of interest only in the amount of $15,673.87 each,
commencing May 1, 1996 and on the first day of each successive month
thereafter, to and including December 1, 1996; followed by sixteen (16) equal
monthly installments of principal and interest in the amount of $62,267.00
each, commencing January 1, 1997 and on the first day of each successive month
thereafter, to and including April 1, 1998; followed by one (1) final
installment of deferred principal and interest thereon in the amount of
$535,236.00 on May 1, 1998.
2. INTEREST RATE. Interest on the outstanding principal hereof from
the date hereof until maturity, whether by acceleration or otherwise, or a
default (as hereinafter defined), shall be payable at the rate of fourteen
percent (14.00%) per annum or the maximum rate permissible by law (which under
the laws of the State of Illinois shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less (the
"Applicable Rate"). In
<PAGE> 47
the event that the amount of interest contracted for, charged or received from
Borrower or otherwise in connection with the Loan evidenced hereby exceeds the
Applicable Rate, then at Lender's option, such amount shall either be applied
as a credit against any then unpaid amounts hereof or refunded to Borrower and
the effective rate of interest will be automatically reduced to the Applicable
Rate. Upon the occurrence of an event of default, this Note shall thereafter
bear interest at the rate of nineteen percent (19.00%) per annum or the maximum
rate permissible by law (which under the laws of the State of Illinois shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less. In any event, interest payable hereunder shall be
computed on the basis of a 360-day year and twelve 30-day months.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable
at the office of Lender, P.O. Box 91744, Chicago, Illinois 60693, unless
another place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied
first to costs of Lender incurred in collection of this Note, if any, then to
pay accrued interest, and thereafter to the outstanding principal balance
hereof.
5. PREPAYMENT. Borrower may prepay the entire balance of principal
owed under this Note in whole or in part without paying any prepayment penalty
and without paying a premium or interest charge on the amount of prepaid
principal.
6. SECURED NOTE. This Note is secured by the Collateral identified
and described as security therefor in the Security Agreement executed by and
delivered by Borrower. Borrower shall not, directly or indirectly, suffer or
permit to be created or to remain, and shall promptly discharge, any lien on or
in the Collateral, or in any portion thereof, except as permitted pursuant to
the Security Agreement. In addition, Borrower shall not suffer any other
matter whereby an interest of Lender under the Security Agreement in the
Collateral or in any lien pursuant to the Security Agreement or any part of the
foregoing might be impaired, except as permitted pursuant to such Security
Agreement.
7. SUBORDINATED NOTE. THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF
THAT CERTAIN SUBORDINATION AGREEMENT BY AND BETWEEN LENDER AND BORROWER DATED
MAY 3, 1995. IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS
NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT
SHALL CONTROL.
8. DEFAULT. Any of the following events shall constitute a default
under this Note: (a) Borrower's failure to pay timely any of the principal
amount due under this Note or any accrued interest or other amounts due under
this Note on the date the same becomes due and payable, by maturity,
acceleration or otherwise, or within five (5) calendar days thereafter, or (b)
the occurrence of an Event of Default under the Security Agreement or the
Master Lease Agreement or any other written agreement between Lender and
Borrower. Upon the occurrence of a default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of
Lender, be immediately collectible by Lender pursuant to applicable law.
2
<PAGE> 48
9. WAIVER. Borrower waives, to the extent permitted by law, (a)
presentment and demand for payment, notice of dishonor, protest and notice of
protest and any other notice as permitted under the UCC or any applicable law;
(b) the right, if any, to the benefit of, or to direct the application of, any
of the Collateral until all indebtedness of the Borrower to Lender, however
arising, has been paid; (c) all defenses and rights to discharge under the UCC
and all other suretyship defenses or rights to discharge; (d) Borrower shall
pay to Lender, when incurred, all costs of collection and enforcement or
protection of Lender's security interest in the Collateral including, without
limitation, reasonable attorneys' fees, costs and other expenses.
The right to plead any and all statutes of limitations as a defense to
any demands hereunder is hereby waived to the full extent permitted by law; and
(e) such other waivers as are set forth in the Security Agreement.
10. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of Illinois, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
11. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure
to the benefit of and be binding on Borrower and any of its permitted assigns,
and shall extend to any holder hereof. Lender may assign its rights hereunder
without prior notice to Borrower.
12. AMENDMENT. The terms and conditions of this Note may not be
amended, waived or modified except in a writing signed by an authorized agent
of Lender which writing expressly states that the writing constitutes an
amendment, waiver or modification of this Note.
13. WAIVER OF JURY TRIAL. Borrower and Lender acknowledge that the
right to trial by jury is a constitutional one, but that it may be waived.
Each party, after consulting (or having had the opportunity to consult) with
counsel of their choice, knowingly and voluntarily, and for their mutual
benefit, waives any right to trial by jury in the event of litigation regarding
the performance or enforcement of, or in any way related to, this Note.
BORROWER: BIOSTAR, INC.
By:
------------------------------------------
Printed Name:
--------------------------------
Title:
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3
<PAGE> 1
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT ("AGREEMENT") dated as of May 3, 1995, is
entered into by and between COMDISCO, INC., a Delaware corporation
("SUBORDINATED CREDITOR"), and BIOSTAR, INC., a Delaware corporation (the
"BORROWER"), for the express benefit of the SENIOR CREDITOR (as defined below).
RECITALS
A. Concurrently herewith, the Subordinated Creditor is advancing
to the Borrower a secured loan of money in the original principal amount of Two
Million Five Hundred Thousand Dollars ($2,500,000) evidenced by a Subordinated
Promissory Note dated the same date as this Agreement (as the same may from
time to time be amended, modified, supplemented, extended, renewed, restated or
replaced, the "SUBORDINATED NOTE") made by the Borrower in favor of the
Subordinated Creditor. The Borrower's obligations to the Subordinated Creditor
evidenced by the Subordinated Note are secured by the personal property
collateral granted by the Borrower to the Subordinated Creditor pursuant to a
Subordinated Security Agreement dated as of the same date as this Agreement (as
the same may from time to time be amended, modified, supplemented or restated,
the "SUBORDINATED SECURITY AGREEMENT").
B. The Borrower has advised the Subordinated Creditor that it
contemplates entering into a loan agreement (as the same may from time to time
be amended, modified, supplemented or restated, the "LOAN AGREEMENT") with a
financial institution or a syndicate of financial institutions to be determined
(such financial institution or syndicate of financial institutions, including,
without limitation, any agent or other representative for such syndicate being
hereinafter referred to individually and collectively as the "SENIOR
CREDITOR"), pursuant to which the Senior Creditor shall make available to the
Borrower, on a senior secured basis, certain extensions of credit as described
in the Loan Agreement.
C. In contemplation of the Borrower obtaining such senior secured
financing and the conditions expected to be imposed by such Senior Creditor as
conditions precedent to making available to the Borrower the proceeds of such
financing, and in order to assist the Borrower to obtain such senior secured
financing, the Subordinated Creditor is willing to enter into this Agreement
with the Borrower for the express benefit of the Senior Creditor, on the terms
and subject to the conditions set forth below.
AGREEMENT
NOW, THEREFORE, in order to induce the Senior Creditor to enter into a
Loan Agreement and to make extensions of credit available to the Borrower
thereunder, and to grant such renewals or extensions thereof constituting
Senior Debt (as defined in Section 1, below), and intending to be legally
bound, the Subordinated Creditor and the Borrower hereby severally agree for
the benefit of the Senior Creditor as set forth below.
1. DEFINITIONS. As used herein, the following terms shall have
the following meanings:
<PAGE> 2
"SENIOR DEBT" means (i) the principal amount of all indebtedness of
the Borrower to the Senior Creditor under the Loan Agreement and any promissory
note or other evidence of indebtedness executed by the Borrower pursuant to the
Loan Agreement in favor of the Senior Creditor; (ii) all other indebtedness and
obligations of the Borrower to the Senior Creditor under or relating to any of
the Loan Agreement or any agreement, document or instrument executed by the
Borrower pursuant to or in connection with the Loan Agreement (collectively,
the "SENIOR LOAN DOCUMENTS"); (iii) all amounts due or to become due relating
to any of the foregoing, including, without limitation, all interest, all loan
and other fees, expenses and costs (including attorneys' fees), including costs
of enforcement, amounts reimbursable and other liabilities (including interest,
fees, professional fees and costs which would become due but for the operation
of Title 11 of the United States Code, the Bankruptcy Rules promulgated
pursuant thereto, or any subsequent bankruptcy law of the United States (the
"BANKRUPTCY CODE"); and (iv) any and all obligations pursuant to any amendment
of any of the foregoing in favor of the Senior Creditor.
"SUBORDINATED DEBT" means (i) the principal amount of all indebtedness
of the Borrower which shall from time to time exist in favor of the
Subordinated Creditor under the Subordinated Note; (ii) all other indebtedness
and debt obligations of the Borrower to the Subordinated Creditor under or
relating to any of the Subordinated Note or any agreement, document or
instrument, including, without limitation, the Subordinated Security Agreement,
executed by the Borrower pursuant to the Subordinated Note (collectively, the
"SUBORDINATED LOAN DOCUMENTS"); (iii) all amounts due or to become due relating
to any of the foregoing, including, without limitation, all interest and all
fees, expenses and costs (including attorneys' fees), including costs of
enforcement, amounts reimbursable and other liabilities (including interest,
fees, professional fees and costs which would become due but for the operation
of the Bankruptcy Code); and (iv) any and all obligations pursuant to any
amendment, replacement, substitution, extension or renewal of any of the
foregoing in favor of the Subordinated Creditor. Notwithstanding anything to
the contrary contained in this definition of "SUBORDINATED DEBT", there shall
be expressly excluded from such definition (1) the Warrant Agreement dated as
of May 3, 1995 between Borrower and the Subordinated Creditor pursuant to which
Borrower granted Subordinated Creditor the right to purchase 214,285 shares of
Series E Preferred Stock ("WARRANT AGREEMENT"); (2) the principal amount of all
indebtedness of the Borrower which shall from time to time exist in favor of
the Subordinated Creditor under the Master Lease Agreement dated as of the same
date as this Agreement (as the same may from time to time be amended, modified,
supplemented or restated, the "MASTER LEASE AGREEMENT") entered into between
the Borrower and the Subordinated Creditor; (3) all other indebtedness and
obligations of the Borrower to the Subordinated Creditor under or relating to
any of the Master lease Agreement or any agreement, document or instrument,
including, without limitation, any schedules to the Master Lease Agreement,
executed or delivered by the Borrower pursuant to the Master Lease Agreement,
including, but not limited to the Warrant Agreement issued in connection
therewith dated May 3, 1995; and (4) all amounts due or to become due relating
to any of the foregoing, including, without limitation, all interest and all
fees, expenses and costs (including attorneys' fees), including costs of
enforcement, amounts reimbursable and other liabilities (including interest,
fees, professional fees and costs which would become due but for the operation
of the Bankruptcy Code) (collectively, the "EXCLUDED LEASE OBLIGATIONS").
2.
<PAGE> 3
2. SUBORDINATION.
(a) On the terms and conditions set forth below, the
payment and performance, and the Subordinated Creditor's right to receipt
thereof, of the Subordinated Debt is hereby subordinated to the full and final
payment and performance, and the Senior Creditor's right to receipt thereof, of
the Senior Debt. Subject to and except as set forth in Section 3, below, the
Subordinated Creditor shall not ask, demand, sue for, take or receive from the
Borrower, by setoff or in any other manner, the whole or any part of any monies
which may now or hereafter be owing by the Borrower, or any successor or assign
of the Borrower, including, without limitation, any receiver or trustee (the
term "BORROWER" hereinafter shall include any such successor or assignee of the
Borrower), to the Subordinated Creditor, or be owing by any other person to the
Subordinated Creditor under a guaranty or similar instrument, on account of the
Subordinated Debt, nor any collateral security for any of the foregoing,
including, without limitation, any personal property collateral granted to the
Subordinated Creditor pursuant to the Subordinated Security Agreement, unless
and until all Senior Debt shall have been fully and finally paid in cash and
all commitments to extend credit under the Loan Agreement shall have been
terminated (the temporary reduction of outstanding obligations, liabilities and
indebtedness of the Borrower to the Senior Creditor not being deemed to
constitute full payment or satisfaction thereof).
(b) The Subordinated Creditor expressly understands that
the Senior Creditor is expected not to permit the Subordinated Creditor to
create, maintain or perfect any lien on or in any property of the Borrower,
other than the security interest granted in favor of the Subordinated Creditor
in certain of the Borrower's personal property under and as described in the
Subordinated Security Agreement. If, notwithstanding the foregoing, any lien
shall be created or shall arise (including, without limitation, the security
interests granted in favor of the Subordinated Creditor pursuant to the
Subordinated Security Agreement), whether by operation of law or otherwise, and
may from time to time exist in favor of the Subordinated Creditor in or on any
property of the Borrower securing all or any portion of the Subordinated Debt,
then, regardless of the relative times of attachment or perfection thereof or
the order of filing of financing statements, mortgages or other documents, any
liens granted by the Borrower in favor of the Senior Creditor shall in all
respects be first and senior liens, superior to any liens in favor of the
Subordinated Creditor, including, without limitation, the security interests
granted in favor of the Subordinated Creditor pursuant to the Subordinated
Security Agreement. The Subordinated Creditor shall not have any right to
possession of any such property or to foreclose upon any such property, whether
by judicial action or otherwise, and all liens in and on the property of the
Borrower shall be held in trust by the Subordinated Creditor for the benefit of
the Senior Creditor unless and until all of the Senior Debt shall have been
fully and finally paid in cash and all commitments to extend credit under the
Loan Agreement shall have been terminated. In the event the Senior Creditor
releases any of its collateral security for the Senior Debt which constitutes
collateral security for part or all of the Subordinated Debt, at the request of
the Senior Creditor, so long as the Subordinated Debt is paid in full, the
Subordinated Creditor shall thereupon execute and deliver to the Borrower such
termination statements and releases as the Senior Creditor shall reasonably
request to release the Subordinated Creditor's lien, if any, in or on such
property. This subordination is intended to define the rights and duties of
the Subordinated Creditor and Senior Creditor; it is not intended that any
third party shall benefit from it. If the effect of this subordination
provision would be to give any third party a priority
3.
<PAGE> 4
status to which that party would not otherwise be entitled, that provision
shall, to the extent necessary to avoid that priority, be given no effect and
the rights and priorities of the Senior Creditor and the Subordinated Creditor
shall be determined in accordance with applicable law.
(c) No agreement or instrument evidencing any obligation
of the Borrower to the Subordinated Creditor may be modified or amended without
the Senior Creditor's prior written consent, which consent shall not be
unreasonably withheld or delayed.
3. PERMITTED PAYMENTS; PAYMENT BLOCKAGE.
(a) Notwithstanding anything to the contrary contained in
Section 2, above, but subject expressly to Section 3(b), below, the Borrower
shall be permitted to make, and the Subordinated Creditor shall be permitted to
accept or receive, (i) scheduled repayments of principal when due under the
Subordinated Note, (ii) scheduled payments of accrued interest when due under
the Subordinated Note and (iii) payments of reimbursable expenses and costs
expressly provided for in the Subordinated Note and the other Subordinated Loan
Documents. The payments permitted to be made by the Borrower under this
Section 3(a) shall herein be collectively referred to as the "PERMITTED
PAYMENTS."
(b) Notwithstanding anything to the contrary contained in
this Section 3 or elsewhere in this Agreement, the Subordinated Creditor shall
not, after delivery of written notice to the Subordinated Creditor from the
Senior Creditor that (i) an Event of Default (as defined in the Loan Agreement)
shall have occurred and be continuing and shall have resulted in such Senior
Debt becoming or being declared due and payable prior to the date on which it
would otherwise have become due and payable (an "ACCELERATION NOTICE") or (ii)
an Event of Default has occurred, but in respect of which the Senior Creditor
has not yet declared the Senior Debt due and payable prior to the date on which
it would otherwise have become due and payable (a "BLOCKAGE NOTICE"), accept or
receive any payment of any kind, including any Permitted Payment, of or on
account of the Subordinated Debt, (A) in the case of any event described in
clause (i) above, unless and until such Senior Debt shall have been fully and
finally paid in cash or such Acceleration Notice shall have been rescinded by
the Senior Creditor in writing (whether as the result of the Borrower having
cured all Events of Default or otherwise), or (B) in the case of any event
described in clause (ii) above, unless and until the expiration of the Blockage
Period. Upon the expiration of the Blockage Period, the Subordinated Creditor
shall be entitled to receive all Permitted Payments not previously paid. Each
Blockage Notice shall be effective as of the date of delivery thereof to the
Subordinated Creditor. As used herein "BLOCKAGE PERIOD" means a period of time
beginning on the delivery date of a Blockage Notice and terminating on the
earlier to occur of:
(1) the one hundred eightieth (180th) day following such
date;
(2) the Senior Creditor's written consent to such
termination;
(3) commencement of a judicial proceeding by the Senior
Creditor to collect or enforce any of the Senior Debt or
giving notice of any non-judicial sale of any of the
collateral for the Senior Debt;
4.
<PAGE> 5
(4) the cure to the reasonable satisfaction of the Senior
Creditor of each Event of Default which is the basis for the
applicable Blockage Notice (such cure of each of the Events of
Default which is the basis for such Blockage Notice being
deemed to also be a cure of any default under the Subordinated
Note arising as a result of the occurrence and continuance of
any such Event of Default); or
(5) an Event of Default under the Loan Agreement relating
to an Insolvency Event (as defined in Section 6, below).
The Senior Creditor shall not be permitted to issue more than one (1) Blockage
Notice in any twelve (12) moth period.
4. ENFORCEMENT RIGHTS. Any rights of the Subordinated Creditor
to accelerate the maturity of the Subordinated Debt, enforce any claim,
including any default remedy, with respect to the Subordinated Debt, or
otherwise to take any action against the Borrower or the Borrower's property
with respect to the Subordinated Debt shall be subject to any Blockage Period
given pursuant to Section 3 hereof.
5. SUBORDINATED DEBT OWED ONLY TO THE SUBORDINATED CREDITOR. The
Subordinated Creditor hereby warrants and represents to the Senior Creditor
that the entire Subordinated Debt created in favor of the Subordinated Creditor
is owing only to the Subordinated Creditor, that the Subordinated Debt has not
been assigned to any other person, and that no subordinations of the
Subordinated Debt have previously been made for the benefit of any other
person. The Subordinated Creditor hereby covenants to the Senior Creditor that
the entire Subordinated Debt created in favor of the Subordinated Creditor
shall continue to be owing only to the Subordinated Creditor and any collateral
security therefor, including, without limitation, the collateral security
granted to the Subordinated Creditor pursuant to the Subordinated Security
Agreement, shall continue to be held solely for the benefit of the Subordinated
Creditor unless assigned in accordance with the terms of this Agreement.
6. THE SENIOR CREDITOR'S PRIORITY. In the event of any
distribution, division, or application, partial or complete, voluntary or
involuntary, by operation of law or otherwise, of all or any part of the
property of the Borrower or the proceeds thereof to the creditors of the
Borrower, or the readjustment of the Senior Debt and the Subordinated Debt of
the Borrower, whether by reason of liquidation, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding involving the readjustment of all or any part of the Senior Debt or
the Subordinated Debt, or the application of the property of the Borrower to
the payment or liquidation thereof, or upon the dissolution or other winding up
of the Borrower's business, or upon the sale of all or any substantial part of
the Borrower's property (any of the foregoing being hereinafter referred to as
an "INSOLVENCY EVENT"), then, and in any such event, the Senior Creditor shall
be entitled to receive full and final payment in cash of any and all of the
Senior Debt before the Subordinated Creditor shall be entitled to receive any
payment on account of the Subordinated Debt, and to that end and in furtherance
thereof: (a) all payments and distributions of any kind or character, whether
in cash or property or securities in respect of the Subordinated Debt to which
the Subordinated Creditor would be entitled if the Subordinated Debt were not
subordinated pursuant to this Agreement (other than pursuant to the
5.
<PAGE> 6
Warrant Agreement), shall be paid to the Senior Creditor and applied in payment
of the Senior Debt; (b) the Subordinated Creditor shall promptly file a claim
or claims, on the form required in such proceedings, for the full outstanding
amount of the Subordinated Debt, and shall use its best efforts to cause said
claim or claims to be approved and all payments or other distributions in
respect thereof to be made directly to the Senior Creditor; (c) the
Subordinated Creditor hereby irrevocably agrees that in the event Subordinated
Creditor fails to file a claim or claims, the Senior Creditor may in the name
of the Subordinated Creditor, or otherwise, prove up any and all claims of the
Subordinated Creditor relating to the Subordinated Debt; and (d) in the event
that, notwithstanding the foregoing, any payment or distribution of any kind or
character, whether in cash, properties or securities (other than pursuant to
the Warrant Agreement), shall be received by the Subordinated Creditor on
account of the Subordinated Debt before all of the Senior Debt has been fully
and finally paid in cash, then such payment or distribution shall be received
by the Subordinated Creditor in trust for and shall be promptly paid over to
the Senior Creditor for application to the payments of amounts due on the
Senior Debt until all amounts due on the Senior Debt shall have been fully and
finally paid in cash.
7. GRANT OF AUTHORITY. In the event of the occurrence of an
Insolvency Event, and in order to enable the Senior Creditor to enforce its
rights hereunder in any of the aforesaid actions or proceedings, the Senior
Creditor is hereby irrevocably authorized and empowered, in the Senior
Creditor's discretion, as follows:
(a) The Senior Creditor is hereby irrevocably authorized
and empowered (in its own name or in the name of the Subordinated Creditor or
otherwise) but shall have no obligation, to demand, sue for, collect and
receive every payment or distribution referred to in Section 6, above, and give
acquittance therefor and (if the Subordinated Creditor has failed to file
claims or proofs of claim on or before forty-five (45) days prior to the date
such claims or proofs of claim must be filed pursuant to law or the order of
any court exercising jurisdiction over such proceeding) to file claims and
proofs of claim and take such other action (including, without limitation,
enforcing any lien securing payment of the Subordinated Debt) as it may deem
necessary or advisable for the exercise or enforcement of any of the rights or
interests of the Senior Creditor hereunder;
(b) The Subordinated Creditor shall duly and promptly
take such action as the Senior Creditor may request to execute and deliver to
the Senior Creditor such powers of attorney, assignments, or other instruments
as they may request in order to enable the Senior Creditor to enforce any and
all claims with respect to, and any liens securing payment of, the Subordinated
Debt as such enforcement is contemplated herein; and
(c) To the extent that payments or distributions on
account of the Subordinated Debt are made in property other than cash, the
Subordinated Creditor authorizes the Senior Creditor to sell such property to
such buyers and on such terms as are commercially reasonable in the situation
in question. Following full and final payment in cash of the Senior Debt, the
Senior Creditor shall remit to the Subordinated Creditor to the extent of the
Subordinated Creditor's interest therein, all payments or distributions paid to
and held by the Senior Creditor in excess of the Senior Debt.
6.
<PAGE> 7
8. PAYMENTS RECEIVED BY THE SUBORDINATED CREDITOR. Should any
payment or distribution or security be received by the Subordinated Creditor
upon or with respect to the Subordinated Debt (other than Permitted Payments
and any security issued pursuant to the Warrant Agreement) prior to termination
of this Agreement in accordance with Section 11, below, the Subordinated
Creditor shall receive and hold the same in trust, as trustee, for the benefit
of the Senior Creditor and shall forthwith deliver the same to the Senior
Creditor in precisely the form received (except for the endorsement or
assignment of the Subordinated Creditor where necessary), for application to
any of the Senior Debt, due or not due, and, until so delivered, the same shall
be held in trust by the Subordinated Creditor as the property of the Senior
Creditor.
9. FURTHER ASSURANCES; COOPERATION. The Subordinated Creditor
agrees to cooperate with the Senior Creditor and to take all actions that the
Senior Creditor may reasonably require to enable the Senior Creditor to realize
the full benefits of this Agreement.
10. ASSIGNMENT OF CLAIMS. The Subordinated Creditor agrees that
until the termination of this Agreement in accordance with Section 11, below,
the Subordinated Creditor will not assign to others any portion of the
Subordinated Debt unless such assignment is made expressly subject to this
Agreement.
11. TERMINATION OF AGREEMENT. This Agreement shall be effective
and may not be terminated or otherwise revoked by the Subordinated Creditor
until the date which is 105 days following the date on which the Senior Debt
shall have been fully, completely and finally paid in cash and all commitments
under the Loan Agreement shall have been terminated.
12. ADDITIONAL AGREEMENTS. At any time and from time to time, the
Senior Creditor may enter into such agreement or agreements with the Borrower
as the Senior Creditor may deem proper, extending the time of payment of or
renewing or otherwise altering the terms of all or any of the obligations
constituting Senior Debt or affecting the collateral security for, supporting
or underlying any or all of the Senior Debt, and may exchange, sell, release,
surrender or otherwise deal with any such collateral without in any way thereby
impairing or affecting this Agreement.
13. SUBROGATION. In case cash or other property otherwise payable
or deliverable to the Subordinated Creditor shall have been applied pursuant to
this Agreement to the payment of the Senior Debt, and if the Senior Debt shall
have been fully and finally paid, to the Senior Creditor's satisfaction, then
and in such case, the Subordinated Creditor shall be subrogated to any rights
of the Senior Creditor to receive further payments or distributions applicable
to the Senior Debt until the Subordinated Debt owed to the Subordinated
Creditor shall have been paid in full. No such payments or distributions
received by the Subordinated Creditor by reason of such subrogation shall, as
between the Borrower and its creditors other than the Senior Creditor, on the
one hand, and the Subordinated Creditor, on the other hand, be deemed to be a
payment by the Borrower on account of the Subordinated Debt owed to the
Subordinated Creditor.
7.
<PAGE> 8
14. THE SUBORDINATED CREDITOR'S WAIVERS AND COVENANTS.
(a) Without limiting the generality of any other waiver
made by the Subordinated Creditor in this Agreement, the Subordinated Creditor
hereby expressly waives (i) reliance by the Senior Creditor upon the
subordination and other agreements (including, without limitation, any
agreement to provide notice) as herein provided and (ii) any claim which the
Subordinated Creditor may now or hereafter have against the Senior Creditor
arising out of any and all actions which the Senior Creditor in good faith,
takes or omits to take (A) with respect to the creation, perfection or
continuation of liens in or on any collateral security for the Senior Debt, (B)
with respect to the foreclosure upon, sale, release, or depreciation of, or
failure to realize upon, any of the collateral security for the Senior Debt,
(C) with respect to the collection of any claim for all or any part of the
Senior Debt from any account debtor, guarantor or any other third party and (D)
with respect to the valuation, use, protection or release of any collateral
security for the Senior Debt.
(b) Without limiting the generality of any other covenant
or agreement made by the Subordinated Creditor in this Agreement, the
Subordinated Creditor hereby covenants and agrees that (i) the Senior Creditor
has not made any warranties or representations with respect to the due
execution, legality, validity, completeness or enforceability of the Loan
Agreement or any of the other Senior Loan Documents, or the collectibility of
the Senior Debt; (ii) the Senior Creditor shall be entitled to manage and
supervise the Senior Creditor's extensions of credit to the Borrower in
accordance with applicable law and the Senior Creditor's usual practices,
modified from time to time as the Senior Creditor deems appropriate under the
circumstances, without regard to the existence of any rights that the
Subordinated Creditor may now or hereafter have in or to any of the property of
the Borrower; and (iii) the Subordinated Creditor will not interfere with or in
any manner oppose a disposition of any collateral security for the Senior Debt
by the Senior Creditor.
15. REINSTATEMENT OF SENIOR DEBT. To the extent that the Senior
receives payments on, or proceeds of any collateral security for the Senior
Debt which are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under any bankruptcy law, state or federal law, common law, or
equitable cause, then, to the extent of such payment or proceeds invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid,
the Senior Debt, or part thereof, intended to be satisfied shall be revived and
continue in full force and effect as if such payments or proceeds had not been
received by the Senior Creditor.
16. NO WAIVERS. The Senior Creditor shall not be prejudiced in
its rights under this Agreement by any act or failure to act of the Borrower or
the Subordinated Creditor or any noncompliance of the Borrower or the
Subordinated Creditor with any agreement or obligation, regardless of any
knowledge thereof which the Senior Creditor may have, or with which the Senior
Creditor may be charged; and no action permitted hereunder taken by the Senior
Creditor shall in any way affect or impair the rights of the Senior Creditor in
the exercise of any right or remedy shall operate as a waiver thereof, and no
single or partial exercise by any such person of any right or remedy shall
preclude other or further exercise thereof, or their exercise of any other
right or remedy; nor shall any modification or waiver of any of the provisions
of this Agreement
8.
<PAGE> 9
be binding upon the Senior Creditor, except as expressly set forth in a writing
duly signed and delivered on by the Senior Creditor.
17. INFORMATION CONCERNING FINANCIAL CONDITION OF THE BORROWER.
The Subordinated Creditor hereby assumes responsibility for keeping itself
informed of the financial condition of the Borrower, any and all endorsers and
any and all guarantors of the Senior Debt and of all other circumstances
bearing upon the risk of nonpayment of the Senior Debt or the Subordinated Debt
that diligent inquiry would reveal, and the Subordinated Creditor hereby agree
that the Senior Creditor shall have no duty to advise the Subordinated Creditor
of information known to the Senior Creditor regarding such condition.
18. NOTICES. Unless otherwise provided herein, all notices
required or desired to be given hereunder shall be deemed validly given or
delivered upon the earlier of (a) actual receipt thereof or (b) three (3)
business days following deposit in the United States mails, and certified or
registered with postage prepaid and if addressed as set forth under each
party's signature below or to such other address as such party shall advise in
writing.
19. SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
20. EXPENSES. Each party hereto agrees that in the event of any
dispute hereunder, any party prevailing in such dispute shall be entitled to
receive its reasonable out-of-pocket fees and expenses incurred in connection
with such dispute or the enforcement of any of their rights or interests
hereunder, including the fees and expenses of their counsel (including outside
and the allocated fees and expenses of in-house counsel).
21. GOVERNING LAW; ASSIGNMENT. This Agreement shall be governed
by and interpreted, in accordance with the laws of the State of California
without regard to principles of conflicts of laws. This Agreement shall be
binding upon the Subordinated Creditor, the Borrower and their respective
successors and assigns, and shall inure to the benefit of and be enforceable by
the Senior Creditor and its successors and assigns.
22. EFFECTIVENESS OF AGREEMENT. This Agreement shall be effective
upon the later to occur of (a) the execution of counterparts by both the
Subordinated Creditor and the Borrower and (b) the delivery by the Borrower to
the Subordinated Creditor of written notice (the "NOTICE OF SENIOR LOAN") that
the Borrower has entered into a Loan Agreement with a Senior Creditor, which
notice shall identify the Senior Creditor and state the address to which
notices to the Senior Creditor are to be sent. The Senior Creditor, as a third
party beneficiary, does not need to execute this Agreement for this Agreement
to be effective. The Borrower agrees to furnish the Subordinated Creditor with
a copy of the Loan Agreement and such other Senior Loan Documents as the
Subordinated Creditor shall reasonably request; provided, however, that any
delay or failure by the Borrower to furnish such copies shall not limit or
impair the effectiveness of this Agreement.
9.
<PAGE> 10
23. COUNTERPARTS. This Agreement and any amendments, waivers,
consents or supplements hereto may be executed in any number of counterparts,
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
10.
<PAGE> 11
IN WITNESS WHEREOF, this Subordination Agreement has been executed as
of the date first above written.
THE SUBORDINATED CREDITOR COMDISCO, INC.
By: /s/ James Labe
----------------------------------
Name: James Labe
Title: President, Comdisco Venture
Lease Division
Notices To:
COMDISCO, INC.
6111 North River Road
Rosemont, IL 60018
Attention: General Counsel
With a copy to:
COMDISCO INC./VENTURE GROUP
6111 North River Road
Rosemont, IL 60018
Attention: James Labe
THE BORROWER BIOSTAR, INC.
By: /s/ Teresa W. Ayers
----------------------------------
Name: Teresa W. Ayers
Title: Vice President Finance
Notices To:
BIOSTAR, INC.
6655 Lookout Road
Boulder, Colorado 80301-3371
Attention: Vice President Finance
11.
<PAGE> 1
SUBORDINATED PROMISSORY NOTE
$1,406,679.59 March 20, 1996
Chicago, Illinois
This Subordinated Promissory Note amends and restates that
Subordinated Promissory Note dated May 3, 1995 between the parties hereto.
FOR VALUE RECEIVED, BIOSTAR, INC., a Delaware corporation, with its
principal place of business located at 6655 Lookout road, Boulder, Colorado
80301 ("Borrower"), hereby promises to pay to the order of COMDISCO, INC., a
Delaware corporation, having its principal place of business at 6111 North
River Road, Rosemont, Illinois 60018 ("Lender"), in lawful money of the United
States of America and in immediately available funds, the principal sum of One
Million Four Hundred Six Thousand Six Hundred Seventy-Nine and 59/100 Dollars
($1,406,679.59) (the "Loan"), together with accrued and unpaid interest thereon
payable on the dates and in the manner set forth below.
This Subordinated Promissory Note is the note referred to in, and is
executed and delivered in connection with, that certain Subordinated Security
Agreement dated as of May 3, 1995 and the Amendment to Subordinated Security
Agreement dated as of March 20, 1996, by and between Borrower and Lender (as
the same may from time to time be amended, modified or supplemented in
accordance with its terms, the "Security Agreement"). All terms defined in the
Security Agreement shall have the same definitions when used herein, unless
otherwise defined herein.
1. LOAN REPAYMENT. The outstanding principal amount of the Loan,
together with interest thereon, shall be due and payable in advance on the
first day of each month in accordance with the payment schedule set forth
below. Payments shall consist of one (1) monthly installment of principal and
interest in the amount of $85,450.00 on April 1, 1996; followed by eight (8)
equal monthly installments of interest only in the amount of $15,673.87 each,
commencing May 1, 1996 and on the first day of each successive month
thereafter, to and including December 1, 1996; followed by sixteen (16) equal
monthly installments of principal and interest in the amount of $62,267.00
each, commencing January 1, 1997 and on the first day of each successive month
thereafter, to and including April 1, 1998; followed by one (1) final
installment of deferred principal and interest thereon in the amount of
$535,236.00 on May 1, 1998.
2. INTEREST RATE. Interest on the outstanding principal hereof
from the date hereof until maturity, whether by acceleration or otherwise, or a
default (as hereinafter defined), shall be payable at the rate of fourteen
percent (14.00%) per annum or the maximum rate permissible by law (which under
the laws of the State of Illinois shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less (the
"Applicable Rate"). In the event that the amount of interest contracted for,
charged or received from Borrower or otherwise in connection with the Loan
evidenced hereby exceeds the Applicable Rate, then at Lender's option, such
amount shall either be applied as a credit against any then-unpaid amounts
1.
<PAGE> 2
hereof or refunded to Borrower and the effective rate of interest will be
automatically reduced to the Applicable Rate. Upon the occurrence of an event
of default, this Note shall thereafter bear interest at the rate of nineteen
percent (19%) per annum or the maximum rate permissible by law (which under the
laws of the State of Illinois shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less. In any
event, interest payable hereunder shall be computed on the basis of a 360-day
year and twelve 30-day months.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be
payable at the office of Lender, P.O. Box 91744, Chicago, Illinois 60693,
unless another place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied
first to costs of Lender incurred in collection of this Note, if any, then to
pay accrued interest, and thereafter to the outstanding principal balance
hereof.
5. PREPAYMENT. Borrower may prepay the entire balance of
principal owed under this Note in whole or in part without paying any
prepayment penalty and without paying a premium or interest charge on the
amount of prepaid principal.
6. SECURED NOTE. This Note is secured by the Collateral
identified and described as security therefor in the Security Agreement
executed by and delivered by Borrower. Borrower shall not, directly or
indirectly, suffer or permit to be created or to remain, and shall promptly
discharge, any lien on or in the Collateral, or in any portion thereof, except
as permitted pursuant to the Security Agreement. In addition, Borrower shall
not suffer any other matter whereby an interest of Lender under the Security
Agreement in the Collateral or in any lien pursuant to the Security Agreement
or any part of the foregoing might be impaired, except as permitted pursuant to
such Security Agreement.
7. SUBORDINATED NOTE. THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS
OF THAT CERTAIN SUBORDINATION AGREEMENT BY AND BETWEEN LENDER AND BORROWER
DATED MAY 3, 1995. IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN
THIS NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION
AGREEMENT SHALL CONTROL.
8. DEFAULT. Any of the following event shall constitute a default
under this Note: (a) Borrower's failure to pay timely any of the principal
amount due under this Note or any accrued interest or other amounts due under
this Note on the date the same becomes due and payable, by maturity,
acceleration or otherwise, or within five (5) calendar days thereafter, or (b)
the occurrence of an Event of Default under the Security Agreement or the
Master Lease Agreement or any other written agreement between Lender and
Borrower. Upon the occurrence of a default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of
Lender, be immediate collectible by Lender pursuant to applicable law.
9. WAIVER. Borrower waives, to the extent permitted by law, (a)
presentment and demand for payment, notice of dishonor, protest and notice of
protest and any other notice as permitted under the UCC or any applicable law;
(b) the right, if any, to the benefit of, or to direct
2.
<PAGE> 3
the application of, any of the Collateral until all indebtedness of the
Borrower to Lender, however arising, has been paid; (c) all defenses and rights
to discharge under the UCC and all other suretyship defenses or rights to
discharge; (d) Borrower shall pay to Lender, when incurred, all costs of
collection and enforcement or protection of Lender's security interest in the
Collateral including, without limitation, reasonable attorneys' fees, costs and
other expenses.
The right to plead any and all statutes of limitations as a defense to
any demands hereunder is hereby waived to the full extent permitted by law; and
(e) such other waivers as are set forth in the Security Agreement.
10. GOVERNING LAW. This Note shall be governed by, and construed
and enforced in accordance with, the laws of the State of Illinois, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
11. SUCCESSORS AND ASSIGNS. The provisions of this Note shall
inure to the benefit of and be binding on Borrower and any of its permitted
assigns, and shall extend to any holder hereof. Lender may assign its rights
hereunder without prior notice to Borrower.
12. AMENDMENT. The terms and conditions of this Note may not be
amended, waived or modified except in a writing signed by an authorized agent
of Lender which writing expressly states that the writing constitutes an
amendment, waiver or modification of this Note.
13. WAIVER OF JURY TRIAL. Borrower and Lender acknowledge that the
right to trial by jury is a constitutional one, but that it may be waived. Each
party, after consulting (or having had the opportunity to consult) with counsel
of their choice, knowingly and voluntarily, and for their mutual benefit,
waives any right to trial by jury in the event of litigation regarding the
performance of enforcement of, or in any way related to, this Note.
BORROWER: BIOSTAR, INC.
By: /s/ Teresa W. Ayers
-----------------------
Printed Name: Teresa W. Ayers
---------------------
Title: President/COO
3.
<PAGE> 1
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR
AN OPINION OF COUNSEL SATISFACTORY TO THE BORROWER THAT SUCH REGISTRATION IS
NOT REQUIRED.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$<<Notes>> March 20, 1996
Boulder, Colorado
FOR VALUE RECEIVED, BioStar, Inc., a Delaware corporation
("BORROWER"), hereby unconditionally promises to pay to the order of <<Lender>>
("LENDER"), in lawful money of the United States of America and in immediately
available funds, the principal sum of $<<Notes>> (the "LOAN") together with
accrued and unpaid interest thereon, payable on the dates and in the manner set
forth below.
This convertible note (the "NOTE") is non-negotiable and is executed
and delivered in connection with that certain Note and Warrant Purchase
Agreement dated as of March 20, 1996, by and between Borrower and Lender (as
the same may from time to time be amended, modified or supplemented, the
"PURCHASE AGREEMENT"). This Note is delivered to Borrower in full satisfaction
of all amounts due and owing to the Lender under the Purchase Agreement. All
terms defined in the Purchase Agreement shall have the same definitions when
used herein, unless otherwise defined herein. In the event of any conflict
between the terms of this Note and the terms of the Purchase Agreement, the
terms of the Purchase Agreement shall control.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of the
Loan shall be payable as follows: on the earlier of (a) March 20, 1999, or (b)
on the closing of a Corporate Event (as defined below), subject to the
conversion of the Note into Borrower's capital stock as further described in
Section 7 below. A "Corporate Event" shall mean either (i) the Company's
initial public offering or (ii) the closing of a consolidation or merger of the
Borrower with or into any other corporation or corporations, or a sale,
conveyance or disposition of all or substantially all of the assets of the
Borrower. The Borrower may prepay this Note at any time without penalty upon
the prior written consent of Silicon Valley Bank.
2. INTEREST RATE. Borrower further promises to pay interest on
the sum of the unpaid principal balance of the Loan outstanding on each day,
from the date of this Note until all such principal amounts shall have been
repaid in full, which interest shall be payable at the prime rate as announced
by the Bank of America for commercial loans plus 2% or the maximum rate
permissible by law (which under the laws of the State of Colorado shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less. Interest shall be payable at maturity and shall be
calculated on the basis of a 365-day year for the actual number of days
elapsed.
1.
<PAGE> 2
3. PLACE OF PAYMENT. All amounts payable hereunder shall be
payable to Lender at the address it specifies to Borrower in writing.
4. APPLICATION OF PAYMENTS. Payment on this Note shall be
applied first to accrued interest, and thereafter to the outstanding principal
balance hereof.
5. DEFAULT. Borrower's failure to pay timely any of the
principal amount due under this Note on the date the same becomes due and
payable or any accrued interest or other amounts due under this Note on the
date the same becomes due and payable or within ten (10) calendar days after
written receipt of notice of failure to pay shall constitute a default under
this Note. If a default is not cured within 30 days of the receipt of notice
of failure to pay, all unpaid principal, accrued interest and other amounts
owing thereunder shall, at the option of Lender, be immediately collectible by
Lender pursuant to applicable law.
6. NOTE.
(a) AGREEMENT TO SUBORDINATE. The Borrower, for itself,
its successors and assigns, covenants and agrees, and the Lender by acceptance
hereof, likewise covenants and agrees, that the payment of the principal of and
interest on this Note is hereby expressly subordinated to the extent and in the
manner hereinafter set forth in right of payment to the prior payment in full
of certain other obligations of Borrower owed at any time to commercial banks
or other financial institutions (including but not limited to the Borrower's
current obligations to Silicon Valley Bank and Comdisco, Inc.) (the "Senior
Indebtedness"), and that such subordination is for the benefit of the holders
of Senior Indebtedness. All persons who, in reliance upon such provisions,
become holders of, or continue to hold, Senior Indebtedness, shall be entitled
to rely hereon, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and they or any of them may proceed to enforce such
provisions directly against the Lender.
(b) SUBORDINATION IN THE EVENT OF DEFAULT ON SENIOR
INDEBTEDNESS. No payment shall be made on this Note at such time as any
default exists (or would exist after giving effect to such payment) with
respect to the Senior Indebtedness. If any such payment is made, Lender (or
its assignee) shall remit to the holder of the Senior Indebtedness all such
money so received, which shall be applied to amounts due under the Senior
Indebtedness.
(c) DISTRIBUTION ON DISSOLUTION, LIQUIDATION AND
REORGANIZATION; SUBROGATION OF NOTE. Upon any distribution of assets of
Borrower (or Borrower's assignee), upon any dissolution, winding up,
liquidation or reorganization of Borrower (or Borrower's assignee), whether in
bankruptcy, insolvency, reorganization or receivership proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of Borrower (or Borrower's assignee) or otherwise:
(1) the holder of all Senior Indebtedness shall
first be entitled to receive payment in full thereof before Lender is entitled
to receive any payment upon the principal of and premium, if any, or interest
on indebtedness evidenced by this Note;
2
<PAGE> 3
(2) any payment or distribution of assets of
Borrower (or Borrower's assignee) of any kind or character, whether in cash,
property or securities, to which Lender would be entitled except for the
provisions of this Section 6 shall be paid or delivered by Borrower (or
Borrower's assignee) or any liquidating trustee, trustee in bankruptcy,
receiver, agent or other person making such payment or distribution directly to
the holder of Senior Indebtedness or their representative or representatives or
to the trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued, as their
interests appear, to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness; and
(3) in the event that, notwithstanding the
foregoing any payment or distribution of assets of Borrower (or Borrower's
assignee) of any kind or character, whether in cash, property or securities,
shall be received by Lender before all Senior Indebtedness is paid in full,
such payment or distribution shall be paid over or delivered to the holder of
such Senior Indebtedness or their representative or representatives or to the
trustee or trustees under any indenture under which any instruments evidencing
any of such Senior Indebtedness may have been issued, as their interests
appear, for application to the payment of all Senior Indebtedness remaining
unpaid until all such Senior Indebtedness shall have been paid in full, after
giving effect to any concurrent payment or distribution to the holder of such
Senior Indebtedness.
Subject to the prior payment in full of all Senior Indebtedness, Lender
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of cash, property, or securities of Borrower
(or Borrower's assignee) applicable to the Senior Indebtedness until the
principal of, premium, if any, and interest on this Note shall be paid in full
and no such payments or distributions to Lender of cash, property or securities
otherwise distributable to the Senior Indebtedness shall, as between Borrower
(or Borrower's assignee), its creditors other than the holder of Senior
Indebtedness, and Lender, be deemed to be a payment by Borrower (or Borrower's
assignee) to or on account of this Note. It is understood that the provisions
of this Section 6 are and are intended solely for the purpose of defining the
relative rights of the Lender, on the one hand, and the holder of Senior
Indebtedness, on the other hand. Nothing contained in this Section 6 or
elsewhere in this Note is intended to or shall impair, as between Borrower (or
Borrower's assignee), its creditors other than the holder of Senior
Indebtedness, and Lender, the obligation of Borrowers (or Borrower's assignee),
which is unconditional and absolute, to pay to Lender the principal of, premium,
if any, and interest on this Note as and when the same shall become due and
payable in accordance with its terms or to affect the relative rights of Lender
and creditors of Borrower (or Borrower's assignee) other than the holder of
Senior Indebtedness, nor shall anything herein or in this Note prevent Lender
from exercising all remedies otherwise permitted by applicable law upon default
hereunder, subject to the rights, if any, under this Section 6 of the holder of
Senior Indebtedness in respect of cash, property or securities of Borrower (or
Borrower's assignee) received upon the exercise of any such remedy. Upon any
payment or distribution of assets of Borrower (or Borrower's assignee) referred
to in this Section 6 Lender shall be entitled to rely upon any order or decree
of a court or competent jurisdiction in which any proceedings of the nature
referred to in this Section are pending or upon a certificate of the liquidating
trustee, trustee in bankruptcy, receiver, agent or
3
<PAGE> 4
other person making any distribution to Lender, for the purpose of ascertaining
the persons entitled to participate in such payment or distribution, the holder
of Senior Indebtedness and other indebtedness of Borrower (or Borrower's
assignee), the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Section 6.
(d) AGREEMENT TO EFFECT SUBORDINATION. Lender by
acceptance of this Note agrees to take such action and execute such documents
as may be necessary or appropriate to effectuate the subordination as provided
in this Section 6.
7. ADDITIONAL TERMS.
(a) OPTIONAL CONVERSION. This Note may be converted at
the option of the Lender (or Lender's assignee), in whole or in part, at any
time or upon the closing of a Corporate Event, into fully paid and
nonassessable shares of either the next series of Preferred Stock sold by
Borrower at a price per share of less than $1.75 (the "NEXT ROUND PREFERRED")
or the Borrower's Series E Preferred Stock (the "SERIES E")(the Next Round
Preferred and the Series E are referred to collectively herein as the
"APPLICABLE PREFERRED").
(b) MANDATORY CONVERSION. The Notes will automatically
convert at any time upon the election by a majority in interest of the Lenders
into shares of Applicable Preferred.
(c) CONVERSION PRICE. The number of shares issuable to
the holder upon conversion shall be equal to the principal balance and accrued
but unpaid interest that is being converted, divided by the lesser of the price
per share of the Series E or the price per share at which Borrower sells the
Next Round Preferred (the "CONVERSION PRICE").
(d) MECHANICS OF CONVERSION. In the event that Lender
shall give written notice to Borrower that it elects to convert the Note
pursuant to Section 7(a) above, Lender shall surrender the Note, duly endorsed
at the office of Borrower, and shall give written notice to Borrower at such
office of the series of Applicable Preferred (i.e., Series E or Next Round
Preferred), into which the holder is electing to convert this Note and the name
or names in which he wishes the certificate or certificates for shares of
Applicable Preferred to be issued. In the event this Note is automatically
converted pursuant to Section 7(b) above, the holder shall give written notice
to Borrower of the series of Applicable Preferred (i.e., Series E or Next Round
Preferred) into which the holder is electing to convert this Note and such
conversion shall be deemed to have been made and the person or persons entitled
to receive the shares of Applicable Preferred issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Applicable Preferred on such date.
(e) ADJUSTMENTS TO CONVERSION PRICE FOR CERTAIN EVENTS.
The Conversion Price shall be subject to adjustment from time to time as
follows:
(1) If the number of outstanding shares of the
Preferred Stock of Borrower is increased by a stock dividend, stock split-up or
by a subdivision of shares, then,
4
<PAGE> 5
following the record date fixed for the determination of holders of Preferred
Stock entitled to receive such stock dividend, split-up or subdivision, the
Conversion Price shall be appropriately decreased so that the number of shares
of Applicable Preferred issuable on conversion of this Note shall be increased
in proportion to such increase of outstanding shares of Preferred Stock.
(2) If the number of shares of Preferred Stock
outstanding is decreased by a combination of the outstanding shares of
Preferred Stock, then, following the record date of such combination, the
Conversion Price shall be appropriately increased so that the number of shares
of Applicable Preferred issuable on conversion of this Note shall be decreased
in proportion to such decrease in outstanding shares of Preferred Stock.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment of the Conversion Price pursuant to this
Section 7, Borrower at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to the Lender a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. Borrower shall,
upon the written request at any time of Lender, furnish or cause to be
furnished to Lender a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price, at the time in effect, and (iii) the
number of shares of Applicable Preferred, the amount, if any, of other property
which at the time would be received upon the conversion of this Note.
(g) NOTICES OF RECORD DATE. In the event of any taking
by Borrower of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive Preferred
Stock or other securities of Borrower, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other securities
or property, or to receive any other right, Borrower shall mail to Lender at
least twenty (20) days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution, security or right, and the amount and character of such
dividend, distribution, security or right.
(h) ISSUE TAXES. Borrower shall pay any and all issue
and other taxes that may be payable in respect of any issue or delivery of
shares of Applicable Preferred on conversion of this Note pursuant hereto;
provided, however, that Borrower shall not be obligated to pay any transfer
taxes resulting from any transfer requested by any holder in connection with
any such conversion.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
Borrower shall at all times reserve and keep available out of its authorized
but unissued shares of Preferred Stock or other securities, solely for the
purpose of effecting the conversion of this Note, such number of its shares of
Preferred Stock or other securities from time to time issuable upon such
conversion; and if at any time the number of authorized but unissued shares of
Preferred Stock or other securities shall not be sufficient to effect the
conversion of this Note, the Company will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Preferred Stock or other securities to such number of shares
as shall be
5
<PAGE> 6
sufficient for such purpose, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary amendment
to the Certificate of Incorporation.
(j) FRACTIONAL SHARES. No fractional share shall be
issued upon the conversion of this Note. All shares of Applicable Preferred
(including fractions thereof) issuable upon conversion of this Note 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 Applicable Preferred, Borrower shall, in lieu of issuing any
fractional share, pay Lender who is 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
Company).
8. WAIVER. Borrower waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Note, and shall pay
all costs of collection when incurred, including, without limitation,
reasonable attorneys' fees, costs and other expenses.
The right to plead any and all statutes of limitations as a defense
to any demands hereunder is hereby waived to the fullest extent permitted by
law.
9. ATTORNEY'S FEES. In the event of default by the Borrower (or
its assignee) in the payment of principal or interest due on this Note, Lender
shall be entitled to receive and Borrower (or its assignee) agrees to pay all
costs of collection incurred by Lender, including, without limitation,
reasonable attorney's fees for consultation and suit.
10. GOVERNING LAW. This Note shall be governed by, and construed
and enforced in accordance with, the laws of the State of Colorado, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
6
<PAGE> 7
11. SUCCESSORS AND ASSIGNS. The provisions of this Note shall
inure to the benefit of and be binding on any successor to Borrower and shall
extend to any holder hereof.
BORROWER
BIOSTAR, INC.
By:
-------------------------------------
Teresa W. Ayers
President and Chief Operating Officer
7
<PAGE> 1
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE BORROWER THAT SUCH REGISTRATION IS NOT REQUIRED.
SUBORDINATED PROMISSORY NOTE
$___________ June 20, 1997
Boulder, Colorado
FOR VALUE RECEIVED, BioStar, Inc., a Delaware corporation ("BORROWER"),
hereby unconditionally promises to pay to the order of ________________________
("LENDER"), in lawful money of the United States of America and in immediately
available funds, the principal sum of $____________ (the "LOAN") together with
accrued and unpaid interest thereon, payable on the dates and in the manner set
forth below.
This subordinated promissory note (the "NOTE") is non-negotiable and
is executed and delivered in full satisfaction of all amounts due and owing to
the Lender.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of the
Loan shall be payable as follows: on the earlier of (a) February 15, 1998, or
(b) on the closing of a Corporate Event. A "Corporate Event" shall mean either
(i) the Borrower's initial public offering or (ii) the closing of a
consolidation or merger of the Borrower with or into any other corporation or
corporations, or a sale, conveyance or disposition of all or substantially all
of the assets of the Borrower. The Borrower may prepay this Note at any time
without penalty upon the prior written consent of Silicon Valley Bank, Venture
Lending, a division of Cupertino National Bank and Trust ("Venture Lending"),
and Comdisco, Inc.
2. INTEREST RATE. Borrower further promises to pay interest on
the sum of the unpaid principal balance of the Loan outstanding on each day,
from the date of this Note until all such principal amounts shall have been
repaid in full, which interest shall be payable at the prime rate as announced
by the Bank of America for commercial loans plus 2% per annum or the maximum
rate permissible by law (which under the laws of the State of Colorado shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less. Interest shall be payable at maturity and shall be
calculated on the basis of a 365-day year for the actual number of days
elapsed.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be
payable to Lender at the address it specifies to Borrower in writing.
4. APPLICATION OF PAYMENTS. Payment on this Note shall be
applied first to accrued interest, and thereafter to the outstanding principal
balance hereof.
<PAGE> 2
5. DEFAULT. Borrower's failure to pay timely any of the
principal amount due under this Note on the date the same becomes due and
payable or any accrued interest or other amounts due under this Note on the
date the same becomes due and payable or within ten (10) calendar days after
written receipt of notice of failure to pay shall constitute a default under
this Note. If a default is not cured within 30 days of the receipt of notice
of failure to pay, all unpaid principal, accrued interest and other amounts
owing thereunder shall, at the option of Lender, be immediately collectible by
Lender pursuant to applicable law.
6. NOTE.
(a) AGREEMENT TO SUBORDINATE. The Borrower, for itself,
its successors and assigns, covenants and agrees, and the Lender by acceptance
hereof, likewise covenants and agrees, that the payment of the principal of and
interest on this Note is hereby expressly subordinated to the extent and in the
manner hereinafter set forth in right of payment to the prior payment in full
of certain other obligations of Borrower owed at any time to commercial banks
or other financial institutions (including but not limited to the Borrower's
current obligations to Silicon Valley Bank, Venture Lending and Comdisco, Inc.
(other than the subordinated notes held by Comdisco, Inc.)) (the "Senior
Indebtedness"), and that such subordination is for the benefit of the holders
of Senior Indebtedness. All persons who, in reliance upon such provisions,
become holders of, or continue to hold, Senior Indebtedness, shall be entitled
to rely hereon, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and they or any of them may proceed to enforce such
provisions directly against the Lender.
(b) SUBORDINATION IN THE EVENT OF DEFAULT ON SENIOR
INDEBTEDNESS. No payment shall be made on this Note at such time as any
default exists (or would exist after giving effect to such payment) with
respect to the Senior Indebtedness. If any such payment is made, Lender (or
its assignee) shall remit to the holder of the Senior Indebtedness all such
money so received, which shall be applied to amounts due under the Senior
Indebtedness.
(c) DISTRIBUTION ON DISSOLUTION, LIQUIDATION AND
REORGANIZATION; SUBROGATION OF NOTE. Upon any distribution of assets of
Borrower (or Borrower's assignee), upon any dissolution, winding up,
liquidation or reorganization of Borrower (or Borrower's assignee), whether in
bankruptcy, insolvency, reorganization or receivership proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of Borrower (or Borrower's assignee) or otherwise:
(1) the holder of all Senior Indebtedness shall
first be entitled to receive payment in full thereof before Lender is entitled
to receive any payment upon the principal of and premium, if any, or interest
on indebtedness evidenced by this Note;
2
<PAGE> 3
(2) any payment or distribution of assets of
Borrower (or Borrower's assignee) of any kind or character, whether in cash,
property or securities, to which Lender would be entitled except for the
provisions of this Section 6 shall be paid or delivered by Borrower (or
Borrower's assignee) or any liquidating trustee, trustee in bankruptcy,
receiver, agent or other person making such payment or distribution directly to
the holders of Senior Indebtedness or their representative or representatives
or to the trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued, as their
interests appear, to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness; and
(3) in the event that, notwithstanding the
foregoing, any payment or distribution of assets of Borrower (or Borrower's
assignee) of any kind or character, whether in cash, property or securities,
shall be received by Lender before all Senior Indebtedness is paid in full,
such payment or distribution shall be paid over or delivered to the holder of
such Senior Indebtedness or their representative or representatives or to the
trustee or trustees under any indenture under which any instruments evidencing
any of such Senior Indebtedness may have been issued, as their interests
appear, for application to the payment of all Senior Indebtedness remaining
unpaid until all such Senior Indebtedness shall have been paid in full, after
giving effect to any concurrent payment or distribution to the holders of such
Senior Indebtedness.
Subject to the prior payment in full of all Senior Indebtedness, Lender shall
be subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of cash, property, or securities of Borrower (or
Borrower's assignee) applicable to the Senior Indebtedness until the principal
of, premium, if any, and interest on this Note shall be paid in full and no
such payments or distributions to Lender of cash, property or securities
otherwise distributable to the Senior Indebtedness shall, as between Borrower
(or Borrower's assignee), its creditors other than the holders of Senior
Indebtedness, and Lender, be deemed to be a payment by Borrower (or Borrower's
assignee) to or on account of this Note. It is understood that the provisions
of this Section 6 are and are intended solely for the purpose of defining the
relative rights of the Lender, on the one hand, and the holder of Senior
Indebtedness, on the other hand. Nothing contained in this Section 6 or
elsewhere in this Note is intended to or shall impair, as between Borrower (or
Borrower's assignee), its creditors other than the holders of Senior
Indebtedness, and Lender, the obligation of Borrower (or Borrower's assignee),
which is unconditional and absolute, to pay to Lender the principal of,
premium, if any, and interest on this Note as and when the same shall become
due and payable in accordance with its terms or to affect the relative rights
of Lender and creditors of Borrower (or Borrower's assignee) other than the
holders of Senior Indebtedness, nor shall anything herein or in this Note
prevent Lender from exercising all remedies otherwise permitted by applicable
law upon default hereunder, subject to the rights, if any, under this Section 6
of the holders of Senior Indebtedness in respect of cash, property or
securities of Borrower (or Borrower's assignee) received upon the exercise of
any such remedy. Upon any payment or distribution of assets of Borrower (or
Borrower's assignee) referred to in this Section 6, Lender shall be entitled to
rely upon any order or decree of a court or competent jurisdiction in which any
proceedings of the nature referred to in this Section are pending or upon a
certificate of the liquidating trustee, trustee in bankruptcy, receiver, agent
or other person making any distribution to Lender, for the purpose of
ascertaining the persons
3
<PAGE> 4
entitled to participate in such payment or distribution, the holders of Senior
Indebtedness and other indebtedness of Borrower (or Borrower's assignee), the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Section 6.
(d) AGREEMENT TO EFFECT SUBORDINATION. Lender by
acceptance of this Note agrees to take such action and execute such documents
as may be necessary or appropriate to effectuate the subordination as provided
in this Section 6.
7. WAIVER. Borrower waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Note, and shall pay
all costs of collection when incurred, including, without limitation,
reasonable attorneys' fees, costs and other expenses.
The right to plead any and all statutes of limitations as a defense to any
demands hereunder is hereby waived to the fullest extent permitted by law.
8. ATTORNEY'S FEES. In the event of default by the Borrower (or
its assignee) in the payment of principal or interest due on this Note, Lender
shall be entitled to receive and Borrower (or its assignee) agrees to pay all
costs of collection incurred by Lender, including, without limitation,
reasonable attorneys' fees for consultation and suit.
9. GOVERNING LAW. This Note shall be governed by, and construed
and enforced in accordance with, the laws of the State of Colorado, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
10. SUCCESSORS AND ASSIGNS. The provisions of this Note shall
inure to the benefit of and be binding on any successor to Borrower and shall
extend to any holder hereof.
BORROWER:
BIOSTAR, INC.
By:
-----------------------------------------
Teresa W. Ayers
President/Chief Executive Officer
4
<PAGE> 1
BIOSTAR, INC.
LOAN AND SECURITY AGREEMENT
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION.............................................................................1
1.1 Definitions.....................................................................................1
1.2 Accounting Terms................................................................................8
2. LOAN AND TERMS OF PAYMENT................................................................................9
2.1 Bridge Facility.................................................................................9
2.2 Overadvances...................................................................................10
2.3 Interest Rates, Payments, and Calculations.....................................................10
2.4 Crediting Payments.............................................................................10
2.5 Fees...........................................................................................11
2.6 Additional Costs...............................................................................11
2.7 Term...........................................................................................12
3. CONDITIONS OF LOANS.....................................................................................12
3.1 Conditions Precedent to Initial Advance........................................................12
3.2 Conditions Precedent to All Advances...........................................................12
4. CREATION OF SECURITY INTEREST...........................................................................13
4.1 Grant of Security Interest.....................................................................13
4.2 Delivery of Additional Documentation Required..................................................13
4.3 Right to Inspect...............................................................................13
5. REPRESENTATIONS AND WARRANTIES..........................................................................13
5.1 Due Organization and Qualification.............................................................13
5.2 Due Authorization; No Conflict.................................................................13
5.3 No Prior Encumbrances..........................................................................14
5.4 Bona Fide Eligible Accounts....................................................................14
5.5 Merchantable Inventory.........................................................................14
5.6 Name; Location of Chief Executive Office.......................................................14
5.7 Litigation.....................................................................................14
5.8 No Material Adverse Change in Financial Statements.............................................14
5.9 Solvency.......................................................................................14
5.10 Regulatory Compliance..........................................................................14
5.11 Environmental Condition........................................................................15
</TABLE>
i.
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
5.12 Taxes..........................................................................................15
5.13 Subsidiaries...................................................................................15
5.14 Government Consents............................................................................15
5.15 Full Disclosure................................................................................15
6. AFFIRMATIVE COVENANTS...................................................................................16
6.1 Good Standing..................................................................................16
6.2 Government Compliance..........................................................................16
6.3 Financial Statements, Reports, Certificates....................................................16
6.4 Inventory; Returns.............................................................................17
6.5 Taxes..........................................................................................17
6.6 Insurance......................................................................................17
6.7 Principal Depositor............................................................................18
6.8 Profitability..................................................................................18
6.9 Registration of Intellectual Property Rights...................................................18
6.10 Further Assurances.............................................................................18
7. NEGATIVE COVENANTS......................................................................................18
7.1 Dispositions...................................................................................18
7.2 Change in Business.............................................................................18
7.3 Mergers or Acquisitions........................................................................19
7.4 Indebtedness...................................................................................19
7.5 Encumbrances...................................................................................19
7.6 Distributions..................................................................................19
7.7 Investments....................................................................................19
7.8 Transactions with Affiliates...................................................................19
7.9 Subordinated Debt..............................................................................19
7.10 Inventory......................................................................................19
7.11 Compliance.....................................................................................19
8. EVENTS OF DEFAULT.......................................................................................20
8.1 Payment Default................................................................................20
8.2 Covenant Default...............................................................................20
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
8.3 Material Adverse Changes.......................................................................20
8.4 Attachment.....................................................................................20
8.5 Insolvency.....................................................................................21
8.6 Other Agreements...............................................................................21
8.7 Subordinated Debt..............................................................................21
8.8 Judgments......................................................................................21
8.9 Misrepresentations.............................................................................21
9. BANK'S RIGHTS AND REMEDIES..............................................................................21
9.1 Rights and Remedies............................................................................21
9.2 Power of Attorney..............................................................................22
9.3 Accounts Collection............................................................................23
9.4 Bank Expenses..................................................................................23
9.5 Bank's Liability for Collateral................................................................23
9.6 Remedies Cumulative............................................................................23
9.7 Demand; Protest................................................................................24
10. NOTICES.................................................................................................24
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER..............................................................24
12. GENERAL PROVISIONS......................................................................................25
12.1 Successors and Assigns.........................................................................25
12.2 Indemnification................................................................................25
12.3 Time of Essence................................................................................25
12.4 Severability of Provisions.....................................................................25
12.5 Amendments in Writing, Integration.............................................................25
12.6 Counterparts...................................................................................25
12.7 Survival.......................................................................................25
12.8 Confidentiality................................................................................25
</TABLE>
iii.
<PAGE> 5
BIOSTAR, INC.
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is entered into as of May 1, 1997, by and
between VENTURE LENDING, a division of Cupertino National Bank & Trust ("Bank")
and BIOSTAR, INC., a Delaware corporation ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following definitions:
"ACCOUNTS" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" or "ADVANCES" means a cash advance under the Bridge Loan
Facility or the Revolving Facility.
"AFFILIATE" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"BANK EXPENSES" means all: reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, whether or not suit is brought.
"BORROWER'S BOOKS" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business
1.
<PAGE> 6
operations or financial condition; and all computer programs, or tape files, and
the equipment, containing such information.
"BORROWING BASE" has the meaning set forth in Section 2.1 hereof.
"BUSINESS DAY" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"BRIDGE FACILITY" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1 hereof.
"BRIDGE LOAN MATURITY DATE" means October 30, 1997.
"CLOSING DATE" means the date of this Agreement.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means the property described on Exhibit A attached
hereto.
"COMMITTED BRIDGE LINE" means Two Million Dollars ($2,000,000).
"COMMITTED REVOLVING LINE" means One Million Dollars ($1,000,000).
"CONTINGENT OBLIGATION" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (a) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (b) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (c) all obligations
arising under any interest rate, currency or commodity swap agreement, interest
rate cap agreement, interest rate collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; provided, however, that the
term "Contingent Obligation" shall not include endorsements for collection or
deposit in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determined
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith;
provided, however, that such amount shall not in any event exceed the maximum
amount of the obligations under the guarantee or other support arrangement.
"CURRENT ASSETS" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"CURRENT LIABILITIES" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included
2.
<PAGE> 7
therein, all outstanding Advances made under this Agreement, including all
Indebtedness that is payable upon demand or within one year from the date of
determination thereof unless such Indebtedness is renewable or extendable at the
option of Borrower or any Subsidiary, to a date more than one year from the date
of determination, but excluding Subordinated Debt.
"DAILY BALANCE" means the amount of the Obligations owed at the
end of a given day.
"ELIGIBLE ACCOUNTS" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon notification thereof to Borrower in
accordance with the provisions hereof. Unless otherwise agreed to by Bank,
Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
(d) Accounts with respect to progress billings or service
contracts, or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of Borrower;
(f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States; except for Eligible
Foreign Accounts, and Accounts arising from products shipped to or services
provided to branches or offices located in the United States of any account
debtor that does not have its principal place of business in the United States;
(g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States;
(h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed thirty
percent (30%) of all Accounts,
3.
<PAGE> 8
to the extent such obligations exceed the aforementioned percentage, except as
approved in writing by Bank;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank reasonably
believes that there may be a basis for dispute (but only to the extent of the
amount subject to such dispute or claim), or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines to
be doubtful.
"ELIGIBLE FOREIGN ACCOUNTS" means Accounts with respect to which
the account debtor does not have its principal place of business in the United
States and that are: (a) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (b) supported by one or more letters of credit in
favor of Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (c) that Bank approves on a
case-by-case basis.
"EQUIPMENT" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect
from time to time.
"INDEBTEDNESS" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"INVENTORY" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition
4.
<PAGE> 9
of any of the foregoing and any documents of title representing any of the
above, and Borrower's Books relating to any of the foregoing.
"INVESTMENT" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"LIEN" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"LOAN DOCUMENTS" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (b) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"MATURITY DATE" means the day before the first anniversary of the
Closing Date.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper, and Borrower's Books relating
to any of the foregoing.
"OBLIGATIONS" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"PERIODIC PAYMENTS" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"PERMITTED INDEBTEDNESS" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
5.
<PAGE> 10
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business;
(e) Indebtedness of Borrower, not otherwise permitted hereunder,
not exceeding $100,000 in the aggregate outstanding at any time;
(f) Indebtedness with respect to capital lease obligations and
Indebtedness secured by Permitted Liens; and
(g) Extensions, renewals, refundings, refinancings, modifications,
amendments and restatements of any of the items of Permitted Indebtedness (a)
through (f) above, provided that the principal amount thereof is not increased
or the terms thereof are not modified to impose more burdensome terms upon
Borrower.
"PERMITTED INVESTMENT" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency, or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank;
(c) Extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(d) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business;
(e) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business;
(f) Investments consisting of (i) travel advances, employee
relocation loans and other employee loans and advances in the ordinary course of
business, and (ii) loans to employees, officers or directors relating to the
purchase of equity securities of Borrower; and
(g) Investments of Borrower not otherwise permitted hereunder,
aggregating not in excess of $50,000 at any time.
6.
<PAGE> 11
"PERMITTED LIENS" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens securing capital lease obligations on assets subject to
such capital leases;
(e) Liens on equipment leased by Borrower pursuant to an operating
lease in the ordinary course of business (including proceeds thereof and
accessions thereto) incurred solely for the purpose of financing the lease of
such equipment (including Liens arising from UCC financing statements regarding
leases permitted by this Agreement);
(f) Liens arising from judgment, decrees or attachments to the
extent and only so long as such judgment, decree or attachment has not caused or
resulted in an Event of Default;
(g) Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar Liens affecting real
property not interfering in any material respect with the ordinary conduct of
the business of Borrower;
(h) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(i) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of setoff or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided such Liens are not prior to the Lien of Bank;
and
(j) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a), (c), (d) and (e) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"PERSON" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation,
7.
<PAGE> 12
institution, public benefit corporation, firm, joint stock company, estate,
entity or governmental agency.
"PRIME RATE" means the variable rate of interest, per annum, most
recently set forth in the Western Edition of The Wall Street Journal as the
"prime rate," whether or not such announced rate is the lowest rate available
from Bank.
"QUICK ASSETS" mean, at any date as of which the amount thereof
shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed ninety (90) days, of
Borrower determined in accordance with GAAP.
"RESPONSIBLE OFFICER" means each of the Chief Executive Officer,
the Chief Financial Officer and the Controller of Borrower or such other persons
of whom Borrower gives Bank written notice.
"REVOLVING FACILITY" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1 hereof.
"SCHEDULE" means the schedule of exceptions attached hereto.
"SUBORDINATED DEBT" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms reasonably
acceptable to Bank (and identified as being such by Borrower and Bank) including
specifically that debt incurred by Borrower which is the subject to that certain
Subordination Agreement dated May 3, 1995, as amended, between Borrower and
Comdisco, Inc. (the "Comdisco Subordination").
"SUBSIDIARY" means any corporation or partnership in which (a) any
general partnership interest or (b) more than 50% of the stock of which by the
terms thereof ordinary voting power to elect the Board of Directors, managers or
trustees of the entity, shall, at the time as of which any determination is
being made, be owned by Borrower, either directly or through an Affiliate.
"TANGIBLE NET WORTH" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus without duplication, (i) the sum of any amounts attributable
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.
"TOTAL LIABILITIES" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
8.
<PAGE> 13
2. LOAN AND TERMS OF PAYMENT
2.1 BRIDGE FACILITY. Subject to and upon the terms and conditions of
this Agreement, Bank agrees to make Advances to Borrower in an aggregate amount
not to exceed the lesser of Two Million Dollars ($2,000,000) or one and one-half
(1.5) times the net revenue of the three (3) months immediately prior to the
Advance (the "Bridge Borrowing Base"). Amounts borrowed under the Bridge
Facility may be repaid and reborrowed at any time prior to October 30, 1997. The
Bridge Facility shall terminate on October 30, 1997, on which date all Advances
made under this Section 2.1 shall be immediately due and payable.
(a) REVOLVING FACILITY. Subject to and upon the terms and
conditions of this Agreement, Bank agrees to make Advances to Borrower under the
Revolving Facility, in an aggregate amount not to exceed the lesser of One
Million Dollars ($l,000,000) or seventy-five percent (75%) of Eligible Accounts.
Subject to the terms and conditions of this Agreement, amounts borrowed under
the Revolving Facility may be repaid and reborrowed at any time during the term
of this Agreement.
(b) REQUESTS FOR ADVANCE. Whenever Borrower desires an Advance,
Borrower will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. California time, on the Business Day that the Advance is to be made.
Each such notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer, or without instructions if in Bank's discretion such Advances are
necessary to meet Obligations which have become due and remain unpaid. Bank
shall be entitled to rely on any telephonic notice given by a person who Bank
reasonably believes to be a Responsible Officer, and Borrower shall indemnify
and hold Bank harmless for any damages or loss suffered by Bank as a result of
such reliance. Bank will credit the amount of Advances made under this Section
2.1 to Borrower's deposit account.
(c) LOCKBOX. Borrower shall open and maintain with Bank an account
(the "Account") into which all funds received by Borrower from any source shall
immediately be deposited. Borrower shall direct all account debtors to mail or
deliver all checks or other forms of payment for amounts owing to Borrower to a
post office box designated by Bank, over which Bank shall have exclusive and
unrestricted access. Bank shall collect the mail delivered to such post office
box, open such mail, and endorse and credit all items to the Account. Borrower
shall direct all account debtors or other persons owing money to Borrower who
make payments by electronic transfer of funds to wire such firms directly to the
Account. Borrower shall hold in trust for Bank all amounts that Borrower
receives despite the directions to make payments to the post office box or
Account, and immediately deliver such payments to Bank in their original form as
received from the account debtor with proper endorsements for deposit into the
Account. Notwithstanding any provision of this Section 2.1(c), Borrower shall
have the right to use the funds deposited into the Account in the ordinary
course of business unless an Event of Default shall have occurred and be
continuing. Borrower shall enter into a lockbox agreement with Bank in
substantially the form attached hereto.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1 of this Agreement
is greater than
9.
<PAGE> 14
the lesser of (i) the Committed Bridge Line or (ii) the Bridge Borrowing Base,
Borrower shall immediately pay to Bank, in cash, the amount of such excess. If
at any time or for any reason the amount of the Obligations owed by Borrower to
Bank pursuant to Section 2.1(a) of this Agreement is greater than the lesser of
(i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower shall
immediately pay to Bank, in cash, the amount of such excess.
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS
(a) INTEREST RATE. Except as set forth in Section 2.3(b), any
Advances under the Bridge Loan Facility, shall bear interest, on the average
Daily Balance, at a rate equal to three (3) percentage points above the Prime
Rate; and any advances under the Revolving Facility, shall bear interest, on the
average Daily Balance, at a rate equal to two (2) percentage points above the
Prime Rate.
(b) DEFAULT RATE. All Obligations shall bear interest, from and
after the occurrence and during the continuance of an Event of Default, at a
rate equal to five (5) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
(c) PAYMENTS. Interest hereunder shall be due and payable on the
last Business Day of each month during the term hereof. Bank shall, at its
option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) COMPUTATION. In the event the Prime Rate is changed from time
to time hereafter, the applicable rate of interest hereunder shall be increased
or decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by
an amount equal to such change in the Prime Rate. All interest chargeable under
the Loan Documents shall be computed on the basis of a three hundred sixty (360)
day year for the actual number of days elapsed.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment shall be immediately applied to conditionally
reduce Obligations, but shall not be considered a payment on account unless such
payment is of immediately available federal funds or unless and until such check
or other item of payment is honored when presented for payment. Notwithstanding
anything to the contrary contained herein, any wire transfer or payment received
by Bank after 2:00 p.m. California time shall be deemed to have been received by
Bank as of the opening of business on the immediately following Business Day.
Whenever any payment to Bank under the Loan Documents would otherwise be due
(except by reason of acceleration) on a date that is not a Business Day, such
payment shall instead be due on the next Business Day, and additional fees or
interest, as the case may be, shall accrue and be payable for the period of such
extension.
10.
<PAGE> 15
2.5 FEES. Borrower shall pay to Bank the following:
(a) COMMITMENT FEE. A Facility Fee equal to Twenty Thousand
Dollars ($20,000) for the Bridge Loan Facility, and (b) Ten Thousand Dollars
($10,000) for the Revolving Facility, which fees are due and payable on or
before the Closing Date and which have been fully earned and are nonrefundable;
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary
fees and reasonable out-of-pocket expenses for Bank's audits of Borrower's
Accounts (not to exceed $2,000 per audit).
(c) BANK EXPENSES. Upon the date hereof, all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses (not to exceed $8,000) and, after the date hereof, all Bank Expenses,
including reasonable attorneys' fees and expenses, as and when they become due.
2.6 ADDITIONAL COSTS. In case any law, regulation, treaty, or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of principal
or interest or any other amounts payable hereunder by Borrower or otherwise with
respect to the transactions contemplated hereby (except for taxes on the overall
net income of Bank imposed by the United States of America or any political
subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 TERM. This Agreement shall become effective on the Closing Date
and, subject to Section 12.7, shall continue in full force and effect for a term
ending on the Maturity Date. Notwithstanding the foregoing, Bank shall have the
right to terminate its obligation to make Advances under this Agreement
immediately and without notice upon the occurrence and during the continuance of
an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
11.
<PAGE> 16
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of Bank to
make the initial Advance is subject to the condition precedent that Bank shall
have received, in form and substance satisfactory to Bank, the following.
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency, and resolutions authorizing the execution and delivery of this
Agreement;
(c) an Intellectual Property Security Agreement;
(d) a subordination agreement with Comdisco, Inc.;
(e) a lock box agreement executed by Borrower;
(f) an audit of Borrower's existing Accounts;
(g) financing statements (Forms UCC-1);
(h) insurance certificate
(i) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof; and
(j) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of Bank to
make each Advance, including the initial Advance, is further subject to the
following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided
in Section .1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance. Except as otherwise disclosed in
writing to Bank, the making of each Advance shall be deemed to be a
representation and warranty by Borrower on the date of such Advance as to the
accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents.
12.
<PAGE> 17
Except as set forth in the Schedule, such security interest constitutes a valid,
first priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interest in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 RIGHT TO INSPECT. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property, requires that it be so qualified and where failure to so qualify,
could have a Material Adverse Effect.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party, or by which it is bound, which
default could have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations. The property giving rise to such Eligible Accounts has
been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor or as
otherwise instructed by Account Debtor. Borrower has not received notice of
actual or imminent Insolvency Proceeding of any account debtor that is included
in any Borrowing Base Certificate as an Eligible Account.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material respects
of good and marketable quality, free from all material defects.
13.
<PAGE> 18
5.6 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.7 LITIGATION. Except as set forth in the Schedule, there are no
actions or proceedings pending by or against Borrower or any Subsidiary, before
any court or administrative agency in which an adverse decision could have a
Material Adverse Effect or a material adverse effect on Borrower's interest or
Bank's security interest in the Collateral. Borrower does not have knowledge of
any such pending or threatened actions or proceedings.
5.8 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.9 SOLVENCY. Borrower is solvent and able to pay its debts (including
trade debts) as they mature.
5.10 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). To the best of its knowledge Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
5.11 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or
14.
<PAGE> 19
any Subsidiary resulting in the releasing or otherwise disposing of hazardous
waste or hazardous substances into the environment.
5.12 TAXES. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein except where failure
to file or pay would not result in a Material Adverse Effect.
5.13 SUBSIDIARIES. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 GOVERNMENT CONSENTS. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 FULL DISCLOSURE. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each
Subsidiary, to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within (30) days
after the end of each month, a company prepared consolidated balance sheet and
income statement covering Borrower's consolidated operations during such period,
certified by a Responsible Officer; (b) as soon as available, but in any event
within one hundred sixty (160) days after the end of Borrower's fiscal year,
audited consolidated financial statements of Borrower prepared in accordance
with GAAP, consistently applied, together with an unqualified opinion on such
financial statements of an
15.
<PAGE> 20
independent certified public accounting firm reasonably acceptable to Bank; (c)
within five (5) days upon becoming available, copies of all statements, reports
and notices sent or made available generally by Borrower to its security holders
or to any holders of Subordinated Debt and all reports, if any, on Form 10-K and
10-Q filed with the Securities and Exchange Commission; (d) promptly upon
receipt of notice thereof, a report of any legal actions pending or threatened
against Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more;
and (e) such budgets, sales projections, operating plans or other financial
information as Bank may reasonably request from time to time.
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit C hereto, together with
aged listings of accounts receivable and accounts payable within thirty (30)
days of the last day of each month.
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
In addition to the initial audit of Borrower's Accounts as a condition
to the initial Advance, Bank shall have a right from time to time hereafter to
audit Borrower's Accounts at Borrower's expense (subject to the limitations set
forth in Section 2.5(b)), provided that such audits will be conducted no more
often than every six (6) months (and in any event, not more than once during the
first twelve (12) months after the date of this Agreement) unless an Event of
Default has occurred and is continuing.
6.4 INVENTORY; RETURNS. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 TAXES. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
16.
<PAGE> 21
6.6 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers and all other
hazards and risks, and in such amounts as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof, and all liability insurance policies shall show the Bank as an
additional insured and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 PRINCIPAL DEPOSITOR. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.8 PROFITABILITY. Borrower shall not suffer a loss in excess of Seven
Hundred Fifty Thousand Dollars ($750,000) in any calendar month.
6.9 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS. Borrower shall
register or cause to be registered (to the extent not already registered) with
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable, those intellectual property rights listed on Exhibits A,
B and C to the Intellectual Property Security Agreement delivered to Bank by
Borrower in connection with this Agreement prior to the sale or licensing of
products containing such Intellectual Property. Borrower shall register or cause
to be registered with the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, those additional intellectual
property rights developed or acquired by Borrower from time to time in
connection with any product prior to the sale or licensing of such product to
any third party, including without limitation revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C. Borrower shall
execute and deliver such additional instruments and documents from time to time
as Bank shall reasonably request to perfect Bank's security interest in such
additional intellectual property rights.
6.10 FURTHER ASSURANCES. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
17.
<PAGE> 22
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations, or
for so long as Bank may have any commitment to make any Advances, Borrower will
not do any of the following without the written consent of Bank, which consent
may be granted or withheld in Bank's sole discretion:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than: (i) Transfers of
Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; (iii) sale and leaseback transactions; or (iv) Transfers of
worn-out or obsolete Equipment.
7.2 CHANGE IN BUSINESS. Engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change in Borrower's ownership.
Borrower will not, without thirty (30) days prior written notification to Bank,
relocate its chief executive office.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock other than repurchases of capital stock issued to employees, directors or
consultants following termination of such relationship with the Borrower.
7.7 INVESTMENTS. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
18.
<PAGE> 23
7.9 SUBORDINATED DEBT. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 INVENTORY. Store the Inventory with a bailee, warehouseman or
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.11 COMPLIANCE. Become an "investment company" controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose. Fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could have a Material adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay the principal of, or any
interest on, any Advances when due and payable; or fails to pay any portion of
any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by Borrower
of an invoice for such other Obligations;
8.2 COVENANT DEFAULT. If Borrower fails to perform any obligation
under Sections 6.7 or 6.8 or violates any of the covenants contained in Article
7 of this Agreement, or fails or neglects to perform, keep or observe any other
material term, provision, condition, covenant or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after Borrower receives notice thereof or
any officer of Borrower becomes aware thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrower be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrower
shall have an additional reasonable period (which shall not in any case exceed
thirty (30) days) to attempt to cure such default, and within such reasonable
time period the failure to have cured such default shall not be deemed an Event
of Default (provided that no Advances will be required to be made during such
cure period);
19.
<PAGE> 24
8.3 MATERIAL ADVERSE CHANGES. If there occurs a material adverse
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interest in the
Collateral;
8.4 ATTACHMENT. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within twenty (20) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within twenty (20)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure period);
8.5 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Advances will be made prior to the dismissal of such
Insolvency, Proceeding);
8.6 OTHER AGREEMENTS. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect,
8.7 SUBORDINATED DEBT. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 JUDGMENTS. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Advances will be made
prior to the satisfaction or stay of such judgment); or
8.9 MISREPRESENTATIONS. If any material misrepresentation or material
misstatement existed in any warranty or representation set forth herein or in
any certificate delivered to Bank by any Responsible Officer pursuant to this
Agreement or to induce Bank to enter into this Agreement or any other Loan
Document, at the time such representation or warranty was made or such
certificate delivered.
20.
<PAGE> 25
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such payments
and do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral Borrower agrees to assemble the Collateral
if Bank so requires, and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the Collateral
is located, to take and maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest or compromise any encumbrance, charge or lien
which in Bank's determination appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith. With respect
to any of Borrower's owned premises, Borrower hereby grants Bank a license to
enter into possession of such premises and to occupy the same, without charge,
for up to one hundred twenty (120) days in order to exercise any of Bank's
rights or remedies provided herein, at law, in equity or otherwise;
(e) Without notice to Borrower, set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.l, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable;
(h) Bank may credit bid and purchase at any public sale; and
21.
<PAGE> 26
(i) Any deficiency that exists after disposition of the Collateral
as provided above will be paid immediately by Borrower.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle and adjust all claims under and decisions with respect
to Borrower's policies of insurance; and (e) settle and adjust disputes and
claims respecting the accounts directly with account debtors, for amounts and
upon terms which Bank determines to be reasonable; provided Bank may exercise
such power of attorney to sign the name of Borrower on any of the documents
described in Section 4.2 regardless of whether an Event of Default has occurred.
The appointment of Bank as Borrower's attorney-in-fact, and each and every one
of Bank's rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully repaid and performed and Bank's
obligation to provide advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. If an Event of Default has occurred and is
continuing, Bank may notify any Person owing funds to Borrower of Bank's
security interest in such funds and verify the amount of such Account. Borrower
shall collect all amounts owing to Borrower for Bank, receive in trust all
payments as Bank's trustee, and immediately deliver such payments to Bank in
their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
shall bear interest at the then applicable rate hereinabove provided, and shall
be secured by the Collateral. Any payments made by Bank shall not constitute an
agreement by Bank to make similar payments in the future or a waiver by Bank of
any Event of Default under this Agreement.
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
Notwithstanding the foregoing, Bank shall be responsible for its own gross
negligence or willful misconduct.
22.
<PAGE> 27
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: BioStar, Inc.
6655 Lookout Road
Boulder, CO 80301
Attn: Teresa W. Ayers
FAX: (303) 530-6641
If to Bank: Venture Lending
Three Palo Alto Square, Suite 150
Palo Alto, CA 94306
Attn: Craig Russell
F.A.X: (415) 843-6969
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
23.
<PAGE> 28
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AMD ASSIGNS. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of, but with notice to, Borrower to sell, transfer,
negotiate or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits hereunder.
12.2 INDEMNIFICATION. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees and agents against: (a) all
obligations, demands, claims and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred or paid by Bank as
a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys' fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses,
24.
<PAGE> 29
costs and liabilities described in Section 12.2 shall survive until all
applicable statute of limitations periods with respect to actions that may be
brought against Bank have run.
12.8 CONFIDENTIALITY. In handling any confidential information Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank and (v) as Bank may deem
appropriate in the exercise of remedies after the occurrence of an Event of
Default. Confidential information hereunder shall not include information that
either: (a) is in the public domain or in the knowledge or possession of Bank
when disclosed to Bank, or becomes part of the public domain after disclosure to
Bank through no fault of Bank; or (b) is disclosed to Bank by a third party,
provided Bank does not have actual knowledge that such third party is prohibited
from disclosing such information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BIOSTAR INC.,
A DELAWARE CORPORATION
By: /s/ Teresa W. Ayers
--------------------------------
Title: President/CEO
-------------------------------
VENTURE LENDING, A DIVISION OF
CUPERTINO NATIONAL BANK & TRUST
By:
--------------------------------
Title:
-------------------------------
25.
<PAGE> 30
SCHEDULE OF EXCEPTIONS
1. Existing Indebtedness: That certain loan in an amount not to exceed Two
Million Five Hundred Thousand Dollars ($2,500,000) from Comdisco to
Borrower pursuant to a loan agreement dated May 3, 1995, as amended.
2. Lease Agreements with Comdisco and Dominion Ventures and Schedules
thereunder.
3. Subordinated Promissory Notes dated February 14, 1997 with various
investors in the aggregate amount of $1,000,000 and which may be amended to
an amount not to exceed $2,000,000.
4. Convertible Subordinated Debt dated March 20, 1996 and April 15, 1996 in
the amount of $4.5 million.
<PAGE> 31
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, financial assets,
securities accounts, securities entitlements, letters of credit, certificates of
deposit, instruments and chattel paper now owned or hereafter acquired and
Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
<PAGE> 32
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
---------------
FAX NO.: (415) 843-6969 TIME:
---------------
- --------------------------------------------------------------------------------
FROM: BIOSTAR, INC.
---------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
-------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
-----------------------------------------------------------
PHONE NUMBER:
-------------------------------------------------------------------
FROM ACCOUNT #: TO ACCOUNT #:
--------------------------------- ------------------
REQUETED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- ------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $
-------------------------------------------
PRINCIPAL PAYMENT (ONLY) $
-------------------------------------------
INTEREST PAYMENT (ONLY) $
-------------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
-------------------------------------------
OTHER INSTRUCTIONS:
-------------------------------------------------------------
- --------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan Agreement are
true, correct and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Borrowing Certificate;
provided, however, that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- --------------------------------------- ------------------------------
Authorized Requester Phone #
- --------------------------------------- ------------------------------
Received By (Bank) Phone #
------------------------------
Authorized Signature (Bank)
- --------------------------------------------------------------------------------
<PAGE> 33
EXHIBIT C-1
BORROWING BASE CERTIFICATE
(REVOLVING FACILITY)
------------------------------------------------------------------------------
Borrower: BioStar, Inc.
Commitment Amount: $1,000,000
- ------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of _______ $___________
2. Additions (please explain on reverse) $___________
3. TOTAL ACCOUNTS RECEIVABLE $___________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $___________
5. Balance of 50% over 90 day accounts $___________
6. Concentration Limits $___________
7. Foreign Accounts $___________
8. Governmental Accounts $___________
9. Contra Accounts $___________
10. Promotion or Demo Accounts $___________
11. Intercompany/Employee Accounts $___________
12. Other (please explain on reverse) $___________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $___________
14. Eligible Accounts (#3 minus #13) $___________
15. LOAN VALUE OF ACCOUNTS (75% of #14) $___________
BALANCES
16. Maximum Loan Amount $1,000,000
17. Total Funds Available [Lesser of #15 or #16] $___________
18. Present balance owing on Line of Credit $___________
19. RESERVE POSITION (#17 minus #18) $___________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Venture Lending.
----------------------------
COMMENTS: BANK USE ONLY
Rec'd By:
-------------------
Auth. Signer
Date:
----------------------
BioStar, Inc. Verified:
-------------------
Auth. Signer
By: Date:
----------------------------- -----------------------
Authorized Signer ----------------------------
<PAGE> 34
EXHIBIT C-2
BRIDGE LOAN CERTIFICATE
(BRIDGE FACILITY)
- --------------------------------------------------------------------------------
Borrower: BioStar, Inc.
Commitment Amount: $2,000,000
- ------------------------------------------------------------------------------
NET REVENUE
1. Total Net Revenue Three (3) Months Prior to the Date of this
Certificate $___________
2. Multiplied by 1.5 $___________
3. TOTAL $___________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Venture Lending.
---------------------------
COMMENTS: BANK USE ONLY
Rec'd By:
-------------------
Auth. Signer
Date:
-----------------------
BioStar, Inc. Verified:
-------------------
Auth. Signer
By: Date:
----------------------------- -----------------------
Authorized Signer ----------------------------
<PAGE> 35
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: VENTURE LENDING
FROM: BIOSTAR, INC.
The undersigned authorized officer of BioStar, Inc. hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct in all material respects as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 160 days Yes No
A/R & A/P Agings Monthly within 30 days
A/R Audit Initial and Semi-annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Profitability or Maximum Loss:
Monthly ($750,000) $_____ Yes No
----------------------------------
COMMENTS REGARDING EXCEPTIONS: SEE ATTACHED. BANK USE ONLY
Sincerely, Received By:
----------------------
Authorized Signer
- --------------------------------
Signature Date:
-----------------------------
- --------------------------------
Title Verified:
-------------------------
- -------------------------------- Authorized Signer
Date
Date:
-----------------------------
Compliance Status: Yes No
----------------------------------
<PAGE> 1
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE, TRANSFER
OR OTHER DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i)
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL
FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT
REQUIRED.
SHARES ISSUABLE UPON EXERCISE: 60,750
WARRANT TO PURCHASE
SHARES OF SERIES B PREFERRED STOCK
EXPIRES NOVEMBER 2, 2000
THIS CERTIFIES THAT, For value received, Dominion Ventures, Inc., is
entitled to subscribe for and purchase 60,750 shares (as adjusted pursuant to
provisions hereof, the "Shares") of the fully paid and nonassessable Series B
Preferred Stock of Biostar, Inc., a Delaware corporation (the "Company"). The
purchase price of each share shall be the amount set forth in Section 1.1 below
as such amount may be adjusted from time to time from adjustments specified
herein (the "Warrant Price"), subject to the provisions and upon the terms and
conditions hereinafter set forth. As used herein, the term "Preferred Stock"
shall mean the Company's presently authorized Series B Preferred Stock, and any
stock into or for which such Series B Preferred Stock may hereafter be
converted or exchanged pursuant to the Certificate of Incorporation of the
Company as from time to time amended as provided by law and in such
Certificate, and the term "Grant Date" shall mean November 2, 1992.
1. INITIAL WARRANT PRICE AND TERM.
1.1 INITIAL WARRANT PRICE. The initial Warrant Price
shall be equal to the lesser of (a) the price per share of the Company's equity
securities in the Company's next Equity Financing (as hereinafter defined) and
(b) $2.20. The term "Equity Financing" shall be defined as the first sale of
preferred equity securities of the Company after the date hereof to reputable
venture capital firms, with net proceeds to the Company of not less than $1
million.
1.2 TERM. The purchase right represented by this Warrant
is exercisable, in whole or in part, at any time and from time to time from and
after the Grant Date and prior to the earlier of the ninth annual anniversary
date of the Grant Date or the fourth annual anniversary of the consummation of
the Company's initial public offering of its Common Stock, the aggregate gross
proceeds from which exceed $5,000,000.
1.
<PAGE> 2
2. METHOD OF EXERCISE; NET ISSUE EXERCISE.
2.1 METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
The purchase right represented by this Warrant may be exercised by the holder
hereof, in whole or in part and from time to time, by either, at the election
of the holder hereof, (a) the surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A duly executed) at the principal
office of the Company and by the payment to the Company, by check, of an amount
equal to the then applicable Warrant Price per share multiplied by the number
of Shares then being purchased or (b) if in connection with a registered public
offering of the Company's securities, the surrender of this Warrant (with the
notice of exercise form attached hereto as Exhibit A-1 duly executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by check or from
the proceeds of the sale of shares to be sold by the holder in such public
offering of an amount equal to the then applicable Warrant Price per share
multiplied by the number of Shares then being purchased. The person or persons
in whose name(s) any certificate(s) representing shares of Preferred Stock
shall be issuable upon exercise of this Warrant shall be deemed to have become
the holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed
to have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised. In the event of any exercise of the
rights represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the holder hereof as soon as possible and in
any event within thirty days of receipt of such notice and, unless this Warrant
has been fully exercised or expired, a new Warrant representing the portion of
the Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible and in
any event within such thirty-day period.
2.2 NET ISSUE EXERCISE.
(a) In lieu of exercising this Warrant, holder may elect
to receive shares equal to the value of this Warrant (or the portion thereof
being canceled) by surrender of this Warrant at the principal office of the
Company together with notice of such election in which event the Company shall
issue to Holder a number of shares of the Company's Preferred Stock computed
using the following formula:
X= Y(A-B)
------
A
Where X = The number of shares of Common Stock to be issued to
Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant.
A = the fair market value of one share of the Company's
Common Stock.
B = Warrant price (as adjusted to the date of such
calculations).
2.
<PAGE> 3
(b) For purposes of this Section, fair market value of
the Company's Common Stock shall mean the average of the closing bid and asked
prices of the Company's Preferred Stock quoted in the Over-The-Counter Market
Summary or the closing price quoted on any exchange on which the Preferred
Stock is listed, whichever is applicable, as published in the Western Edition
of The Wall Street Journal for the ten trading days prior to the date of
determination of fair market value. If the Preferred Stock is not traded Over-
The-Counter or on an exchange, the fair market value shall be the price per
share which the Company could obtain from a willing buyer for shares sold by
the Company from authorized but unissued shares, as such price shall be agreed
by the Company and the Holder.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may
be issued upon the exercise of the rights represented by this Warrant and
Common Stock issuable upon conversion of the Preferred Stock will, upon
issuance, be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof. During the period within which the
rights represented by the Warrant may be exercised, the Company will at all
times have authorized and reserved for the purpose of issuance upon exercise of
the purchase rights evidenced by this Warrant, a sufficient number of shares of
its Preferred Stock (and Common Stock issuable upon conversion thereof) to
provide for the exercise of the right represented by this Warrant.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number
and kind of securities purchasable upon the exercise of the Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) RECLASSIFICATION OR MERGER. In case of any
reclassification, change or conversion of securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or in case of any merger of the Company with or
into another corporation (other than a merger with another corporation in which
the Company is a continuing corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as
the case may be, shall execute a new Warrant (in form and substance reasonably
satisfactory to the holder of this Warrant) providing that the holder of this
Warrant shall have the right to exercise such new Warrant and upon such
exercise to receive, in lieu of each share of Preferred Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification,
change or merger by a holder of one share of Preferred Stock. Such new Warrant
shall provide for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Paragraph 4. The provisions
of this subparagraph (a) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
(b) SUBDIVISIONS OR COMBINATION OF SHARES. If the Company
at any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its Preferred Stock, the Warrant Price and the number of
Shares issuable upon exercise hereof shall be proportionately adjusted.
3.
<PAGE> 4
(c) STOCK DIVIDENDS. If the Company at any time while
this Warrant is outstanding and unexpired shall pay a dividend payable in
shares of Preferred Stock (except any distribution specifically provided for in
the foregoing subparagraphs (a) and (b)), then the Warrant Price shall be
adjusted, from and after the date of determination of shareholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Warrant Price in effect immediately prior to such date of determination by
a fraction (a) the numerator of which shall be the total number of shares of
Preferred Stock outstanding immediately prior to such dividend or distribution,
and (b) the denominator of which shall be the total number of shares of
Preferred Stock outstanding immediately after such dividend or distribution and
the number of Shares subject to this Warrant shall be proportionately adjusted.
(d) NO IMPAIRMENT. The Company will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Paragraph 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the rights
of the holder of this Warrant against impairment.
(e) NOTICES OF RECORD DATE. In the event of any taking by
the Company of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend (other than a
cash dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property,
or to receive any other right, or for the purpose of determining shareholders
who are entitled to vote in connection with any proposed merger or
consolidation of the Company with or into any other corporation, or any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail to the holder of the Warrant, at least ten (10)
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution
or right, and the amount and character of such dividend, distribution or right.
5. FRACTIONAL SHARES. No fractional shares of Preferred Stock
will be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor upon the basis
of the Warrant Price then in effect.
6. COMPLIANCE WITH SECURITIES ACT; DISPOSITION OF WARRANT OR
SHARES OF PREFERRED STOCK.
(a) COMPLIANCE WITH SECURITIES ACT. The holder of this
Warrant, by acceptance hereof, agrees that this Warrant, the shares of
Preferred Stock to be issued upon exercise hereof and the Common Stock to be
issued upon conversion of such Preferred Stock are being acquired for
investment and that such holder will not offer, sell or otherwise dispose of
this Warrant or any shares of Preferred Stock to be issued upon exercise hereof
(or Common Stock issued upon conversion of the Preferred Stock) except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended (the "Act") and in compliance with the provisions of the legend
set forth below. This Warrant and all shares of Preferred Stock issued
4.
<PAGE> 5
upon exercise of this Warrant (unless registered under the Act) shall be
stamped or imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN
OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO
THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT
REQUIRED.
(b) DISPOSITION OF WARRANT AND SHARES. With respect to
any offer, sale or other disposition of this Warrant or any shares of Preferred
Stock acquired pursuant to the exercise of this Warrant (or Common Stock issued
upon conversion of such Preferred Stock) prior transfer of the Warrant or
stock, as applicable, the holder hereof and each subsequent holder of the
Warrant or stock, as applicable, agrees to give written notice to the Company
prior thereto, describing briefly the manner thereof, together with a written
opinion of such holder's counsel, if reasonably requested by the Company, to
the effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Act as then in effect or any federal
or state law then in effect) of this Warrant or such shares of Preferred Stock
or Common Stock and indicating whether or not under the Act certificates for
this Warrant or such shares of Preferred Stock or Common Stock to be sold or
otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to insure compliance with the Act.
Each certificate representing this Warrant or the shares of Preferred Stock or
Common Stock thus transferred (except a transfer pursuant to Rule 144) shall
bear a legend as to the applicable restrictions on transferability in order to
insure compliance with the Act, unless in the aforesaid opinion of counsel for
the holder and the opinion of counsel to the Company, such legend is not
required in order to insure compliance with the Act. Nothing herein shall
restrict the transfer of this Warrant or any portion hereof by the initial
holder hereof to any partnership affiliated with the initial holder, or to any
partner of any such partnership provided such transfer may be made in
compliance with applicable federal and state securities laws. The Company may
issue stop transfer instructions to its transfer agent in connection with the
foregoing restrictions.
7. RIGHTS AS SHAREHOLDERS; INFORMATION.
7.1 SHAREHOLDER RIGHTS. No holder of the Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder of
Preferred Stock or any other securities of the Company which may at any time be
issuable on the exercise thereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein.
5.
<PAGE> 6
7.2 FINANCIAL STATEMENTS AND INFORMATION. The Company
shall deliver to the registered holder hereof (i) within 120 days after the end
of the fiscal year of the Company, a consolidated balance sheet of the Company
as of the end of such year and a consolidated statement of income, retained
earnings and cash flows for such year, which year-end financial reports shall
be in reasonable detail and certified by independent public accountants of
nationally recognized standing selected by the Company, and (ii) within 45 days
after the end of each fiscal quarter other than the last fiscal quarter,
unaudited consolidated statements of income, retained earnings and cash flows
for such quarter and a consolidated balance sheet as of the end of such
quarter. In addition, the Company shall deliver to the registered holder hereof
any other information or data provided to the shareholders of the Company.
8. REGISTRATION RIGHTS. The holder hereof and Company agree the
holder of this Warrant (or any registered transferee thereof pursuant to
Section 6 hereof) shall be entitled to participate in the registration rights
with respect to the Investors Rights Agreement (as hereinafter defined), that
the holder hereof shall be deemed an "Holder" and that all shares of Common
Stock issued upon conversion of the Preferred Stock subject to this Warrant
shall deemed "Registrable Securities" as such terms are defined in the
Investors Rights Agreement (as defined herein) and shall be subject to the same
terms and conditions with respect to the registration and sale of such shares
as set forth in Section 1 of that certain BioStar, Inc. Investor Rights
Agreement dated June 17, 1992 (the "Investors Rights Agreement"), by and among
the Company and those certain Investors identified therein.
8.1 TRANSFER OF REGISTRATION RIGHTS. The registration
rights of the holder under this Section 9 may be transferred to any transferee
of the Warrantholder provided that the Company is given written notice by the
holder of this Warrant at the time of such transfer stating the name and
address of the transferee and identifying the Registrable Securities with
respect to which the rights under this Section 9 are being assigned.
Notwithstanding the foregoing and anything to the contrary contained herein or
in the Investors Rights Agreement, the holder hereof may transfer the
registration rights granted in connection with this Warrant only to affiliated
Limited Partnerships of the holder hereof.
9. REPRESENTATIONS AND WARRANTIES. This Warrant is issued and
delivered on the basis of the following:
(a) This Warrant has been duly authorized and executed by
the Company and when delivered will be the valid and binding obligation of the
Company enforceable in accordance with its terms;
(b) The Preferred Stock has been duly authorized and
reserved for issuance by the Company and, when issued in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions
granted to or imposed upon the shares of Preferred Stock and the holders
thereof are as set forth in the Company's Certificate of Incorporation, as
amended, a true and complete copy of which has been delivered to the original
Warrantholder;
6.
<PAGE> 7
(d) The shares of Common Stock issuable upon conversion
of the Shares have been duly authorized and reserved and, when issued in
accordance with the terms of the Company's Certificate of Incorporation, as
amended, will be validly issued, fully paid and nonassessable; and
(e) The execution and delivery of this Warrant are not,
and the issuance of the Shares upon exercise of this Warrant in accordance with
the terms hereof will not be, inconsistent with the Company's Certificate of
Incorporation or by-laws, do not (i) contravene any law, governmental rule or
regulation, judgment or order applicable to the Company, and contravene any
provision of, or constitute a default under, any indenture, mortgage, contract
or other instrument of which the Company is a party or by which it is bound or
require the consent or approval of, the giving of notice to, the registration
with or the taking of any action in respect of or by, any Federal, state or
local government authority or agency or other person.
10. AMENDMENT OF CONVERSION RIGHTS. During the term of this
Warrant, the Company agrees that it shall not amend its Certificate of
Incorporation without the prior written consent of the holder or holders
entitled to purchase a majority of the Common Stock upon conversion of the
Series A, Series B and Series C Preferred Stock as a result of such amendment
any of the conversion rights, including without limitation the conversion price
or antidilution protection privileges, of the Preferred Stock would be
affected.
11. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid,
to each such holder at its address as shown on the books of the Company or to
the Company at the address indicated therefore on the signature page of this
Warrant.
13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company relating to the Preferred Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant and all of the covenants and agreements of the Company shall inure to
the benefit of the successors and assigns of the holder hereof. The Company
will, at the time of the exercise of this Warrant, in whole or in part, upon
request of the holder hereof but at the Company's expense, acknowledge in
writing its continuing obligation to the holder hereof in respect of any rights
(including, without limitation, any right to registration of the shares of
Registrable Securities) to which the holder hereof shall continue to be
entitled after such exercise in accordance with this Warrant; provided, that
the failure of the holder hereof to make any such request shall not affect the
continuing obligation of the Company to the holder hereof in respect of such
rights.
7.
<PAGE> 8
14. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to
the holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, or like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
15. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
16. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS
OF THE STATE OF CALIFORNIA.
BIOSTAR, INC.
By: /s/ Teresa W. Ayers
--------------------------------
Title: Teresa W. Ayers
-----------------------------
Address: 5766 Central Avenue
---------------------------
Boulder Colorado 80301
------------------------------------
Date: November 2, 1992
8.
<PAGE> 9
EXHIBIT A
NOTICE OF EXERCISE
To:
1. The undersigned hereby elects to purchase __________ shares of
Series ___ Preferred Stock of _________________________ Corporation pursuant to
the terms of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below:
(Name)
(Address)
3. The undersigned represents that the aforesaid shares being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
----------------------------------
(Signature)
- ---------------------------------
(Date)
<PAGE> 10
EXHIBIT A-1
NOTICE OF EXERCISE
To:
1. Contingent upon and effective immediately prior to the closing
(the "Closing") of the Company's public offering contemplated by the
Registration Statement of Form S-____, filed _______________, 19___, the
undersigned hereby elects to purchase _________________ shares of Series ___
Preferred Stock of the Company (or such lesser number of shares as may be sold
on behalf of the undersigned at the Closing) pursuant to the terms of the
attached Warrant.
2. Please deliver to the custodian for the selling shareholders a
stock certificate representing such _________________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $____________ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such
shares, the undersigned agrees to deliver the difference to the Company prior
to the Closing.
----------------------------------
(Signature)
- ---------------------------------
(Date)
<PAGE> 1
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT
OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
TO PURCHASE SHARES OF THE SERIES E PREFERRED STOCK OF
BIOSTAR, INC.
DATED AS OF MAY 3, 1995 (THE "EFFECTIVE DATE")
WHEREAS, BioStar, Inc., a Delaware corporation (the "Company") has
entered into a Master Lease Agreement dated as of May 3, 1995, Equipment
Schedule No. VL-1 dated as of May 3, 1995 and related Summary Equipment
Schedules (the "Leases") with Comdisco, Inc., a Delaware corporation (the
"Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in
consideration for such Leases, the right to purchase shares of its Preferred
Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder
is entitled, upon the terms and subject to the conditions hereinafter set forth,
to subscribe to and purchase from the Company 57,143 fully paid and
non-assessable shares of the Company's Series E Preferred Stock ("Preferred
Stock") at a purchase price of $1.75 per share (the "Exercise Price"). The
number and purchase price of such shares are subject to adjustment as provided
in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock (or Common Stock in the
event that the Preferred Stock has been converted into Common Stock) as granted
herein shall commence on the Effective Date and shall be exercisable for a
period ending nine (9) years from the date of execution hereof, or
<PAGE> 2
(ii) four (4) years from the effective date of the Company's initial public
offering, whichever is earlier.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed.
Promptly upon receipt of the Notice of Exercise and the payment of the purchase
price in accordance with the terms set forth below, and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a
certificate for the number of shares of Preferred Stock purchased and shall
execute the Notice of Exercise indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants at the principal office of
the Company ("Net Issuance") as determined below. If the Warrantholder elects
the Net Issuance method, the Company will issue Preferred Stock in accordance
with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock (at
the date of calculation).
B = the Exercise Price (as adjusted to the date of calculation).
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public offering
of the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC, then
the fair market value per share shall be the product of (x) the "Initial Price
to Public" specified in the final prospectus with respect to the offering and
(y) the number of shares of Common Stock into which each share of Preferred
Stock is convertible at time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(1) if traded on a securities exchange, the fair market value
shall be deemed to be the product of (x) the average of the closing prices over
a twenty-one (21) day
2.
<PAGE> 3
period ending three days before the day the current fair market value of the
securities is being determined and (y) the number of shares of Common Stock into
which each share of Preferred Stock is convertible at the time of such exercise;
or
(2) if actively traded over-the-counter, the fair market value
shall be deemed to be the product of (x) the average of the closing bid and
asked prices quoted on the NASDAQ system (or similar system) over the twenty-one
(21) day period ending three days before the day the current fair market value
of the securities is being determined and (y) the number of shares of Common
Stock into which each share of Preferred Stock is convertible at the time of
such exercise;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the fair
market value of Preferred Stock shall be the product of (x) the highest price
per share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by the Company's
Board of Directors and (y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of such exercise, unless the
Company shall become subject to a merger, acquisition or other consolidation
pursuant to which the Company is not the surviving party, in which case the fair
market value of Common Stock shall be deemed to be the value received by the
holders of the Company's Preferred Stock on a common equivalent basis pursuant
to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to, the Effective Date hereof.
4. RESERVATION OF SHARES.
AUTHORIZATION AND RESERVATION OF SHARES. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
3.
<PAGE> 4
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of
the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred
Stock purchasable hereunder are subject to adjustment, as follows:
(a) MERGER AND SALE OF ASSETS. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) RECLASSIFICATION OF SHARES. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) STOCK DIVIDENDS. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number
4.
<PAGE> 5
of all shares of the Company's stock outstanding immediately after such dividend
or distribution. The Warrantholder shall thereafter be entitled to purchase, at
the Exercise Price resulting from such adjustment, the number of shares of
Preferred Stock (calculated to the nearest whole share) obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of shares of Preferred Stock issuable upon the exercise hereof immediately prior
to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
(e) ANTIDILUTION RIGHTS. Additional antidilution rights applicable to
the Preferred Stock purchasable hereunder are as set forth in the Company's
Restated Certificate of Incorporation, as amended through the Effective Date, a
true and complete copy of which is attached hereto as Exhibit III (the
"Charter"). The Company shall promptly provide the Warrantholder with any
restatement, amendment, modification or waiver of the Charter.
(f) NOTICE OF ADJUSTMENTS. Warrantholder shall be entitled to the same
rights with respect to Adjustments as provided to the holders of the Preferred
Stock as set forth in the Company's Restated Certificate of Incorporation.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) RESERVATION OF PREFERRED STOCK. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended, and minutes of all Board of
Directors (including all committees of the Board of Directors, if any) and
Shareholder meetings through March 8, 1995. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) DUE AUTHORITY. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms, subject to applicable bankruptcy and other similar laws
affecting the rights of creditors generally and rules of law concerning
equitable remedies.
5.
<PAGE> 6
(c) CONSENTS AND APPROVALS. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices required by applicable
state securities law, if any, which filings will be made by the time required
thereby.
(d) ISSUED SECURITIES. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company consists of (A) 22,500,000
shares of Common Stock, of which 1,947,451 shares are issued and outstanding,
and (B) 18,000,000 shares of Preferred Stock, of which (i) 3,500,000 shares
have been designated Series A Preferred Stock, all of which are issued and
outstanding; (ii) 5,060,750 shares have been designated Series B Preferred
Stock, of which 5,000,000 are issued and outstanding; (iii) 1,737,500 shares
have been designated Series C Preferred Stock, none of which are issued and
outstanding; (iv) 2,908,889 shares have been designated Series D Preferred
Stock, all of which are issued and outstanding; and (v) 4,481,929 shares have
been designated Series E Preferred Stock, 4,150,717 of which are issued and
outstanding. 17,689,068 shares of Common Stock have been reserved for issuance
upon conversation of the Preferred Stock.
(ii) The Company has reserved 2,750,000 shares of Common Stock for
issuance under its 1995 Equity Incentive Plan, under which 1,606,298 options
are outstanding at prices of $0.10 to $0.23 per share. And, except for (1) the
conversion privileges of the Series A, Series B, Series C, Series D and Series
E Preferred Stock; (2) the rights provided in Section 4 of the Restated
Investor's Rights Agreement, dated November 14, 1994; (3) a warrant potentially
exercisable for a maximum of 60,750 shares of the Company's Series B Preferred
Stock (the "Series B Warrant") issued to Dominion Ventures, Inc. ("Dominion")
pursuant to that certain Warrant to Purchase Shares of Series B Preferred
Stock, dated November 2, 1992; (4) a convertible instrument potentially
convertible into a maximum of 1,600,000 shares of the Company's Series C
Preferred Stock (the "Convertible Instrument") issued to the BMPI Liquidating
Trust, a Colorado trust, (the "Trust") pursuant to that certain Asset Purchase
Agreement dated June 17, 1992, by and between the Company and the Trust (the
"Asset Agreement"); and (5) a warrant potentially exercisable for a maximum of
53,357 shares of the Company's Series E Preferred Stock (the "Series E
Warrant"), issued to Dominion pursuant to that certain Warrant to Purchase
shares of Series E Preferred Stock, dated February 18, 1994, there are not any
outstanding options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition form the Company of any
shares of its capital stock.
(iii) In accordance with the Company's Restated Certificate of
Incorporation and that certain Restated Investors' Rights Agreement, dated as
of November 14, 1994, the Company has obtained the necessary waivers of right
of first offer and antidilution protection from its stockholders in connection
with the issuance to Warrantholder of this Warrant to
6.
<PAGE> 7
purchase shares of the Company's Series E Preferred Stock in connection with
the venture leasing arrangement entered into by the parties to this Warrant
Agreement.
(e) INSURANCE. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) OTHER COMMITMENTS TO REGISTER SECURITIES. Except as set forth in
that certain Amended and Restated Investors Rights Agreement dated as of
November 14, 1994 and in this Warrant Agreement, the Company is not, pursuant to
the terms of any other agreement currently in existence, under any obligation to
register under the 1933 Act any of its presently outstanding securities or any
of its securities which may hereafter be issued.
(g) EXEMPT TRANSACTION. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the California
Corporate Securities Law, in reliance upon Section 25102(f) thereof.
(h) COMPLIANCE WITH RULE 144. If and when the Company becomes subject to
such filing requirements, at the written request of the Warrantholder, who
proposes to sell Preferred Stock issuable upon the exercise of the Warrant in
compliance with Rule 144 promulgated by the Securities and Exchange Commission,
the Company shall furnish to the Warrantholder, within ten days after receipt of
such request, a written statement confirming the Company's compliance with the
filing requirements of the Securities and Exchange Commission as set forth in
such Rule, as such Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) INVESTMENT PURPOSE. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) PRIVATE ISSUE. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
7.
<PAGE> 8
(c) DISPOSITION OF WARRANTHOLDER'S RIGHTS. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) FINANCIAL RISK. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) RISK OF NO REGISTRATION. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
(f) ACCREDITED INVESTOR. Warrantholder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
8.
<PAGE> 9
11. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof,
this Warrant Agreement and all rights hereunder are transferable in whole or in
part by the Warrantholder and any successor transferee; provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the books
of the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit II (the "Transfer Notice") at its principal offices
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer.
12. MISCELLANEOUS.
(a) EFFECTIVE DATE. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) ATTORNEY'S FEES. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) GOVERNING LAW. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) COUNTERPARTS. This Warrant 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.
(e) NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, cc:
Legal Department, (and/or, if by facsimile, (708) 518-5465 and (708) 518-5088)
and (ii) to the Company at 6655 Lookout Road, Boulder, Colorado 80301,
attention: Teresa Ayers, Vice President, Finance, (and/or if by facsimile, (303)
530-6601) or at such other address as any such party may subsequently designate
by written notice to the other party.
(f) REMEDIES. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
9.
<PAGE> 10
(g) NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) SURVIVAL. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this warrant Agreement.
(i) SEVERABILITY. In the event any one or more of the provisions of
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) AMENDMENTS. Any provision of this Warrant Agreement may be amended
by a written instrument signed by the Company and by the Warrantholder.
(k) ADDITIONAL DOCUMENTS. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
COMPANY:
BIOSTAR, INC.
By: /s/ Teresa W. Ayers
---------------------------------
Title: Vice President Finance
------------------------------
WARRANTHOLDER:
COMDISCO, INC.
By:
---------------------------------
Title:
------------------------------
10.
<PAGE> 11
EXHIBIT I
NOTICE OF EXERCISE
To:
--------------------------------
1. The undersigned Warrantholder hereby elects to purchase ________ shares
of the Series E Preferred Stock of _______________, pursuant to the terms
of the Warrant Agreement dated the ________ day of ____________, 199___
(the "Warrant Agreement") between ______________________ and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
2. In exercising its rights to purchase the Series E Preferred Stock of
_______________, the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
3. Please issue a certificate or certificates representing said shares of
Series E Preferred Stock in the name of the undersigned or in such other
name as is specified below.
- --------------------------------
(Name)
- --------------------------------
(Address)
WARRANTHOLDER:
COMDISCO, INC.
By:
--------------------------------
Title:
-----------------------------
Date:
------------------------------
<PAGE> 12
ACKNOWLEDGEMENT OF EXERCISE
The undersigned ____________________, hereby acknowledge receipt of the
"Notice of Exercise" from Comdisco, Inc., to purchase ________ shares of the
Series E Preferred Stock of ___________________, pursuant to the terms of the
Warrant Agreement, and further acknowledges that ________ shares remain subject
to purchase under the terms of the Warrant Agreement.
COMPANY:
By:
----------------------------------
Title:
-------------------------------
Date:
--------------------------------
<PAGE> 13
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights evidenced
thereby are hereby transferred and assigned to _________________________ whose
address is _____________________________________________________________.
Dated:
-----------------------------------------
Holder's Signature:
----------------------------
Holder's Address:
------------------------------
- -----------------------------------------------
Signature Guaranteed:
--------------------------
NOTE: The signature to this Transfer Notice must correspond with the name
as it appears on the face of the Warrant Agreement, without alteration
or enlargement or any change whatever. Officers of corporations and
those acting in a fiduciary or other representative capacity should file
proper evidence of authority to assign the foregoing Warrant Agreement.
<PAGE> 1
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
TO PURCHASE SHARES OF THE SERIES E PREFERRED STOCK OF
BIOSTAR, INC.
DATED AS OF MAY 3, 1995 (THE "EFFECTIVE DATE")
WHEREAS, BioStar, Inc., a Delaware corporation (the "Company"), has
entered into a Subordinated Security Agreement dated as of May 3, 1995 (the
"Security Agreement") and a Subordinated Promissory Note the ("Note") dated as
of May 3, 1995 with Comdisco, Inc., a Delaware corporation (the
"Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in
consideration for such Security Agreement and the Note, the right to purchase
shares of its Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Security Agreement and the Note and in consideration of mutual
covenants and agreements contained herein, the Company and Warrantholder agree
as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder
is entitled, upon the terms and subject to the conditions hereinafter set
forth, to subscribe to and purchase from the Company 214,285 fully paid and
non-assessable shares of the Company's Series E Preferred Stock ("Preferred
Stock") at a purchase price of $1.75 per share (the "Exercise Price"). The
number and purchase price of such shares are subject to adjustment as provided
in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock (or Common Stock in the
event that the Preferred Stock has been converted into Common Stock) as granted
herein shall commence on the Effective Date and shall be exercisable for a
period ending nine (9) years from the date of execution hereof, or
<PAGE> 2
(ii) four (4) years from the effective date of the Company's initial public
offering, whichever is earlier.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are
exercisable by the Warrantholder, in whole or in part, at any time or from time
to time, prior to the expiration of the term set forth in Section 2 above, by
tendering to the Company at its principal office a notice of exercise in the
form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed
and executed. Promptly upon receipt of the Notice of Exercise and the payment
of the purchase price in accordance with the terms set forth below, and in no
event later than twenty-one (21) days thereafter, the Company shall issue to
the Warrantholder a certificate for the number of shares of Preferred Stock
purchased and shall execute the Notice of Exercise indicating the number of
shares which remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either
(i) by cash or check, or (ii) by surrender of Warrants at the principal office
of the Company ("Net Issuance") as determined below. If the Warrantholder
elects the Net Issuance method, the Company will issue Preferred Stock in
accordance with the following formula:
X= Y(A-B)
------
A
<TABLE>
<S> <C>
Where: X = the number of shares of Preferred Stock to be issued to the Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock (at the date of calculation).
B = the Exercise Price (as adjusted to the date of calculation).
</TABLE>
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's Registration
Statement relating to such public offering has been declared effective by the
SEC, then the fair market value per share shall be the product of (x) the
"Initial Price to Public" specified in the final prospectus with respect to the
offering and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(1) if traded on a securities exchange, the fair market
value shall be deemed to be the product of (x) the average of the closing
prices over a twenty-one (21) day
2.
<PAGE> 3
period ending three days before the day the current fair market value of the
securities is being determined and (y) the number of shares of Common Stock
into which each share of Preferred Stock is convertible at the time of such
exercise; or
(2) if actively traded over-the-counter, the fair market
value shall be deemed to be the product of (x) the average of the closing bid
and asked prices quoted on the NASDAQ system (or similar system) over the
twenty-one (21) day period ending three days before the day the current fair
market value of the securities is being determined and (y) the number of shares
of Common Stock into which each share of Preferred Stock is convertible at the
time of such exercise;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the fair market value of Preferred Stock shall be the product of (x)
the highest price per share which the Company could obtain from a willing buyer
(not a current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good faith by
the Company's Board of Directors and (y) the number of shares of Common Stock
into which each share of Preferred Stock is convertible at the time of such
exercise, unless the Company shall become subject to a merger, acquisition or
other consolidation pursuant to which the Company is not the surviving party,
in which case the fair market value of Common Stock shall be deemed to be the
value received by the holders of the Company's Preferred Stock on a common
equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company
shall promptly issue an amended Warrant Agreement representing the remaining
number of shares purchasable hereunder. All other terms and conditions of such
amended Warrant Agreement shall be identical to those contained herein,
including, but not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
AUTHORIZATION AND RESERVATION OF SHARES. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any
voting rights or other rights as a shareholder of the Company prior to the
exercise of the Warrant.
3.
<PAGE> 4
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of
the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred
Stock purchasable hereunder are subject to adjustment, as follows:
(a) MERGER AND SALE OF ASSETS. If at any time there shall be a
capital reorganization of the shares of the Company's stock (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), or a merger or consolidation of the Company with or into
another corporation when the Company is not the surviving corporation, or the
sale of all or substantially all of the Company's properties and assets to any
other person (hereinafter referred to as a "Merger Event"), then, as a part of
such Merger Event, lawful provision shall be made so that the Warrantholder
shall thereafter be entitled to receive, upon exercise of the Warrant, the
number of shares of preferred stock or other securities of the successor
corporation resulting from such Merger Event, equivalent in value to that which
would have been issuable if Warrantholder had exercised this Warrant
immediately prior to the Merger Event. In any such case, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant Agreement
with respect to the rights and interest of the Warrantholder after the Merger
Event to the end that the provisions of this Warrant Agreement (including
adjustments of the Exercise Price and number of shares of Preferred Stock
purchasable) shall be applicable to the greatest extent possible.
(b) RECLASSIFICATION OF SHARES. If the Company at any time shall,
by combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of
any other class or classes, this Warrant Agreement shall thereafter represent
the right to acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the securities which were
subject to the purchase rights under this Warrant Agreement immediately prior
to such combination, reclassification, exchange, subdivision or other change.
(c) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time shall combine or subdivide its Preferred Stock, the Exercise Price shall
be proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) STOCK DIVIDENDS. If the Company at any time shall pay a
dividend payable in, or make any other distribution (except any distribution
specifically provided for in the foregoing subsections (a) or (b)) of the
Company's stock, then the Exercise Price shall be adjusted, from and after the
record date of such dividend or distribution, to that price determined by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction (i) the numerator of which shall be the total number of all
shares of the Company's stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number
4.
<PAGE> 5
of all shares of the Company's stock outstanding immediately after such
dividend or distribution. The Warrantholder shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
shares of Preferred Stock (calculated to the nearest whole share) obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of shares of Preferred Stock issuable upon the exercise hereof
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment.
(e) RIGHT TO PURCHASE ADDITIONAL STOCK. If the principal under
the Note is not repaid in full on or before May 1, 1998, then on the first day
of each month commencing on June 1, 1998, the Warrantholder shall have the
right to purchase from the Company, at the Exercise Price per share specified
in Section 1 (which price may be subject to adjustment from time to time as
provided for in this Section 8), an additional number of shares of Preferred
Stock, which number shall be determined by (i) multiplying the Principal Amount
of the Note outstanding on each such date by one percent (1%), and (ii)
dividing the product thereof by the Exercise Price per share referenced above.
The Warrantholder shall be entitled to receive additional shares subject to
Warrant pursuant to the above provision until such time as the principal is
repaid in full. The above grant of rights to purchase additional shares of
Preferred Stock does not, and is not intended to, replace or limit any other
rights or remedies the Warrantholder, Lender or their affiliates may have with
respect to the Company, under the Note or otherwise, and those rights are
granted by the Company to the Warrantholder in addition to and not in lieu of
any other rights and remedies of the Warrantholder, Lender or their affiliates.
(f) ANTIDILUTION RIGHTS. Additional antidilution rights
applicable to the Preferred Stock purchasable hereunder are as set forth in the
Company's Restated Certificate of Incorporation, as amended through the
Effective Date, a true and complete copy of which is attached hereto as Exhibit
III (the "Charter"). The Company shall promptly provide the Warrantholder with
any restatement, amendment, modification or waiver of the Charter.
(g) NOTICE OF ADJUSTMENTS. Warrantholder shall be entitled to the
same rights with respect to Adjustments as provided to the holders of the
Preferred Stock as set forth in the Company's Restated Certificate of
Incorporation.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) RESERVATION OF PREFERRED STOCK. The Preferred Stock issuable
upon exercise of the Warrantholder's rights has been duly and validly reserved
and, when issued in accordance with the provisions of this warrant Agreement,
will be validly issued, fully paid and non-assessable, and will be free of any
taxes, liens, charges or encumbrances of any nature whatsoever; provided,
however, that the Preferred Stock issuable pursuant to this Warrant Agreement
may be subject to restrictions on transfer under state and/or Federal
securities laws. The Company has made available to the Warrantholder true,
correct and complete copies of its Charter and Bylaws, as amended, and minutes
of all Board of Directors (including all committees of the Board of Directors,
if any) and Shareholder meetings through March 8, 1995. The issuance of
certificates for shares of Preferred Stock upon exercise of the Warrant
Agreement shall be made without charge to the Warrantholder for any issuance
tax in respect thereof, or other cost incurred by the Company in connection
with such exercise and the related
5.
<PAGE> 6
issuance of shares of Preferred Stock. The Company shall not be required to
pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) DUE AUTHORITY. The execution and delivery by the Company of
this Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement
are not inconsistent with the Company's Charter or Bylaws, do not contravene
any law or governmental rule, regulation or order applicable to it, do not and
will not contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument to which it is a party or by
which it is bound, and the Leases and this Warrant Agreement constitute legal,
valid and binding agreements of the Company, enforceable in accordance with
their respective terms, subject to applicable bankruptcy and other similar laws
affecting the rights of creditors generally and rules of law concerning
equitable remedies.
(c) CONSENTS AND APPROVALS. No consent or approval of, giving of
notice to, registration with, or taking of any other action in respect of any
state, Federal or other governmental authority or agency is required with
respect to the execution, delivery and performance by the Company of its
obligations under this Warrant Agreement, except for the filing of notices
required by applicable state securities law, if any, which filings will be made
by the time required thereby.
(d) ISSUED SECURITIES. All issued and outstanding shares of
Common Stock, Preferred Stock or any other securities of the Company have been
duly authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company consists of (A)
22,500,000 shares of Common Stock, of which 1,947,451 shares are issued and
outstanding, and (B) 18,000,000 shares of Preferred Stock, of which (i)
3,500,000 shares have been designated Series A Preferred Stock, all of which
are issued and outstanding; (ii) 5,060,750 shares have been designated Series B
Preferred Stock, of which 5,000,000 are issued and outstanding; (iii) 1,737,500
shares have been designated Series C Preferred Stock, none of which are issued
and outstanding; (iv) 2,908,889 shares have been designated Series D Preferred
Stock, all of which are issued and outstanding; and (v) 4,481,929 shares have
been designated Series E Preferred Stock, 4,150,717 of which are issued and
outstanding. 17,689,068 shares of Common Stock have been reserved for issuance
upon conversation of the Preferred Stock.
(ii) The Company has reserved 2,750,000 shares of Common
Stock for issuance under its 1995 Equity Incentive Plan, under which 1,606,298
options are outstanding at prices of $0.10 to $0.23 per share. And, except for
(1) the conversion privileges of the Series A, Series B, Series C, Series D and
Series E Preferred Stock; (2) the rights provided in Section 4 of the Restated
Investor's Rights Agreement, dated November 14, 1994; (3) a warrant potentially
exercisable for a maximum of 60,750 shares of the Company's Series B Preferred
Stock (the "Series B Warrant") issued to Dominion Ventures, Inc. ("Dominion")
pursuant to that certain
6.
<PAGE> 7
Warrant to Purchase Shares of Series B Preferred Stock, dated November 2, 1992;
(4) a convertible instrument potentially convertible into a maximum of
1,600,000 shares of the Company's Series C Preferred Stock (the "Convertible
Instrument") issued to the BMPI Liquidating Trust, a Colorado trust, (the
"Trust") pursuant to that certain Asset Purchase Agreement dated June 17, 1992,
by and between the Company and the Trust (the "Asset Agreement"); and (5) a
warrant potentially exercisable for a maximum of 53,357 shares of the Company's
Series E Preferred Stock (the "Series E Warrant"), issued to Dominion pursuant
to that certain Warrant to Purchase shares of Series E Preferred Stock, dated
February 18, 1994, there are not any outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements for the purchase or
acquisition form the Company of any shares of its capital stock.
(iii) In accordance with the Company's Restated Certificate
of Incorporation and that certain Restated Investors' Rights Agreement, dated
as of November 14, 1994, the Company has obtained the necessary waivers of
right of first offer and antidilution protection from its stockholders in
connection with the issuance to Warrantholder of this Warrant to purchase
shares of the Company's Series E Preferred Stock in connection with the
subordinated loan entered into by the parties to this Warrant Agreement.
(e) INSURANCE. The Company has in full force and effect
insurance policies, with extended coverage, insuring the Company and its
property and business against such losses and risks, and in such amounts, as
are customary for corporations engaged in a similar business and similarly
situated and as otherwise may be required pursuant to the terms of any other
contract or agreement.
(f) OTHER COMMITMENTS TO REGISTER SECURITIES. Except as
set forth in that certain Amended and Restated Investors Rights Agreement dated
as of November 14, 1994 and in this Warrant Agreement, the Company is not,
pursuant to the terms of any other agreement currently in existence, under any
obligation to register under the 1933 Act any of its presently outstanding
securities or any of its securities which may hereafter be issued.
(g) EXEMPT TRANSACTION. Subject to the accuracy of the
Warrantholder's representations in Section 10 hereof, the issuance of the
Preferred Stock upon exercise of this Warrant will constitute a transaction
exempt from (i) the registration requirements of Section 5 of the 1933 Act, in
reliance upon Section 4(2) thereof, and (ii) the qualification requirements of
the California Corporate Securities Law, in reliance upon Section 25102(f)
thereof.
(h) COMPLIANCE WITH RULE 144. If and when the Company
becomes subject to such filing requirements, at the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the
Company's compliance with the filing requirements of the Securities and
Exchange Commission as set forth in such Rule, as such Rule may be amended from
time to time.
7.
<PAGE> 8
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in
reliance upon the following representations and covenants of the Warrantholder:
(a) INVESTMENT PURPOSE. The right to acquire Preferred Stock or
the Preferred Stock issuable upon exercise of the Warrantholder's rights
contained herein will be acquired for investment and not with a view to the
sale or distribution of any part thereof, and the Warrantholder has no present
intention of selling or engaging in any public distribution of the same except
pursuant to a registration or exemption.
(b) PRIVATE ISSUE. The Warrantholder understands (i) that the
Preferred Stock issuable upon exercise of this Warrant is not registered under
the 1933 Act or qualified under applicable state securities laws on the ground
that the issuance contemplated by this Warrant Agreement will be exempt from
the registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) DISPOSITION OF WARRANTHOLDER'S RIGHTS. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred
Stock or Preferred Stock issuable upon exercise of such rights unless and until
(i) it shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion
of counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act
is available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from
the beneficial owner of any of the aforementioned securities to its nominee or
from such nominee to its beneficial owner, and shall terminate as to any
particular share of Preferred Stock when (1) such security shall have been
effectively registered under the 1933 Act and sold by the holder thereof in
accordance with such registration, (2) such security shall have been sold
without registration in compliance with Rule 144 under the 1933 Act, or (3) a
letter shall have been issued to the Warrantholder at its request by the staff
of the Securities and Exchange Commission or a ruling shall have been issued to
the Warrantholder at its request by such Commission stating that no action
shall be recommended by such staff or taken by such Commission, as the case may
be, if such security is transferred without registration under the 1933 Act in
accordance with the conditions set forth in such letter or ruling and such
letter or ruling specifies that no subsequent restrictions on transfer are
required. Whenever the restrictions imposed hereunder shall terminate, as
hereinabove provided, the Warrantholder or holder of a share of Preferred Stock
then outstanding as to which such restrictions have terminated shall be
entitled to receive from the Company, without expense to such holder, one or
more new certificates for the Warrant or for such shares of Preferred Stock not
bearing any restrictive legend.
8.
<PAGE> 9
(d) FINANCIAL RISK. The Warrantholder has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment, and has the ability to bear the economic
risks of its investment.
(e) RISK OF NO REGISTRATION. The Warrantholder understands that
if the Company does not register with the Securities and Exchange Commission
pursuant to Section 12 of the 1933 Act, or file reports pursuant to Section
15(d), of the Securities Exchange Act of 1934 (the "1934 Act"), or if a
registration statement covering the securities under the 1933 Act is not in
effect when it desires to sell (i) the rights to purchase Preferred Stock
pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon
exercise of the right to purchase, it may be required to hold such securities
for an indefinite period. The Warrantholder also understands that any sale of
its rights of the Warrantholder to purchase Preferred Stock or Preferred Stock
which might be made by it in reliance upon Rule 144 under the 1933 Act may be
made only in accordance with the terms and conditions of that Rule.
(f) ACCREDITED INVESTOR. Warrantholder is an "accredited
investor" within the meaning of the Securities and Exchange Rule 501 of
Regulation D, as presently in effect.
11. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof,
this Warrant Agreement and all rights hereunder are transferable in whole or in
part by the Warrantholder and any successor transferee; provided, however, in
no event shall the number of transfers of the rights and interests in all of
the Warrants exceed three (3) transfers. The transfer shall be recorded on the
books of the Company upon receipt by the Company of a notice of transfer in the
form attached hereto as Exhibit II (the "Transfer Notice"), at its principal
offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) EFFECTIVE DATE. The provisions of this Warrant Agreement
shall be construed and shall be given effect in all respects as if it had been
executed and delivered by the Company on the date hereof. This Warrant
Agreement shall be binding upon any successors or assigns of the Company.
(b) ATTORNEYS' FEES. In any litigation, arbitration or court
proceeding between the Company and the Warrantholder relating hereto, the
prevailing party shall be entitled to attorneys' fees and expenses and all
costs of proceedings incurred in enforcing this Warrant Agreement.
(c) GOVERNING LAW. This Warrant Agreement shall be governed by
and construed for all purposes under and in accordance with the laws of the
State of Illinois.
(d) COUNTERPARTS. This Warrant 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.
9.
<PAGE> 10
(e) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the
Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, attention:
James Labe, cc: Legal Department, (and/or, if by facsimile, (708) 518-5465 and
(708) 518-5088) and (ii) to the Company at 6655 Lookout Road, Boulder, Colorado
80301, attention: Teresa Ayers, Vice President, Finance, (and/or if by
facsimile, (303) 530-6601 or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) REMEDIES. In the event of any default hereunder, the
non-defaulting party may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including but not limited to an action
for damages as a result of any such default, and/or an action for specific
performance for any default where Warrantholder will not have an adequate
remedy at law and where damages will not be readily ascertainable. The Company
expressly agrees that it shall not oppose an application by the Warrantholder
or any other person entitled to the benefit of this Agreement requiring
specific performance of any or all provisions hereof or enjoining the Company
from continuing to commit any such breach of this Agreement.
(g) NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment
of its Charter or through any other means, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the Warrantholder against impairment.
(h) SURVIVAL. The representations, warranties, covenants and
conditions of the respective parties contained herein or made pursuant to this
Warrant Agreement shall survive the execution and delivery of this Warrant
Agreement.
(i) SEVERABILITY. In the event any one or more of the provisions
of this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal
or unenforceable provision.
(j) AMENDMENTS. Any provision of this Warrant Agreement may be
amended by a written instrument signed by the Company and by the Warrantholder.
(k) ADDITIONAL DOCUMENTS. The Company, upon execution of this
Warrant Agreement, shall provide the Warrantholder with certified resolutions
with respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company
shall also supply such other documents as the Warrantholder may from time to
time reasonably request.
10.
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by its officers thereto duly authorized as of the
Effective Date.
COMPANY:
BIOSTAR, INC.
By: /s/ Teresa W. Ayers
---------------------------------------------
Title: Vice President Finance
-----------------------------------------
WARRANTHOLDER:
COMDISCO, INC.
By:
---------------------------------------------
Title:
-----------------------------------------
11.
<PAGE> 12
EXHIBIT I
NOTICE OF EXERCISE
To:
-----------------------------------------
1. The undersigned Warrantholder hereby elects to purchase shares of the
Series E Preferred Stock of _______________, pursuant to the terms of
the Warrant Agreement dated the day of _______________, 199___ (the
"Warrant Agreement") between ____________________ and the
Warrantholder, and tenders herewith payment of the purchase price for
such shares in full, together with all applicable transfer taxes, if
any.
2. In exercising its rights to purchase the Series E Preferred Stock of
____________________, the undersigned hereby confirms and acknowledges
the investment representations and warranties made in Section 10 of
the Warrant Agreement.
3. Please issue a certificate or certificates representing said shares of
Series E Preferred Stock in the name of the undersigned or in such
other name as is specified below.
- ---------------------------------------------------
(Name)
- ---------------------------------------------------
(Address)
WARRANTHOLDER:
COMDISCO, INC.
By:
---------------------------------------------------
Title:
------------------------------------------------
Date:
-------------------------------------------------
<PAGE> 13
ACKNOWLEDGEMENT OF EXERCISE
The undersigned hereby acknowledge receipt of the "Notice of Exercise"
from Comdisco, Inc., to purchase ______ shares of the Series E Preferred Stock
of _____________, pursuant to the terms of the Warrant Agreement, and further
acknowledges that ______ shares remain subject to purchase under the terms of
the Warrant Agreement.
COMPANY:
By:
-----------------------------------------
Title:
--------------------------------------
Date:
---------------------------------------
<PAGE> 14
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this
form and supply required information. Do not use this form to
purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to ____________________
whose address is ________________________________________.
Dated:
-------------------------------------
Holder's Signature:
-------------------------------------------------
Holder's Address:
---------------------------------------------------
- --------------------------------------------------------------------
Signature Guaranteed:
-----------------------------------------------
NOTE: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and
those acting in a fiduciary or other representative capacity should
file proper evidence of authority to assign the foregoing Warrant
Agreement.
<PAGE> 1
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE,
TRANSFER OR OTHER DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE
EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO,
(ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED OR (iii) RECEIPT OF A
NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED.
SHARES ISSUABLE UPON EXERCISE: 53,357
WARRANT TO PURCHASE
SHARES OF SERIES E PREFERRED STOCK
EXPIRES FEBRUARY 18, 2003
THIS CERTIFIES THAT, for value received, Dominion Ventures, Inc., is
entitled to subscribe for and purchase 53,357 shares (as adjusted pursuant to
provisions hereof, the "Shares") of the fully paid and nonassessable Series E
Preferred Stock of BioStar, Inc., a Delaware corporation (the "Company"), at a
price per share of $1.75 (such price and such other price as shall result, from
time to time, from adjustments specified herein is herein referred to as the
"Warrant Price"), subject to the provisions and upon the terms and conditions
hereinafter set forth. As used herein, the term "Preferred Stock" shall mean the
Company's Series E Preferred Stock to be designated in connection with the
Company's next round of equity financing, and any stock into or for which such
Series E Preferred Stock may hereafter be converted or exchanged pursuant to the
Certificate of Incorporation of the Company as from time to time amended as
provided by law and in such Certificate, and the term "Grant Date" shall mean
February 18, 1994.
1. TERM. The purchase right represented by this Warrant is exercisable, in
whole or in part, at any time and from time to time from and after the Grant
Date and prior to the earlier of the ninth annual anniversary date of the Grant
Date or the fourth annual anniversary of the consummation of the Company's
initial public offering of its Common Stock, the aggregate gross proceeds from
which exceed $5,000,000.
2. METHOD OF EXERCISE; NET ISSUE EXERCISE.
2.1 METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. The purchase
right represented by this Warrant may be exercised by the holder hereof, in
whole or in part and from time to time, by either, at the election of the holder
hereof, (a) the surrender of this Warrant (with the notice of exercise form
attached hereto as Exhibit A duly executed) at the
1.
<PAGE> 2
principal office of the Company and by the payment to the Company, by check, of
an amount equal to the then applicable Warrant Price per share multiplied by the
number of Shares then being purchased or (b) if in connection with a registered
public offering of the Company's securities, the surrender of this Warrant (with
the notice of exercise form attached hereto as Exhibit A-1 duly executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by check or from
the proceeds of the sale of shares to be sold by the holder in such public
offering of an amount equal to the then applicable Warrant Price per share
multiplied by the number of Shares then being purchased. The person or persons
in whose name(s) any certificate(s) representing shares of Preferred Stock shall
be issuable upon exercise of this Warrant shall be deemed to have become the
holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed to
have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised. In the event of any exercise of the
rights represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the holder hereof as soon as possible and in any
event within thirty days of receipt of such notice and, unless this Warrant has
been fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible and in
any event within such thirty-day period.
2.2 NET ISSUE EXERCISE.
(a) In lieu of exercising this Warrant, holder may elect to receive
shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this
X= Y(A-B)
------
A
issued to Holder.
Y - the number of shares of Common Stock purchasable under this
Warrant.
A - the fair market value of one share of the Company's Common Stock.
B - Warrant price (as adjusted to the date of such calculations).
(b) For purposes of this Section, fair market value of the
Company's Common Stock shall mean the average of the closing bid and asked
prices of the Company's Preferred Stock quoted in the Over-The-Counter Market
Summary or the closing price quoted on any exchange on which the Preferred Stock
is listed, whichever is applicable, as published in the Western Edition of The
Wall Street Journal for the ten trading days prior to the date of determination
of fair market value. If the Preferred Stock is not traded Over-The-Counter or
on an exchange, the fair market value shall be the price per share which the
Company could obtain from a willing buyer for shares sold by the Company from
authorized but unissued shares, as such price shall be agreed by the Company and
the Holder.
2.
<PAGE> 3
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may be issued
upon the exercise of the rights represented by this Warrant and Common Stock
issuable upon conversion of the Preferred Stock will, upon issuance, be fully
paid and nonassessable, and free from all taxes, liens and charges with respect
to the issue thereof. During the period within which the rights represented by
the Warrant may be exercised, the Company will at all times have authorized and
reserved for the purpose of issuance upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Preferred Stock
(and Common Stock issuable upon conversion thereof) to provide for the exercise
of the right represented by this Warrant.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and kind of
securities purchasable upon the exercise of the Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
(a) RECLASSIFICATION OR MERGER. In case of any reclassification,
change or conversion of securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is a continuing
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), or in case of
any sale of all or substantially all of the assets of the Company, the Company,
or such successor or purchasing corporation, as the case may be, shall execute a
new Warrant (in form and substance reasonably satisfactory to the holder of this
Warrant) providing that the holder of this Warrant shall have the right to
exercise such new Warrant and upon such exercise to receive, in lieu of each
share of Preferred Stock theretofore issuable upon exercise of this Warrant, the
kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change or merger by a holder of one share
of Preferred Stock. Such new Warrant shall provide for adjustments that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Paragraph 4. The provisions of this subparagraph (a) shall similarly apply
to successive reclassifications, changes, mergers and transfers.
(b) SUBDIVISIONS OR COMBINATION OF SHARES. If the Company at any
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Preferred Stock, the Warrant Price and the number of Shares issuable
upon exercise hereof shall be proportionately adjusted.
(c) STOCK DIVIDENDS. If the Company at any time while this Warrant
is outstanding and unexpired shall pay a dividend payable in shares of Preferred
Stock (except any distribution specifically provided for in the foregoing
subparagraphs (a) and (b)), then the Warrant Price shall be adjusted, from and
after the date of determination of shareholders entitled to receive such
dividend or distribution, to that price determined by multiplying the Warrant
Price in effect immediately prior to such date of determination by a fraction
(a) the numerator of which shall be the total number of shares of Preferred
Stock outstanding immediately prior to such dividend or distribution, and (b)
the denominator of which shall be the total number of shares of Preferred Stock
outstanding immediately after such dividend or distribution and the number of
Shares subject to this Warrant shall be proportionately adjusted.
3.
<PAGE> 4
(d) NO IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Paragraph 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the holder of this
Warrant against impairment.
(e) NOTICES OF RECORD DATE. In the event of any taking by the
Company of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend (other than a
cash dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed merger or consolidation of
the Company with or into any other corporation, or any proposed sale, lease or
conveyance of all or substantially all of the assets of the Company, or any
proposed liquidation, dissolution or winding up of the Company, the Company
shall mail to the holder of the Warrant, at least ten (10) days prior to the
date specified therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.
5. FRACTIONAL SHARES. No fractional shares of Preferred Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Warrant Price then in effect.
6. COMPLIANCE WITH SECURITIES ACT; DISPOSITION OF WARRANT OR SHARES OF
PREFERRED STOCK.
(a) COMPLIANCE WITH SECURITIES ACT. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant, the shares of Preferred Stock to be
issued upon exercise hereof and the Common Stock to be issued upon conversion of
such Preferred Stock are being acquired for investment and that such holder will
not offer, sell or otherwise dispose of this Warrant or any shares of Preferred
Stock to be issued upon exercise hereof (or Common Stock issued upon conversion
of the Preferred Stock) except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the "Act") and in
compliance with the provisions of the legend set forth below. This Warrant and
all shares of Preferred Stock issued upon exercise of this Warrant (unless
registered under the Act) shall be stamped or imprinted with a legend in
substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE
HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS
NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE
4.
<PAGE> 5
COMMISSION TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED.
(b) DISPOSITION OF WARRANT AND SHARES. With respect to any offer,
sale or other disposition of this Warrant or any shares of Preferred Stock
acquired pursuant to the exercise of this Warrant (or Common Stock issued upon
conversion of such Preferred Stock) prior transfer of the Warrant or stock, as
applicable, the holder hereof and each subsequent holder of the Warrant or
stock, as applicable, agrees to give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such holder's counsel, if reasonably requested by the Company, to the effect
that such offer, sale or other disposition may be effected without registration
or qualification (under the Act as then in effect or any federal or state law
then in effect) of this Warrant or such shares of Preferred Stock or Common
Stock and indicating whether or not under the Act certificates for this Warrant
or such shares of Preferred Stock or Common Stock to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to insure compliance with the Act. Each certificate
representing this Warrant or the shares of Preferred Stock or Common Stock thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as to
the applicable restrictions on transferability in order to insure compliance
with the Act, unless in the aforesaid opinion of counsel for the holder and the
opinion of counsel to the Company, such legend is not required in order to
insure compliance with the Act. Nothing herein shall restrict the transfer of
this Warrant or any portion hereof by the initial holder hereof to any
partnership affiliated with the initial holder, or to any partner of any such
partnership provided such transfer may be made in compliance with applicable
federal and state securities laws. The Company may issue stop transfer
instructions to its transfer agent in connection with the foregoing
restrictions.
7. RIGHTS AS SHAREHOLDERS; INFORMATION.
7.1 SHAREHOLDER RIGHTS. No holder of the Warrant, as such, shall be
entitled to vote or receive dividends or be deemed the holder of Preferred Stock
or any other securities of the Company which may at any time be issuable on the
exercise thereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any of the rights
of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to receive notice of meetings, or to receive dividends or subscription rights
or otherwise until this Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable, as provided
herein.
7.2 FINANCIAL STATEMENTS AND INFORMATION. The Company shall deliver to
the registered holder hereof (i) within 120 days after the end of the fiscal
year of the Company, a consolidated balance sheet of the Company as of the end
of such year and a consolidated statement of income, retained earnings and cash
flows for such year, which year-end financial reports shall be in reasonable
detail and certified by independent public accountants of nationally recognized
standing selected by the Company, and (ii) within 45 days after the end of each
fiscal quarter other than the last fiscal quarter, unaudited consolidated
statements of income, retained earnings and cash flows for such quarter and a
consolidated balance sheet as of the end of such quarter. In addition, the
Company shall deliver to the registered holder hereof any other information or
data provided to the shareholders of the Company.
5.
<PAGE> 6
8. REGISTRATION RIGHTS. The holder hereof and Company agree the holder of
this Warrant (or any registered transferee thereof pursuant to Section 6 hereof)
shall be entitled to participate in the registration rights with respect to the
Investors Rights Agreement (as hereinafter defined), that the holder hereof
shall be deemed an "Holder" and that all shares of Common Stock issued upon
conversion of the Preferred Stock subject to this Warrant shall be deemed
"Registrable Securities" as such terms are defined in the Investors Rights
Agreement (as defined herein) and shall be subject to the same terms and
conditions with respect to the registration and sale of such shares as set forth
in Section 1 of that certain BioStar, Inc. Investor Rights Agreement dated June
17, 1992 (the "Investors Rights Agreement"), by and among the Company and those
certain Investors identified therein.
8.1 TRANSFER OF REGISTRATION RIGHTS. The registration rights of the
holder under this Section 9 may be transferred to any transferee of the
Warrantholder provided that the Company is given written notice by the holder of
this Warrant at the time of such transfer stating the name and address of the
transferee and identifying the Registrable Securities with respect to which the
rights under this Section 9 are being assigned. Notwithstanding the foregoing
and anything to the contrary contained herein or in the Investors Rights
Agreement, the holder hereof may transfer the registration rights granted in
connection with this Warrant only to affiliated Limited Partnerships of the
holder hereof.
9. REPRESENTATIONS AND WARRANTIES. This Warrant is issued and delivered on
the basis of the following:
(a) This Warrant has been duly authorized and executed by the
Company and when delivered will be the valid and binding obligation of the
Company enforceable in accordance with its terms;
(b) The Preferred Stock has been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions granted to
or imposed upon the shares of Preferred Stock and the holders thereof are as set
forth in the Company's Certificate of Incorporation, as amended, a true and
complete copy of which has been delivered to the original Warrantholder;
(d) The shares of Common Stock issuable upon conversion of the
Shares have been duly authorized and reserved and, when issued in accordance
with the terms of the Company's Certificate of Incorporation, as amended, will
be validly issued, fully paid and nonassessable; and
(e) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Certificate of
Incorporation or by-laws, do not (i) contravene any law, governmental rule or
regulation, judgment or order applicable to the Company, and contravene any
provision of, or constitute a default under, any indenture, mortgage, contract
or other instrument of which the Company is a party or by which it is bound
6.
<PAGE> 7
or require the consent or approval of, the giving of notice to, the registration
with or the taking of any action in respect of or by, any Federal, state or
local government authority or agency or other person.
10. AMENDMENT OF CONVERSION RIGHTS. During the term of this Warrant, the
Company agrees that it shall not amend its Certificate of Incorporation without
the prior written consent of the holder or holders entitled to purchase a
majority of the Common Stock upon conversion of the Series A, Series B and
Series C Preferred Stock as a result of such amendment any of the conversion
rights, including without limitation the conversion price or antidilution
protection privileges, of the Preferred Stock would be affected.
11. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or permitted to
be given or delivered to the holder hereof or the Company shall be delivered, or
shall be sent by certified or registered mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address indicated therefore on the signature page of this Warrant.
13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets, and all of the obligations of
the Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant and all of
the covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof. The Company will, at the time of
the exercise of this Warrant, in whole or in part, upon request of the holder
hereof but at the Company's expense, acknowledge in writing its continuing
obligation to the holder hereof in respect of any rights (including, without
limitation, any right to registration of the shares of Registrable Securities)
to which the holder hereof shall continue to be entitled after such exercise in
accordance with this Warrant; provided, that the failure of the holder hereof to
make any such request shall not affect the continuing obligation of the Company
to the holder hereof in respect of such rights.
14. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to the
holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, or like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
15. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
7.
<PAGE> 8
16. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF CALIFORNIA.
BIOSTAR, INC.
By: /s/ Teresa W. Ayers
--------------------------------
Title: Vice President Finance
------------------------------
Address: 5766 Central Avenue
----------------------------
Boulder Colorado 80301
------------------------------------
Date: November 2, 1992
-----------------------------------
8.
<PAGE> 9
EXHIBIT A
NOTICE OF EXERCISE
To:
1. The undersigned hereby elects to purchase ______ shares of Series ____
Preferred Stock of ____________________ Corporation pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below:
(Name)
(Address)
3. The undersigned represents that the aforesaid shares being acquired for
the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares.
------------------------------
(Signature)
- ---------------------------
(Date)
9.
<PAGE> 10
EXHIBIT A-1
NOTICE OF EXERCISE
To:
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement of Form S-___, filed _______________, 19____, the undersigned hereby
elects to purchase ______ shares of Series ___ Preferred Stock of the Company
(or such lesser number of shares as may be sold on behalf of the undersigned at
the Closing) pursuant to the terms of the attached Warrant.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such ______ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $__________ or, if less, the net proceeds
due the undersigned from the sale of shares in the aforesaid public offering. If
such net proceeds are less than the purchase price for such shares, the
undersigned agrees to deliver the difference to the Company prior to the
Closing.
---------------------------------
(Signature)
- --------------------------------
(Date)
10.
<PAGE> 1
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL
(WHICH MAY BE COMPANY COUNSEL) IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
<TABLE>
<CAPTION>
WARRANT TO PURCHASE STOCK WARRANT NO. WE-3
----
<S> <C>
Corporation: BIOSTAR, INC. a Delaware corporation
Number of Shares: 85,714
Class of Stock: Series E Preferred
Initial Exercise Price: $1.75 per share
Issue Date: September 15, 1995
Expiration Date: September 14, 2001
</TABLE>
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $100.00,
SILICON VALLEY BANK ("HOLDER") is entitled to purchase the number of fully paid
and nonassessable shares of the class of securities (the "SHARES") of the
corporation (the "COMPANY") at the initial exercise price per Share (the
"WARRANT PRICE") all as set forth above and as adjusted pursuant to Article 2
of this Warrant, subject to the provisions and upon the terms and conditions
set forth of this Warrant.
ARTICLE 1
EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder
is exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise
issuable upon exercise of this Warrant minus the aggregate Warrant Price of
such Shares by (b) the fair market value of one Share. The fair market value
of the Shares shall be determined pursuant Section 1.4.
1.3 [INTENTIONALLY DELETED]
<PAGE> 2
1.4 FAIR MARKET VALUE. If the Shares are traded in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not traded in a
public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that
Holder disagrees with such determination, then the Company and Holder shall
promptly agree upon a reputable investment banking firm to undertake such
valuation. If the valuation of such investment banking firm is greater than
that determined by the Board of Directors, then all fees and expenses of such
investment banking firm shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after
Holder exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant,
a new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.7.1 "ACQUISITION". For the purpose of this Warrant, "ACQUISITION"
means any sale, license, or other disposition of all or substantially all of
the assets of the Company, or any reorganization, consolidation, or merger of
the Company where the holders of the Company's securities before the
transaction beneficially own less than 50% of the outstanding voting securities
of the surviving entity after the transaction.
1.7.2 ASSUMPTION OF WARRANT. Upon the closing of any Acquisition,
this Warrant shall be exercisable for the same securities, cash, and property
as would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be
adjusted accordingly.
1.7.3 [INTENTIONALLY DELETED]
ARTICLE 2
ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays
a dividend on its common stock (or the Shares if the Shares are securities
other than common stock) payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
or, if the Shares are securities other than common stock, subdivides
2.
<PAGE> 3
the Shares in a transaction that increases the amount of common stock into
which the Shares are convertible, then upon exercise of this Warrant, for each
Share acquired, Holder shall receive, without cost to Holder, the total number
and kind of securities to which Holder would have been entitled had Holder
owned the Shares of record as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series
as the Shares to common stock pursuant to the terms of the Company's Articles
of Incorporation upon the closing of a registered public offering of the
Company's common stock. The Company or its successor shall promptly issue to
Holder a new Warrant for such new securities or other property. The new
Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article 2 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The
provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares
are combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the
number of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares of common stock issuable upon conversion
of the Shares, shall be subject to adjustment, from time to time in the manner
set forth on Exhibit A in the event of Diluting Issuances (as defined on
Exhibit A).
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions
of this Article 2 and in taking all such action as may be necessary or
appropriate to protect Holder's rights under this Article against impairment.
If the Company takes any action affecting the Shares or its common stock other
than as described above that adversely affects Holder's rights under this
Warrant, the Warrant Price shall be adjusted downward and the number of Shares
issuable upon exercise of this Warrant shall be adjusted upward in such a
manner that the aggregate Warrant Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable
upon exercise or conversion of the Warrant and the number of Shares to be
issued shall be rounded down to the
3.
<PAGE> 4
nearest whole Share. If a fractional share interest arises upon any exercise
or conversion of the Warrant, the Company shall eliminate such fractional share
interest by paying Holder amount computed by multiplying the fractional
interest by the fair market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENT. Holder shall be entitled to the
same rights with respect to notices regarding adjustments as provided to the
holders of Series E Preferred Stock as set forth in the Company's Restated
Certificate of Incorporation.
2.8 NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitled
Holder to any voting rights or other rights as a stockholder of the Company
prior to the exercise of the Holder's rights to purchase Preferred Stock as
provided for herein.
ARTICLE 3
REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents
and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first
page of this Warrant is not greater than (i) the price per share at which the
Shares were last issued in an arms-length transaction in which at least
$500,000 of the Shares were sold and (ii) the fair market value of the Shares
as of the date of this Warrant.
(b) All Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (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 common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company
shall give Holder (1) at least 20 days prior written notice of the date on
which a record will be taken for such dividend, distribution, or subscription
rights (and specifying the date on which the holders of common stock will be
entitled thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (c) and (d) above; (2) in the case of the matters
referred to in (c) and (d) above at least 20 days prior written notice of the
date when the same will take place (and specifying the date on which the
holders of common stock will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such event);
4.
<PAGE> 5
and (3) in the case of the matter referred to in (e) above, the same notice as
is given to the holders of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached.
ARTICLE 4
REPRESENTATIONS AND COVENANTS OF HOLDER.
This Warrant has been entered into by the Company in reliance upon the
following representations and covenants of Holder, which by its acceptance
hereof the Holder hereby confirms:
4.1 INVESTMENT PURPOSE. The right to acquire Preferred Stock or
the Preferred Stock issuable upon exercise of Holder's rights contained herein
will be acquired for investment and not with a view to the sale or distribution
of any part thereof, and the Holder has no present intention of selling or
engaging in any public distribution of the same except pursuant to a
registration or exemption.
4.2 PRIVATE ISSUE. Holder understands (i) that the Preferred
Stock issuable upon exercise of the Warrantholder's rights contained herein is
not registered under the 1933 Act or qualified under applicable state
securities law on the ground that the issuance contemplated by this Warrant
Agreement will be exempt from the registration and qualifications requirements
thereof, and (ii) that the Company's reliance on such exemption is predicated
on the representations set forth in this Section 4.
4.3 FINANCIAL RISK. Holder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to bear the economic risks of its
investment.
4.4 RISK OF NO REGISTRATION. Holder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d) of the
Securities Exchange Act of 1934 (the "1934 ACT"), or if a registration
statement covering the securities under the 1933 Act is not in effect when it
desires to sell (i) the rights to purchase Preferred Stock pursuant to this
Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the
right to purchase, it may be required to hold such securities for an indefinite
period. The Holder also understands that any sale of the rights of the Holder
to purchase Preferred Stock which might be made by it in reliance upon Rule 144
under the 1933 Act may be made only in accordance with the terms and conditions
of that Rule.
4.5 ACCREDITED INVESTOR. Holder is an "ACCREDITED INVESTOR"
within the meaning of Rule 501 of Regulation D under the Act, as presently in
effect.
5.
<PAGE> 6
ARTICLE 5
MISCELLANEOUS.
5.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above or, if sooner, the date that is three years after the date
that the Company sells its shares in a registered public offering under the
Securities Act of 1933, as amended.
5.2 LEGENDS. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAW OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL (WHICH
MAY BE COMPANY COUNSEL) IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
5.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and
the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as
reasonably requested by the Company). The Company shall not require Holder to
provide an opinion of counsel if the transfer is to an affiliate of Holder,
provided such affiliate makes the representations and warranties as are
included in Article 4 above, or if there is no material question as to the
availability of current information as referenced in Rule 144 (c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.
5.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the
6.
<PAGE> 7
Company shall have the right to refuse to transfer any portion of this Warrant
to any person who directly competes with the Company.
5.5 NOTICES. All notices and other communications from the
Company to the Holder, or vice versa, shall be deemed delivered and effective
when given personally or mailed by first-class registered or certified mail,
postage prepaid, at such address as may have been furnished to the Company or
the Holder, as the case may be, in writing by the Company or such holder from
time to time.
5.6 WAIVER. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver; discharge or
termination is sought.
5.7 ATTORNEYS FEES. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party
all costs incurred in such dispute, including reasonable attorneys' fees.
5.8 GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of California, without
giving effect to its principles regarding conflicts of law.
COMPANY:
BIOSTAR, INC.
By: /s/ Teresa W. Ayers
-----------------------------------------
Name: Teresa W. Ayers
------------------------------------
(Print)
Title: Vice President
By: /s/ Teresa W. Ayers
-----------------------------------------
Name: Teresa W. Ayers
------------------------------------
(Print)
Title: Chief Financial Officer, Secretary
7.
<PAGE> 8
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of the
Common/Series __________ Preferred [STRIKE ONE] Stock of __________________
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares in the manner specified in the Warrant. This conversion is exercised
with respect to ______________ of the Shares covered by the Warrant.
[STRIKE PARAGRAPH THAT DOES NOT APPLY.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
------------------------
(Name)
------------------------
------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
---------------------------------------
(Signature)
- ------------------
(Date)
1.
<PAGE> 9
EXHIBIT A
ANTI-DILUTION PROVISIONS
(FOR PREFERRED STOCK WARRANTS WITH EXISTING
ANTI-DILUTION PROTECTION)
In the event of the issuance (a "DILUTING ISSUANCE") by the Company, after
the Issue Date of the Warrant, of securities at a price per share less than the
Warrant Price, then the number of shares of common stock issuable upon
conversion of the Shares shall be adjusted in accordance with those provisions
(the "PROVISIONS") of the Company's Articles (Certificate) of Incorporation
which apply to Diluting Issuances.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
1.
<PAGE> 10
EXHIBIT B
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon conversion
of the Shares, shall be deemed "REGISTRABLE SECURITIES" or otherwise entitled
to "PIGGY BACK" registration rights in accordance with the terms of the
following agreement (the "AGREEMENT") between the Company and its investor(s):
Amended and Restated Investor Rights Agreement, dated as of
November 14, 1994 between
the Company and certain shareholders of the Company
The Company agrees that no amendments will be made to the Agreement which
would have an adverse impact on Holder's registration rights thereunder without
the consent of Holder. By acceptance of the Warrant to which this Exhibit B is
attached, Holder shall be deemed to be a party to the Agreement.
If no Agreement exists, then the Company and the Holder shall enter into
Holder's standard form of Registration Rights Agreement as in effect on the
Issue Date of the Warrant.
1.
<PAGE> 1
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: BioStar, Inc.
Number of Shares: See below
Class of Stock: See below
Initial Exercise Price: See below
Issue Date: May 1, 1997
Expiration Date: April 30, 2002
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, VENTURE LENDING, a division of Cupertino
National Bank & Trust ("HOLDER") is entitled to purchase the number of fully
paid and nonassessable shares of the class of securities (the "SHARES") of the
corporation (the "COMPANY") at the initial exercise price per Share (the
"WARRANT PRICE") all as set forth above and as adjusted pursuant to Article 2
of this Warrant, subject to the provisions and upon the terms and conditions
set forth of this Warrant. The Shares shall be of the class issued, and the
Warrant Price shall be equal to the price at which the Company issues such
shares, in the next sale of its equity securities in which the Company receives
net proceeds of not less than $3,000,000 (the "EQUITY EVENT"). The number of
Shares to be issued under this Warrant shall be equal to the Coverage Amount
specified below divided by the Warrant Price. The Coverage Amount shall be
based upon the date that Borrower repays in full the Advances outstanding under
the Bridge Facility, as defined in the Loan and Security Agreement between
Holder and Company as follows:
<TABLE>
<CAPTION>
Loan Termination occurs in: Coverage Amount
- --------------------------- ---------------
<S> <C>
April, May, June 1997 $330,000
July 1997 $360,000
August 1997 $433,333
September 1997 $494,118
October 1997 $562,500
</TABLE>
Notwithstanding the foregoing, if the Equity Event does not occur by October
30, 1997, this Warrant shall be for 321,429 shares of Series E Preferred Stock,
and the Warrant Price shall be $1.75, provided that if any amount is
outstanding under the Bridge Facility on November 10, 1997, the Warrant Price
thereafter shall be $1.40.
<PAGE> 2
ARTICLE 1
EXERCISE
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the
fair market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 NO RIGHTS SHAREHOLDER. This Warrant does not entitle Holder to any
voting rights as a shareholder of the Company prior to the exercise hereof.
1.4 FAIR MARKET VALUE. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder
advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a
reputable investment banking or public accounting firm to undertake such
valuation. If the valuation of such investment banking firm is greater than
that determined by the Board of Directors, then all fees and expenses of such
investment banking firm shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant,
a new warrant of like tenor.
2.
<PAGE> 3
1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.7.1 ACQUISITION. For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of
the assets of the Company, or any reorganization, consolidation, or merger of
the Company where the holders of the Company's securities before the
transaction beneficially own less than 50% of the outstanding voting securities
of the surviving entity after the transaction.
1.7.2 NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2, and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
1.7.3 PURCHASE RIGHT. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
Notwithstanding any other provisions of this Warrant, if an Acquisition occurs
on or before October 30, 1997, as a condition to the consummation of such
Acquisition, Company shall repurchase, this Warrant from Bank for One Hundred
Fifty Thousand Dollars ($150,000) in cash.
1.7.4 PUBLIC OFFERING. For purposes of this Warrant, a "Public
Offering" means the sale of the Company's Common Stock pursuant to a
registration statement under the Securities Act of 1933, as amended, for an
underwritten public offering (other than a registration on Form S-8, Form S-4
or comparable forms), which results in aggregate cash proceeds (prior to
underwriters' commissions and expenses) to the Company of more than $7,500,000.
Immediately prior to the closing of any Public Offering, any portion of this
Warrant then not exercised or exercisable will be for the number of shares of
the Company's Common Stock that would have resulted from the conversion,
pursuant to the Company's Articles of Incorporation as of the Public Offering
of the maximum number of shares of Preferred Stock that could have been
acquired by the Holder upon the exercise of the unexpired portion of this
Warrant immediately prior to such Public Offering.
ARTICLE 2
ADJUSTMENTS TO THE SHARES
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive,
3.
<PAGE> 4
without cost to Holder, the total number and kind of securities to which Holder
would have been entitled had Holder owned the Shares of record as of the date
the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series
as the Shares to common stock pursuant to the terms of the Company's Articles
of Incorporation upon the closing of a registered public offering of the
Company's common stock. The Company or its successor shall promptly issue to
Holder a new Warrant for such new securities or other property. The new
Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article 2 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The
provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the number
of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares of common stock issuable upon conversion
of the Shares, shall be subject to adjustment, from time to time in the manner
set forth on Exhibit A in the event of Diluting Issuances (as defined on
Exhibit A).
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles of
Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed under this Warrant by the Company, but shall
at all times in good faith assist in carrying out of all the provisions of this
Article 2 and in taking all such action as may be necessary or appropriate to
protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the
4.
<PAGE> 5
Warrant, the Company shall eliminate such fractional share interest by paying
Holder amount computed by multiplying the fractional interest by the fair
market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3
REPRESENTATIONS AND COVENANTS OF THE COMPANY
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this
Warrant is equal to the price per share at which the Shares will be issued in
the Equity Event.
(b) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash
dividend; (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 common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company
shall give Holder (1) at least 20 days prior written notice of the date on
which a record will be taken for such dividend, distribution, or subscription
rights (and specifying the date on which the holders of common stock will be
entitled thereto) or for determining right to vote, if any, in respect of the
matters referred to in (c) and (d) above; (2) in the case of the matters
referred to in (c) and (d) above at least 20 days prior written notice of the
date when the same will take place (and specifying the date on which the
holders of common stock will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such event);
and (3) in the case of the matter referred to in (e) above, the same notice as
is given to the holders of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices
5.
<PAGE> 6
or other written communications to the shareholders of the Company, (b) within
ninety (90) days after the end of each fiscal year of the Company, the annual
financial statements of the Company.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights
granted to the purchasers in the Equity Event or, if this Warrant is for Series
A Preferred Stock, then the registration rights held by the purchasers of
Series A Preferred Stock.
ARTICLE 4
MISCELLANEOUS
4.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or
in part, at any time and from time to time on or before the Expiration Date set
forth above. The Company shall give Holder written notice of Holder's right to
exercise this Warrant in the form attached as Appendix 2 not more than 90 days
and not less than 30 days before the Expiration Date. If the notice is not
given, the Expiration Date shall automatically be extended until 30 days after
the date the Company delivers the notice to Holder.
4.2 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as
reasonably requested by the Company). The Company shall not require Holder to
provide an opinion of counsel if the transfer is to an affiliate of Holder or
if there is no material question as to the availability of current information
as referenced in Rule 144(c), Holder represents that it has complied with Rule
144(d) and (e) in reasonable detail, the selling broker represents that it has
complied with Rule 144(f), and the Company is provided with a copy of Holder's
notice of proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise
of this Warrant (or the
6.
<PAGE> 7
securities issuable, directly or indirectly, upon conversion of the Shares, if
any) by giving the Company notice of the portion of the Warrant being
transferred setting forth the name, address and taxpayer identification number
of the transferee and surrendering this Warrant to the Company for reissuance
to the transferee(s) (and Holder if applicable). Unless the Company is filing
financial information with the SEC pursuant to the Securities Exchange Act of
1934, the Company shall have the right to refuse to transfer any portion of
this Warrant to any person who directly competes with the Company.
4.5 NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
COMPANY:
BIOSTAR, INC.
By: /s/ Teresa W. Ayers
-----------------------------------
Title: President/CEO
--------------------------------
7.
<PAGE> 8
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of the
Common/Series __________ Preferred [STRIKE ONE] Stock of __________________
pursuant to the terms of the attached Warrant, and tenders herewith payment
of the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [STRIKE ONE] in the manner specified in the Warrant. This
conversion is exercised with respect to ______________ of the Shares
covered by the Warrant.
[STRIKE PARAGRAPH THAT DOES NOT APPLY.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
------------------------
(Name)
------------------------
------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
--------------------------------------
(Signature)
- ------------------
(Date)
<PAGE> 9
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
_______________, ___
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear:_______________
This is to advise you that the Warrant issued to you described below will
expire on _______________, 19___.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [NAME OF CONTACT PERSON AT (PHONE NUMBER)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
--------------------------------------
(Name of Issuer)
By:
-----------------------------------
Its:
----------------------------------
<PAGE> 10
EXHIBIT A
ANTI-DILUTION PROVISIONS
(FOR PREFERRED STOCK WARRANTS WITH EXISTING
ANTI-DILUTION PROTECTION)
In the event of the issuance (a "DILUTING ISSUANCE") by the Company, after
the Issue Date of the Warrant, of securities at a price per share less than the
Warrant Price, then the number of shares of common stock issuable upon
conversion of the Shares shall be adjusted in accordance with those provisions
(the "PROVISIONS") of the Company's Articles of Incorporation which apply to
Diluting Issuances with respect to the class or series of the Company's stock
for which this Warrant is exercisable.
<PAGE> 1
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL
(WHICH MAY BE COMPANY COUNSEL) IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE STOCK Warrant No. ____
Corporation: BIOSTAR, INC., a Delaware corporation
Number of Shares: 35,000
Class of Stock: Common
Initial Exercise Price: $0.23 per share
Issue Date: October 28, 1996
Expiration Date: October 27, 2002
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $100.00,
SILICON VALLEY BANK ("Holder") is entitled to purchase the number of fully paid
and nonassessable shares of the class of securities (the "Shares") of the
corporation (the "Company") at the initial exercise price per Share (the
"Warrant Price") all as set forth above and as adjusted pursuant to Article 2
of this Warrant, subject to the provisions and upon the terms and conditions
set forth of this Warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder
is exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise
issuable upon exercise of this Warrant minus the aggregate Warrant Price of
such Shares by (b) the fair market value of one Share. The fair market value
of the Shares shall be determined pursuant Section 1.4.
1.3 [Intentionally Deleted]
1.4 Fair Market Value. If the Shares are traded in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not traded in a
public market, the Board of Directors of the
1
<PAGE> 2
Company shall determine fair market value in its reasonable good faith
judgment. The foregoing notwithstanding, if Holder advises the Board of
Directors in writing that Holder disagrees with such determination, then the
Company and Holder shall promptly agree upon a reputable investment banking
firm to undertake such valuation. If the valuation of such investment banking
firm is greater than that determined by the Board of Directors, then all fees
and expenses of such investment banking firm shall be paid by the Company. In
all other circumstances, such fees and expenses shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after
Holder exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant,
a new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1 "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2 Assumption of Warrant. Upon the closing of any
Acquisition, this Warrant shall be exercisable for the same securities, cash,
and property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price
shall be adjusted accordingly.
1.7.3 [Intentionally Deleted]
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or
pays a dividend on its common stock (or the Shares if the Shares are securities
other than common stock) payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
or, if the Shares are securities other than common stock, subdivides the Shares
in a transaction that increases the amount of common stock into which the
Shares are convertible, then upon exercise of this Warrant, for each Share
acquired, Holder shall receive, without cost to Holder, the total number and
kind of securities to which Holder would have been entitled had Holder owned
the Shares of record as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification,
2
<PAGE> 3
exchange, substitution, or other event. Such an event shall include any
automatic conversion of the outstanding or issuable securities of the Company
of the same class or series as the Shares to common stock pursuant to the terms
of the Company's Articles of Incorporation upon the closing of a registered
public offering of the Company's common stock. The Company or its successor
shall promptly issue to Holder a new Warrant for such new securities or other
property. The new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article 2 including, without limitation, adjustments to the Warrant Price and
to the number of securities or property issuable upon exercise of the new
Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares
are combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions
of this Article 2 and in taking all such action as may be necessary or
appropriate to protect Holder's rights under this Article against impairment.
If the Company takes any action affecting the Shares or its common stock other
than as described above that adversely affects Holder's rights under this
Warrant, the Warrant Price shall be adjusted downward and the number of Shares
issuable upon exercise of this Warrant shall be adjusted upward in such a
manner that the aggregate Warrant Price of this Warrant is unchanged.
2.5 Fractional Shares. No fractional Shares shall be issuable
upon exercise or conversion of the Warrant and the number of Shares to be
issued shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder amount computed
by multiplying the factional interest by the fair market value of a full Share.
2.6 Certificate as to Adjustment. Holder shall be entitled to the
same rights with respect to notices regarding adjustments as provided to the
holders of Series E Preferred Stock as set forth in the Company's Restated
Certificate of Incorporation.
2.7 No Rights as Shareholders. This Warrant does not entitled
Holder to any voting rights or other rights as a stockholder of the Company
prior to the exercise of the Holder's rights to purchase Common Stock as
provided for herein.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents
and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first
page of this Warrant is not greater than the fair market value of the Shares as
of the date of this Warrant.
(b) All Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon
3
<PAGE> 4
issuance, be duly authorized, validly issued, fully paid and nonassessable, and
free of any liens and encumbrances except for restrictions on transfer provided
for herein or under applicable federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (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 common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company
shall give Holder (1) at least 20 days prior written notice of the date on
which a record will be taken for such dividend, distribution, or subscription
rights (and specifying the date on which the holders of common stock will be
entitled thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (c) and (d) above; (2) in the case of the matters
referred to in (c) and (d) above at least 20 days prior written notice of the
date when the same will take place (and specifying the date on which the
holders of common stock will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such event);
and (3) in the case of the matter referred to in (e) above, the same notice as
is given to the holders of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company.
3.4 Registration Under Securities Act of 1933, as amended. The
Company agrees to use commercially reasonable efforts to cause the Shares to be
"registrable securities" entitled to "piggyback" registration rights granted to
the purchasers in the sale of the Company's securities next following the date
hereof in which the Company receives proceeds of at least $500,000.
ARTICLE 4. REPRESENTATIONS AND COVENANTS OF HOLDER. This Warrant has been
entered into by the Company in reliance upon the following representations and
covenants of Holder, which by its acceptance hereof the Holder hereby confirms:
4.1 Investment Purpose. The right to acquire Common Stock upon
exercise of Holder's rights contained herein will be acquired for investment
and not with a view to the sale or distribution of any part thereof, and the
Holder has no present intention of selling or engaging in any public
distribution of the same except pursuant to a registration or exemption.
4.2 Private Issue. Holder understands (i) that the Common Stock
issuable upon exercise of the Warrantholder's rights contained herein is not
registered under the 1933 Act or qualified under applicable state securities
law on the ground that the issuance contemplated by this Warrant Agreement will
be exempt from the registration and qualifications requirements thereof, and
(ii) that the Company's reliance on such exemption is predicated on the
representations set forth in this Section 4.
4.3 Financial Risk. Holder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to bear the economic risks of its
investment.
4
<PAGE> 5
4.4 Risk of No Registration. Holder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d) of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration
statement covering the securities under the 1933 Act is not in effect when it
desires to sell (i) the rights to purchase Common Stock pursuant to this
Warrant Agreement, or (ii) the Common Stock issuable upon exercise of the right
to purchase, it may be required to hold such securities for an indefinite
period. The Holder also understands that any sale of the rights of the Holder
to purchase Common Stock which might be made by it in reliance upon Rule 144
under the 1933 Act may be made only in accordance with the terms and conditions
of that Rule.
4.5 Accredited Investor. Holder is an "accredited investor"
within the meaning of Rule 501 of Regulation D under the Act, as presently in
effect.
ARTICLE 5. MISCELLANEOUS.
5.1 Term; Notice of Expiration. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above or, if sooner, the date that is three years after the date
that the Company sells its shares in a registered public offering under the
Securities Act of 1933, as amended.
5.2 Legends. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAW OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL (WHICH
MAY BE COMPANY COUNSEL) IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
5.3 Compliance with Securities Laws on Transfer. This Warrant and
the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as
reasonably requested by the Company). The Company shall not require Holder to
provide an opinion of counsel if the transfer is to an affiliate of Holder,
provided such affiliate makes the representations and warranties as are
included in Article 4 above, or if there is no material question as to the
availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.
5
<PAGE> 6
5.4 Transfer Procedure. Subject to the provisions of Section 4.2,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
5.5 Notices. All notices and other communications from the
Company to the Holder, or vice versa, shall be deemed delivered and effective
when given personally or mailed by first-class registered or certified mail,
postage prepaid, at such address as may have been furnished to the Company or
the Holder, as the case may be, in writing by the Company or such holder from
time to time.
5.6 Waiver. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought.
5.7 Attorneys Fees. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party
all costs incurred in such dispute, including reasonable attorneys' fees.
6
<PAGE> 7
5.8 Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of California, without
giving effect to its principles regarding conflicts of law.
"COMPANY"
BIOSTAR, INC.
By
---------------------------------------------
Name
-------------------------------------------
(Print)
Title: Chairman of the Board, President,
or Vice President
By
---------------------------------------------
Name
-------------------------------------------
(Print)
Title: Chief Financial Officer, Secretary
Assistant Treasurer, or Assistant
Secretary
7
<PAGE> 8
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _____________ shares
of the Common Stock of __________________________ pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
1. The undersigned hereby elects to convert the attached Warrant
into Shares in the manner specified in the Warrant. This conversion is
exercised with respect to _____________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below:
----------------------------
(Name)
----------------------------
----------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely
for its own account and not as a nominee for any other party and not with a
view toward the resale or distribution thereof except in compliance with
applicable securities laws.
(Signature)
- --------------------
(Date)
8
<PAGE> 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER CONTAINED IN THAT CERTAIN BIOSTAR, INC. NOTE AND WARRANT PURCHASE
AGREEMENT, DATED MARCH 20, 1996 WHICH RESTRICTIONS ON TRANSFER ARE INCORPORATED
HEREIN BY REFERENCE.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK OF
BIOSTAR, INC.
(VOID AFTER APRIL 15, 2001)
This certifies that ____________ (the "Holder"), or assigns, for value
received, is entitled to purchase from BioStar, Inc., a Delaware corporation
(the "Company"), having a place of business at 6655 Lookout Road, Boulder,
Colorado 80301, a maximum of ___________ fully paid and nonassessable shares of
the Company's Common Stock ("Common Stock") for cash at a price of Twenty-Three
Cents ($.23) per share (the "Stock Purchase Price") at any time or from time to
time up to and including 5:00 p.m. (Mountain Time) on the earlier of (i) the
fourth anniversary of the closing of the initial public offering of the
Company's Common Stock pursuant to a registration statement under the Securities
Act of 1933, as amended, or (ii) April 15, 2001, such earlier day being referred
to herein as the "Expiration Date," upon surrender to the Company at its
principal office (or at such other location as the Company may advise the Holder
in writing) of this Warrant properly endorsed with the Form of Subscription
attached hereto duly filled in and signed and, if applicable, upon payment in
cash or by check of the aggregate Stock Purchase Price for the number of shares
for which this Warrant is being exercised determined in accordance with the
provisions hereof. The Stock Purchase Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Section 3 of this Warrant.
I. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
A. GENERAL. This Warrant is exercisable at the option of the holder of
record hereof, at any time or from time to time, up to the Expiration Date for
all or any part of the shares of Common Stock (but not for a fraction of a
share) which may be purchased hereunder.
B. ISSUANCE OF CERTIFICATES. The Company agrees that the shares of
Common Stock purchased under this Warrant shall be and are deemed to be issued
to the Holder hereof as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered, properly
endorsed, the completed, executed Form of Subscription delivered and payment
made for such shares. Certificates for the shares of Common Stock so purchased,
together with any other securities or property to which the Holder hereof is
entitled
1
<PAGE> 2
upon such exercise, shall be delivered to the Holder hereof by the Company at
the Company's expense within a reasonable time after the rights represented by
this Warrant have been so exercised. In case of a purchase of less than all the
shares which may be purchased under this Warrant, the Company shall cancel this
Warrant and execute and deliver a new Warrant or Warrants of like tenor for the
balance of the shares purchasable under the Warrant surrendered upon such
purchase to the Holder hereof within a reasonable time. Each stock certificate
so delivered shall be in such denominations of Common Stock as may be requested
by the Holder hereof and shall be registered in the name of such Holder.
C. NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Stock Purchase Price (at the date of calculation as set forth
below), in lieu of exercising this Warrant for cash, the Holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Form of Subscription
and notice of such election in which event the Company shall issue to the Holder
a number of shares of Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock purchasable under
the Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled (at the
date of such calculation)
A = the fair market value of one share of the Company's Common
Stock (at the date of such calculation)
B = Stock Purchase Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, fair market value of one share of Common
Stock shall be determined by the Company's Board of Directors in good faith;
provided, however, that where there exists a public market for the Company's
Common Stock at the time of such exercise, the fair market value per share shall
be the average of the closing bid and asked prices of the Common stock quoted in
the Over-The-Counter Market Summary or the last reported sale price of the
Common Stock or the closing price quoted on the Nasdaq National Market or on any
exchange on which the Common Stock is listed, whichever is applicable, as
published in the Western Edition of The Wall Street Journal for the five (5)
trading days prior to the date of determination of fair market value.
I. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all shares of Common Stock which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any stockholder and free of all taxes, liens
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<PAGE> 3
and charges with respect to the issue thereof. The Company further covenants and
agrees that, except as noted in the last two sentences of the introductory
paragraph of this Warrant, during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized
and reserved, for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares of
authorized but unissued Common Stock, or other securities and property, when and
as required to provide for the exercise of the rights represented by this
Warrant. The Company will take all such action as may be necessary to assure
that such shares of Common Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of any
domestic securities exchange upon which the Common Stock may be listed;
provided, however, that the Company shall not be required to effect a
registration under federal or state securities laws with respect to such
exercise. The Company will not take any action which would result in any
adjustment of the Stock Purchase Price (i) if the total number of shares of
Common Stock issuable after such action upon exercise of all outstanding
warrants, together with all shares of Common Stock then outstanding and all
shares of Common Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Common Stock then authorized by the Company's
Certificate of Incorporation, or (ii) if the total number of shares of Common
Stock issuable after such action upon the conversion of all such shares of
Preferred Stock, together with all shares of Common Stock then issuable upon
exercise of all options and upon the conversion of all such shares of Preferred
Stock, together with all shares of Common Stock then outstanding and all shares
of Common Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding would exceed the total
number of shares of Common Stock then authorized by the Company's Certificate of
Incorporation.
II. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
A. SUBDIVISION OF COMBINATION OF STOCK. In case the Company shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
B. DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of Common
Stock (or any shares of stock or other
3
<PAGE> 4
securities at the time receivable upon the exercise of this Warrant) shall have
received or become entitled to receive, without payment therefor,
1. Common Stock or any shares of stock or other securities which
are at any time directly or indirectly convertible into or exchangeable for
Common Stock, or any rights or options to subscribe for, purchase or otherwise
acquire any of the foregoing by way of dividend or other distribution;
2. Any cash paid or payable otherwise than as a cash dividend; or
3. Common Stock or additional stock or other securities or
property (including cash) by way of spin-off, split-up, reclassification,
combination of shares or similar corporate rearrangement (other than (i) shares
of Common Stock issued as a stock split, adjustments in respect of which shall
be covered by the terms of Section 3.1 above or (ii) an event for which
adjustment is otherwise made pursuant to Section 3.3 below), then and in each
such case, the Holder hereof shall, upon the exercise of this Warrant, be
entitled to receive, in addition to the number of shares of Common Stock
receivable thereupon, and without payment of any additional consideration
therefor, the amount of stock and other securities and property (including cash
in the cases referred to in clauses 3.2.1 and 3.2.2 above) which such Holder
would hold on the date of such exercise had he been the holder of record of such
Common Stock as of the date on which holders of Common Stock received or became
entitled to receive such shares or all other additional stock and other
securities and property.
C. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation shall be effected
in such a way that holders of Common Stock shall be entitled to receive stock,
securities, or other assets or property, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provisions shall be made whereby the Holder hereof shall thereafter
have the right to purchase and receive (in lieu of the shares of the Common
Stock of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby) such shares of stock, securities or
other assets or property as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby; provided,
however, that in the event the value of the stock, securities or other assets or
property (determined in good faith by the Board of Directors of the Company)
issuable or payable with respect to one share of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby is in excess of the Stock Purchase Price hereof
effective at the time of the merger and securities received in such
reorganization, if any, are publicly traded, then this Warrant shall expire
unless exercised prior to the reorganization. In any reorganization described
above, appropriate provision shall be made with respect to the rights and
interests of the Holder of this Warrant to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Stock Purchase
Price and of the number of shares purchasable and receivable upon the exercise
of this Warrant) shall
4
<PAGE> 5
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof. The
Company will not effect any such consolidation, merger or sale unless, prior to
the consummation thereof, the successor corporation (if other than the Company)
resulting from such consolidation or the corporation purchasing such assets
shall assume by written instrument, executed and mailed or delivered to the
registered Holder hereof at the last address of such Holder appearing on the
books of the Company, the obligation to deliver to such Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.
D. NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase
Price or any increase or decrease in the number of shares purchasable upon the
exercise of this Warrant, the Company shall give written notice thereof, by
first class mail, postage prepaid, addressed to the registered Holder of this
Warrant at the address of such Holder as shown on the books of the Company. The
notice shall be signed by the Company's chief financial officer and shall state
the Stock Purchase Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
E. OTHER NOTICES. If at any time:
1. the Company shall declare any cash dividend upon its Common
Stock;
2. the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other
distribution to the holders of its Common Stock;
3. there shall be any capital reorganization or reclassification
of the capital stock of the Company; or consolidation or
merger of the Company with, or sale of all or substantially
all of its assets to, another corporation;
4. there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
5. there shall be an initial public offering of Company
securities;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least ten (10) days
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up or public
offering, at least ten (10) days prior written notice of the date when the same
shall take place; provided, however, that the Holder shall make a best efforts
attempt to respond to such notice as early as possible after the receipt
thereof. Any notice given in accordance with the foregoing clause (a) shall also
specify, in the case of any such dividend,
5
<PAGE> 6
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto. Any notice given in accordance with the
foregoing clause (b) shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, winding-up or public offering, as the
case may be.
F. CERTAIN EVENTS. If any change in the outstanding Common Stock of
the Company or any other event occurs as to which the other provision of this
Section 3 are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Holder of the Warrant in accordance with such
provisions, the Board of Directors of the Company shall make an adjustment in
the number and class of shares available under the Warrant, the Stock Purchase
Price or the application of such provisions, so as to protect such purchase
rights as aforesaid. The adjustment shall be such as will give the Holder of the
Warrant upon exercise for the same aggregate Stock Purchase Price the total
number, class and kind of shares as he would have owned had the Warrant been
exercised prior to the event and had he continued to hold such shares until
after the event requiring adjustment.
III. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
IV. CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of any warrant or of any shares of Common Stock issued or
issuable upon the exercise of any warrant in any manner which interferes with
the timely exercise of this Warrant.
V. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the holder
hereof the right to vote or to consent or to receive notice as a stockholder of
the Company or any other matters or any rights whatsoever as a stockholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provision hereof in the absence of affirmative action by the
holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such holder for the Stock Purchase Price or as a stockholder of the Company,
whether such liability is asserted by the Company or by its creditors.
VI. REGISTRATION RIGHTS AGREEMENT. The registration rights of the Holder
(including Holders' successors) with respect to this Warrant and the underlying
stock will be the same as granted to the holders of the Company's Preferred
Stock.
VII. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal
and state securities laws and the transfer restrictions set forth in the Note
and Warrant Purchase Agreement
6
<PAGE> 7
dated as of March 20, 1996, under which this Warrant was purchased, this Warrant
and all rights hereunder are transferable, in whole or in part, without charge
to the holder hereof (except for transfer taxes), upon surrender of this Warrant
properly endorsed and in compliance with the provisions of the Note and Warrant
Purchase Agreement. Each taker and holder of this Warrant, by taking or holding
the same, consents and agrees that this Warrant, when endorsed in blank, shall
be deemed negotiable, and that the holder hereof, when this Warrant shall have
been so endorsed, may be treated by the Company, at the Company's option, and
all other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant, or to the transfer hereof on the books of the Company any notice to the
contrary notwithstanding; but until such transfer on such books, the Company may
treat the registered owner hereof as the owner for all purposes.
VIII. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant, referred to in
Sections 7 and 8 shall survive the exercise of this Warrant.
IX. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought, provided
that any change, waiver, discharge or termination agreed to in writing by a
majority in interest of holders of warrants of the Company of even date issued
pursuant to the Note and Warrant Purchase Agreement shall be binding on Holder
and assigns.
X. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the older hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
XI. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Common Stock issuable upon the exercise of this Warrant
shall survive the exercise and termination of this Warrant. All of the covenants
and agreements of the Company shall inure to the benefit of the successors and
assigns of the holder hereof.
XII. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of Colorado.
XIII. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
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<PAGE> 8
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
XIV. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this _____, day of April,
1996.
BIOSTAR, INC.
a Delaware corporation
--------------------------------------
Teresa W. Ayers
President and Chief Operating Officers
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<PAGE> 9
EXHIBIT A
SUBSCRIPTION FORM
Date:______________, 19___
BioStar, Inc.
6655 Lookout Road
Boulder, Colorado 80301
Gentlemen:
[ ] The undersigned hereby elects to exercise the warrant issued to it by
BioStar, Inc. (the "Company") and dated March _____, 1996, Warrant No.
CW-___ (the "Warrant") and to purchase thereunder __________ shares of
the Common Stock of the Company (the "Shares") at a purchase price of
______________________________ ($______) per Share, or an aggregate
purchase price of ______________________________ ($______) (the
"Purchase Price").
[ ] The undersigned hereby elects to convert ___________________ percent
(___%) of the value of the Warrant pursuant to the provisions of
Section 2 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
Very truly yours,
-----------------------------------------
By:
--------------------------------------
Title:
-----------------------------------
9
<PAGE> 1
Warrant No. WF-__
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE
SHARES OF SERIES F PREFERRED STOCK OF
BIOSTAR, INC.
(VOID AFTER JUNE 20, 2002)
This certifies that ______________________________ (the "Holder"), or
assigns, for value received, is entitled to purchase from BioStar, Inc., a
Delaware corporation (the "Company"), having a place of business at 6655
Lookout Road, Boulder, Colorado 80301, a maximum of
__________________________________________ fully paid and nonassessable shares
of the Company's Series F Preferred Stock ("Series F Stock"), and any security
into or for which such Series F Stock may hereafter be converted or exchanged
pursuant to the Certificate of Incorporation of the Company as from time to
time amended as provided by law, for cash at a price of Eighty-Eight Cents
($.88) per share (the "Stock Purchase Price") at any time or from time to time
up to and including 5:00 p.m. (Mountain Time) on the earliest of (i) the fourth
anniversary of the closing of the initial public offering of the Company's
Common Stock pursuant to a registration statement under the Securities Act of
1933, as amended (the "1933 Act"), (ii) June 20, 2002, or (iii) the closing of
a consolidation or merger of the Company with or into any other corporation or
corporations, or a sale, conveyance or disposition of all or substantially all
of the assets of the Company, such earliest day being referred to herein as the
"Expiration Date," upon surrender to the Company at its principal office (or at
such other location as the Company may advise the Holder in writing) of this
Warrant properly endorsed with the Subscription Form attached hereto as Exhibit
A duly filled in and signed and, if applicable, upon payment in cash or by
check of the aggregate Stock Purchase Price for the number of shares for which
this Warrant is being exercised determined in accordance with the provisions
hereof. The Stock Purchase Price and the number of shares purchasable hereunder
are subject to adjustment as provided in Section 3 of this Warrant.
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of the holder of
record hereof, at any time or from time to time, up to the Expiration Date for
all or any part of the shares of Series F Stock (but not for a fraction of a
share) which may be purchased hereunder.
1.2 ISSUANCE OF CERTIFICATES. The Company agrees that the shares of Series
F Stock purchased under this Warrant shall be and are deemed to be issued to
the Holder hereof as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed, executed Subscription Form (a copy of
1.
<PAGE> 2
which is attached hereto as Exhibit A) delivered and payment made for such
shares. Certificates for the shares of Series F Stock so purchased, together
with any other securities or property to which the Holder hereof is entitled
upon such exercise, shall be delivered to the Holder hereof by the Company at
the Company's expense within a reasonable time after the rights represented by
this Warrant have been so exercised. Each stock certificate so delivered shall
be in such denominations of Series F Stock as may be requested by the Holder
hereof and shall be registered in the name of such Holder. In case of a
purchase of less than all the shares which may be purchased under this Warrant,
the Company shall cancel this Warrant and execute and deliver a new Warrant or
Warrants of like tenor for the balance of the shares purchasable under the
Warrant surrendered upon such purchase to the Holder hereof within a reasonable
time.
1.3 NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Series F Stock
is greater than the Stock Purchase Price (at the date of calculation as set
forth below), in lieu of exercising this Warrant for cash, the Holder may elect
to receive shares equal to the value (as determined below) of this Warrant (or
the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Form of
Subscription and notice of such election in which event the Company shall issue
to the Holder a number of shares of Series F Stock computed using the following
formula:
X= Y(A-B)
------
A
Where X = The number of shares of Series F Stock to be issued to
Holder
Y = the number of shares of Series F Stock purchasable
under the Warrant or, if only a portion of the Warrant
is being exercised, the portion of the Warrant being
canceled (at the date of such cancelation)
A = the fair market value of one share of the Company's
Series F Stock (at the date of such calculation)
B = Stock Purchase Price (as adjusted to the date of such
calculations)
For purposes of the above calculation, the fair market value of one share of
Series F Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that in the event the Company makes an initial public
offering of its Common Stock the fair market value per share shall be: (i) if
the Warrant is being converted in connection with and contingent upon a public
offering of the Company's securities, and if the Company's registration
statement relating to such public offering has been declared effective by the
U.S. Securities and Exchange Commission, then the fair market value of the
Series F Stock shall be the initial "Price to Public" specified in the final
prospectus with respect to such offering multiplied by the number of shares of
Common Stock into which each share of Series F Stock is then convertible; or
(ii) if the Warrant is not being converted in connection with and contingent
upon a public offering of the Company's securities, then as follows: (x) if
traded on a securities exchange or the Nasdaq National Market, the fair market
value of the Common Stock shall be deemed to be the average of the closing or
last reported sale prices of the Common Stock on such exchange or market over
2.
<PAGE> 3
the 30-day period ending five business days prior to the date of calculation,
and the fair market value of the Series F Stock shall be deemed to be such fair
market value of the Common Stock multiplied by the number of shares of Common
Stock into which each share of Series F Stock is then convertible or (y) if
otherwise traded in an over-the-counter market, the fair market value of the
Common Stock shall be deemed to be the average of the reported closing bid and
ask prices of the Common Stock over the 30-day period ending five business days
prior to the date of calculation, and the fair market value of the Series F
Stock shall be deemed to be such fair market value of the Common Stock
multiplied by the number of shares of Common Stock into which each share of
Series F Stock is then convertible.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all shares of Series F Stock that may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any stockholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Series F Stock, or other securities and property, when and as required
to provide for the exercise of the rights represented by this Warrant. The
Company will take all such action as may be necessary to assure that such
shares of Series F Stock may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of any domestic
securities exchange upon which the Series F Stock may be listed; provided,
however, that the Company shall not be required to effect a registration under
Federal or State securities laws with respect to such exercise. The Company
will not take any action which would result in any adjustment of the Stock
Purchase Price (as set forth in Section 3 hereof) (i) if the total number of
shares of Series F Stock issuable after such action upon exercise of all
outstanding warrants and options, together with all shares of Series F Stock
then outstanding and all shares of Series F Stock then issuable upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Series F Stock then authorized by the Company's
Certificate of Incorporation, or (ii) if the total number of shares of Common
Stock issuable after such action upon the conversion of all outstanding shares
of Series F Stock, together with all shares of Common Stock then issuable upon
the conversion of all shares of Series F Stock then issuable upon exercise of
all outstanding warrants and options, together with all shares of Common Stock
then outstanding and all shares of Common Stock then issuable upon exercise of
all warrants and options and upon the conversion of all convertible securities
then outstanding would exceed the total number of shares of Common Stock then
authorized by the Company's Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the
number of shares obtained by multiplying the Stock Purchase Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such
3.
<PAGE> 4
adjustment, and dividing the product thereof by the Stock Purchase Price
resulting from such adjustment.
3.1 SUBDIVISION OF COMBINATION OF STOCK. In case the Company shall at any
time subdivide its outstanding shares of Series F Stock into a greater number
of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Series F Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION. If
at any time or from time to time the Holders of Series F Stock (or any shares
of stock or other securities at the time receivable upon the exercise of this
Warrant) shall have received or become entitled to receive, without payment
therefor,
3.2.1 Series F Stock or any shares of stock or other
securities which are at any time directly or indirectly convertible into or
exchangeable for Series F Stock, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or other
distribution;
3.2.2 Any cash paid or payable otherwise than as a cash
dividend; or
3.2.3 Series F Stock or additional stock or other
securities or property (including cash) by way of spin-off, split-up,
reclassification, combination of shares or similar corporate rearrangement
(other than (i) shares of Series F Stock issued as a stock split, adjustments
in respect of which shall be covered by the terms of Section 3.1 above or (ii)
an event for which adjustment is otherwise made pursuant to Section 3.3 below);
then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Series
F Stock receivable thereupon, and without payment of any additional
consideration therefor, the amount of stock and other securities and property
(including cash in the cases referred to in clauses 3.2.2 and 3.2.3 above)
which such Holder would hold on the date of such exercise had he been the
holder of record of such Series F Stock as of the date on which holders of
Series F Stock received or became entitled to receive such shares or all other
additional stock and other securities and property.
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If
any recapitalization, reclassification or capital reorganization of the capital
stock of the Company, or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets or
other transaction shall be effected in such a way that holders of Series F
Stock shall be entitled to receive stock, securities, or other assets or
property (a "Restructuring"), then, as a condition of such Restructuring,
lawful and adequate provisions shall be made whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Series F Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby) such shares of
stock, securities or other assets or property as may be issued or payable with
respect to or in exchange for a number
4.
<PAGE> 5
of outstanding shares of such Series F Stock equal to the number of shares of
such stock immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby; provided, however, that in the event the
value of the stock, securities or other assets or property (determined in good
faith by the Board of Directors of the Company) issuable or payable with
respect to one share of the Series F Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby is in excess of the Stock Purchase Price hereof effective at
the time of a merger and securities received in such reorganization, if any,
are publicly traded, then this Warrant shall expire unless exercised prior to
the Restructuring. In any Restructuring described above, appropriate provision
shall be made with respect to the rights and interests of the Holder of this
Warrant to the end that the provisions hereof (including, without limitation,
provisions for adjustments of the Stock Purchase Price and of the number of
shares purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof.
The Company will not effect any such consolidation, merger or sale unless,
prior to the consummation thereof, the successor corporation (if other than the
Company) resulting from such consolidation or the corporation purchasing such
assets shall assume by written instrument, executed and mailed or delivered to
the registered Holder hereof at the last address of such Holder appearing on
the books of the Company, the obligation to deliver to such Holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.
3.4 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase Price
or any increase or decrease in the number of shares purchasable upon the
exercise of this Warrant, the Company shall give written notice thereof, by
first class mail, postage prepaid, addressed to the registered Holder of this
Warrant at the address of such Holder as shown on the books of the Company. The
notice shall be signed by the Company's President and shall state the Stock
Purchase Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at such price upon the exercise of
this Warrant, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
3.5 OTHER NOTICES. If at any time:
3.5.1 the Company shall declare any cash dividend upon its
Series F Stock;
3.5.2 the Company shall declare any dividend upon its
Series F Stock payable in stock or make any special dividend or other
distribution to the holders of its Series F Stock;
3.5.3 there shall be any Restructuring;
3.5.4 there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or
3.5.5 there shall be an initial public offering of Company
securities;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address
of such Holder as shown on the books of
5.
<PAGE> 6
the Company, (a) at least ten (10) days prior written notice of the date on
which the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any such Restructuring, dissolution, liquidation or winding-up,
and (b) in the case of any such Restructuring, dissolution, liquidation,
winding-up or public offering, at least ten (10) days prior written notice of
the date when the same shall take place; provided, however, that the Holder
shall make a best efforts attempt to respond to such notice as early as
possible after the receipt thereof. Any notice given in accordance with the
foregoing clause (a) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Series F
Stock shall be entitled thereto. Any notice given in accordance with the
foregoing clause (b) shall also specify the date on which the holders of Series
F Stock shall be entitled to exchange their Series F Stock for securities or
other property deliverable upon such Restructuring, dissolution, liquidation,
winding-up or public offering, as the case may be.
3.6 CERTAIN EVENTS. If any change in the outstanding Series F Stock of the
Company or any other event occurs as to which the other provisions of this
Section 3 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with such provisions, the Board of Directors of the Company shall make an
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price or the application of such provisions, so as to protect
such purchase rights as aforesaid. The adjustment shall be such as will give
the Holder of the Warrant upon exercise for the same aggregate Stock Purchase
Price the total number, class and kind of shares as he would have owned had the
Warrant been exercised prior to the event and had he continued to hold such
shares until after the event requiring adjustment.
4. ISSUE TAX. The issuance of certificates for shares of Series F Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of any warrant or of any shares of Series F Stock issued
or issuable upon the exercise of any warrant in any manner which interferes
with the timely exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder of
the Company or any other matters or any rights whatsoever as a stockholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provision hereof in the absence of affirmative action by the
holder to purchase shares of Series F Stock, and no mere enumeration herein of
the rights or privileges of the Holder hereof, shall give rise to any liability
of such holder for the Stock Purchase Price or as a stockholder of the Company,
whether such liability is asserted by the Company or by its creditors.
6.
<PAGE> 7
7. INVESTORS' RIGHTS AGREEMENT. The registration rights of the Holder
(including Holder's successors) with respect to this Warrant and the underlying
stock will be the same as granted to the holders of the Company's Series F
Stock.
8. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal
and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed and in
compliance with such provisions. Each taker and holder of this Warrant, by
taking or holding the same, consents and agrees that this Warrant, when
endorsed in blank, shall be deemed negotiable, and that the holder hereof, when
this Warrant shall have been so endorsed, may be treated by the Company, at the
Company's option, and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise
the rights represented by this Warrant, or to the transfer hereof on the books
of the Company any notice to the contrary notwithstanding; but until such
transfer on such books, the Company may treat the registered owner hereof as
the owner for all purposes.
9. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Series F Stock issued upon exercise of this Warrant, referred to in
Sections 7 and 8 shall survive the exercise of this Warrant.
10. MODIFICATION AND WAIVER. Any change, waiver, discharge or termination
agreed to in writing by a majority in interest of holders of warrants of the
Company of even date shall be binding on Holder and assigns.
11. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof or the Company shall be delivered
or shall be sent by first-class mail, postage prepaid, to each such holder at
its address as shown on the books of the Company or to the Company at the
address indicated therefor in the first paragraph of this Warrant or such other
address as either may from time to time provide to the other.
12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Series F Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of Colorado.
14. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of
7.
<PAGE> 8
an indemnity reasonably satisfactory to the Company, or in the case of any such
mutilation upon surrender and cancellation of such Warrant, the Company, at its
expense, will make and deliver a new Warrant, of like tenor, in lieu of the
lost, stolen, destroyed or mutilated Warrant.
15. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share,
pay the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
8.
<PAGE> 9
IN WITNESS WHEREOF,the Company has caused this Warrant to be duly
executed by its President and Chief Executive Officer, thereunto duly
authorized this _____ day of June, 1997.
BIOSTAR, INC.,
a Delaware corporation
---------------------------------
Teresa W. Ayers
President/Chief Executive Officer
9.
<PAGE> 10
EXHIBIT A
SUBSCRIPTION FORM
Date:______________, 19___
BioStar, Inc.
6655 Lookout Road
Boulder, Colorado 80301
Attn: President/Chief Executive Officer
Ladies and Gentlemen:
[ ] The undersigned hereby elects to exercise the warrant issued to it by
BioStar, Inc. (the "Company") and dated June 20, 1997, Warrant No.
WF-1 (the "Warrant") and to purchase thereunder __________ shares of
the Series F Preferred Stock of the Company (the "Shares") at a
purchase price of Eighty-Eight Cents ($.88) per Share, or an aggregate
purchase price of ___________________________________ ($__________)
(the "Purchase Price").
[ ] The undersigned hereby elects to convert ___________________ percent
(___%) of the value of the Warrant pursuant to the provisions of
Section 1.3 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
The undersigned also makes the representations set forth on the attached
Exhibit B of the Warrant.
Very truly yours,
------------------------------------
By:
--------------------------------
Title:
-----------------------------
<PAGE> 11
EXHIBIT B
INVESTMENT REPRESENTATIONS
THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO BIOSTAR, INC. ALONG
WITH THE SUBSCRIPTION FORM BEFORE THE SERIES F PREFERRED STOCK ISSUABLE UPON
EXERCISE OF THE WARRANT DATED __________________, 199__, WILL BE ISSUED.
_____________________, 19__
BioStar, Inc.
6655 Lookout Road
Boulder, Colorado 80301
Attn: President/Chief Executive Officer
Ladies and Gentlemen:
The undersigned, __________________________ ("Purchaser"), intends to
acquire up to _______________ shares of the Series F Preferred Stock (the
"Series F Stock") of BioStar, Inc. (the "Company") from the Company pursuant to
the exercise or conversion of certain Warrants to purchase Series F Stock held
by Purchaser. The Series F Stock will be issued to Purchaser in a transaction
not involving a public offering and pursuant to an exemption from registration
under the Securities Act of 1933, as amended (the "1933 Act") and applicable
state securities laws. Purchaser has been advised that the Series F Stock has
not been registered under the 1933 Act or state securities laws on the ground
that this transaction is exempt from registration, and that reliance by the
Company on such exemptions is predicated in part on Purchaser's representations
set forth in this letter. Accordingly, Purchaser represents, warrants and
agrees as follows:
1. Purchaser is acquiring the Series F Stock for its own account
and beneficial interest, to hold for investment and not for sale or with a view
to distribution of the Series F Stock or any part thereof. Purchaser has no
present intention of selling (in connection with a distribution or otherwise),
granting any participation in, or otherwise distributing the same, and does not
presently have reason to anticipate a change in such intention.
2. Purchaser acknowledges that it has received all the
information it has requested from the Company and considers necessary or
appropriate for deciding whether to acquire the Series F Stock. Purchaser
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
Series F Stock and to obtain any additional information necessary to verify the
accuracy of the information given the Purchaser. Purchaser further represents
that it has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risk of this investment.
3. Purchaser is an "accredited investor" as such term is defined
in Rule 501 under the 1933 Act.
1.
<PAGE> 12
4. Purchaser acknowledges that investment in the Series F Stock
involves a high degree of risk, and represents that it is able, without
materially impairing its financial condition, to hold the Series F Stock for an
indefinite period of time and to suffer a complete loss of its investment.
5. Purchaser has been informed that under the 1933 Act, the
Series F Stock must be held indefinitely unless it is subsequently registered
under the 1933 Act or unless an exemption from such registration (such as Rule
144) is available with respect to any proposed transfer or disposition by
Purchaser of the Series F Stock. Purchaser further agrees that the Company may
refuse to permit Purchaser to sell, transfer or dispose of the Series F Stock
(except as permitted under Rule 144) unless there is in effect a registration
statement under the 1933 Act and any applicable state securities laws covering
such transfer, or unless Purchaser furnishes an opinion of counsel reasonably
satisfactory to counsel for the Company, to the effect that such registration
is not required. Purchaser shall not make any sale, transfer or other
disposition of the Series F Stock in violation of the 1933 Act or the General
Rules and Regulations promulgated thereunder by the Securities and Exchange
Commission or in violation of any applicable state securities law.
6. Purchaser also understands and agrees that there will be
placed on the certificate(s) for the Series F Stock, or any substitutions
therefor, a legend stating in substance:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"), or any
state securities laws. These shares have been acquired for investment
and may not be sold or otherwise transferred in the absence of an
effective registration statement for these shares under the 1933 Act
and applicable state securities laws, or an opinion of counsel
satisfactory to the Company that registration is not required and that
an applicable exemption is available."
Purchaser has carefully read this letter and has discussed its
requirements and other applicable limitations upon Purchaser's resale of the
Series F Stock with Purchaser's counsel.
Very truly yours,
--------------------------------
By:
----------------------------
Title:
-------------------------
2.
<PAGE> 1
RESTATED INVESTORS' RIGHTS AGREEMENT
THIS RESTATED INVESTORS' RIGHTS AGREEMENT is made as of November 14,
1994 by and among BIOSTAR, INC., a Delaware corporation (the "Company"), and
the investors listed on Schedule A hereto. Each such investor is herein
referred to individually as an "Investor" and collectively as the "Investors."
RECITALS
WHEREAS, in connection with the sale and issuance of additional shares
of the Company's Series E Preferred Stock the Company and a new investor listed
on Schedule A hereto are parties to that certain Series E Preferred Stock
Purchase Agreement, dated June 27, 1994, as amended by Letter Agreement of even
date herewith (the "Series E Agreement");
WHEREAS, stock rights were previously granted pursuant to the Restated
Investors' Rights Agreement dated as of June 27, 1994 (the "Prior Rights
Agreement") to the BMPI Liquidating Trust (the "Trust"), Dominion Ventures,
Inc. ("DVI"), the investors who previously purchased Series D Preferred Stock,
and the investors who previously purchased Series E Preferred Stock (the "Prior
Investors");
WHEREAS, in order to induce the Company to enter into the Series E
Agreement and to induce certain of the investors listed on Schedule A hereto to
invest funds in the Company pursuant to the Series E Agreement, the investors
listed on Schedule A hereto and the Company hereby agree that this Agreement
shall govern the rights of the investors listed on Schedule A hereto to cause
the Company to register shares of Common Stock issuable to the investors listed
on Schedule A hereto and certain other matters as set forth herein; and
WHEREAS, it is anticipated that future sales of securities of a
similar nature may occur;
WHEREAS, the Company and the Investors desire to set forth in a single
agreement the rights to be granted to the investors who are parties to the
Series E Agreement.
NOW, THEREFORE,the parties hereby agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as
follows:
1.1 DEFINITIONS. For purposes of this Agreement:
(a) The term "ACT" means the Securities Act of 1933, as
amended;
(b) The term "REGISTER," "REGISTERED," and
"REGISTRATION" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document;
(c) The term "REGISTRABLE SECURITIES" means (1)the
Common Stock issuable or issued upon conversion of the Series A Preferred
Stock, (2) the Common Stock
1.
<PAGE> 2
issuable upon conversion of the Series B Preferred Stock, (3) the Common Stock
issuable upon conversion of the Series B Preferred Stock issuable upon exercise
of a warrant potentially exercisable for a maximum of 60,750 shares of the
Company's Series B Preferred Stock (the "Series B Warrant") issued to DVI
pursuant to that certain Warrant to Purchase Shares of Series B Preferred
Stock, dated November 2, 1992, (4)the Common Stock issuable upon conversion of
the Series C Preferred Stock issuable upon conversion or exercise of a
convertible instrument potentially convertible into a maximum of 1,600,000
shares of the Company's Series C Preferred Stock (the "Convertible Instrument")
issued to the Trust pursuant to that certain Asset Purchase Agreement dated
June 17, 1992, by and between the Company and the Trust (the "Asset Purchase
Agreement"), (5) the Common Stock issuable upon conversion of the Series E
Preferred Stock issuable upon exercise of a warrant potentially exercisable for
a maximum of 53,357 shares of the Company's Series E Preferred Stock (the
"Series E Warrant") issued to DVI pursuant to that certain Warrant to Purchase
shares of Series E Preferred Stock, dated February 18, 1994, (6)the Common
Stock issuable upon conversion of the Series D Preferred Stock, (7)the Common
Stock issuable upon conversion of the Series E Preferred Stock, and (8) any
Common Stock of the Company issued (or issuable upon the conversion or exercise
of any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Series A, Series B, Series C, Series D or Series E Preferred Stock or Common
Stock, excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which his rights under this Section 1 are not
assigned;
(d) The number of shares of "REGISTRABLE SECURITIES THEN
OUTSTANDING" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(e) The term "HOLDER" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.13 hereof; and
(f) The term "FORM S-3" means such form under the Act as
in effect on the date hereof or any registration form under the Act
subsequently adopted by the Securities and Exchange Commission ("SEC") which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after the
earlier of (i) June 27, 1997, or (ii) three (3) months after the effective date
of the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction), a written request from
the Holders of at least a majority of the Registrable Securities then
outstanding that the Company file a registration statement under the Act
covering the registration of at least twenty percent (20%) of the Registrable
Securities then outstanding (or a lesser percent if the anticipated aggregate
offering price, net of underwriting discounts and commissions would exceed
$5,000,000), then the
2.
<PAGE> 3
Company shall, within ten (10) days of the receipt thereof, give written notice
of such request to all Holders and shall, subject to the limitations of
subsection 1.2(b), effect as soon as practicable, and in any event shall use
its best efforts to effect within sixty (60) days of the receipt of such
request, the registration under the Act of all Registrable Securities which the
Holders request to be registered within twenty (20) days of the mailing of such
notice by the Company in accordance with paragraph 3.5.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 1.2
and the Company shall include such information in the written notice referred
to in subsection 1.2(a). The underwriter will be selected by the Company and
shall be reasonably acceptable to a majority in interest of the Initiating
Holders. In such event, the right of any Holder to include his Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
1.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first
entirely excluded from the underwriting.
(c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 60 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve-month period.
1.3 COMPANY REGISTRATION. If (but without any obligation to
do so) the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Holders)
any of its stock or other securities under the Act in connection with the
public offering of such securities solely for cash (other than a registration
3.
<PAGE> 4
relating solely to the sale of securities to participants in a Company stock
plan, or a registration on any form which does not include substantially the
same information as would be required to be included in a registration
statement covering the sale of the Registrable Securities), the Company shall,
at such time, promptly give each Holder written notice of such registration.
Upon the written request of each Holder given within twenty (20) days
after mailing of such notice by the Company in accordance with Section 3.5, the
Company shall, subject to the provisions of Section 1.8, cause to be registered
under the Act all of the Registrable Securities that each such Holder has
requested to be registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under
this Section 1 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
twenty (120) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdiction as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
4.
<PAGE> 5
(g) Use its best efforts to furnish, at the request of
any Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this
Section 1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i)an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities
and (ii) a letter dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
1.5 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Section 1 with respect to
the Registrable Securities of any selling Holder that such Holder shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of such securities as shall
be required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to
any registration requested pursuant to Section 1.2 or Section 1.12 if, due to
the operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's
obligation to initiate such registration as specified in subsection 1.2(a) or
subsection 1.12(b)(2), whichever is applicable.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2 including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel or the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all Participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 1.2; provided
further, however, that if at the time of such withdrawal, the Holders have
learned of a material adverse change in the condition, business, or prospects
of the Company from that known to the Holders at the time of their request and
have withdrawn the request with reasonable promptness following disclosure by
the Company of such material adverse change, then the Holders shall not be
required to pay any of such expenses and shall retain their rights pursuant to
Section 1.2.
5.
<PAGE> 6
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as
provided in Section 1.13), including (without limitation) all registration,
filing, and qualification fees, printers and accounting fees relating or
apportionable thereto and the fees and disbursements of one counsel for the
selling Holders selected by them, but excluding underwriting discounts and
Commissions relating to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected
by it (or by other persons entitled to select the underwriters), and then only
in such quantity as the underwriters determine in their sole discretion will
not, jeopardize the success of the offering by the Company. If the total amount
of securities, including Registrable Securities, requested by stockholders to
be included in such offering exceeds the amount of securities sold other than
by the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders) but in no event shall (i) the amount of
securities of the selling Holders included in the offering be reduced below
thirty percent (30%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities in which case the selling stockholders may be excluded if the
underwriters make the determination described above and no other stockholder's
securities are included or (ii) notwithstanding (i) above, any shares being
sold by a stockholder exercising a demand registration right similar to that
granted in Section 1.2 be excluded from such offering. For purposes of the
preceding parenthetical concerning apportionment, for any selling stockholder
which is a holder of Registrable Securities and which is a partnership or
corporation, the partners, retired partners and stockholders of such holder, or
the estates and family members of any such partners and retired partners and
any trusts for the benefit of any of the foregoing persons shall be deemed to
be a single "selling stockholder," and any pro-rata reduction with respect to
such "selling stockholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling stockholder," as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right
to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
6.
<PAGE> 7
1.10 INDEMNIFICATION. In the event any Registrable
Securities are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the Securities Exchange Act of
1934, as amended (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii)any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subsection 1.10(a) shall not apply to amounts paid
in settlement of any such loss claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred
by any person intended to be indemnified pursuant to this subsection 1.10(b),
in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
1.10(b) exceed the gross proceeds from the offering received by such Holder.
7.
<PAGE> 8
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.10,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section
1.10 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) The obligations of the Company and Holders under
this Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
8.
<PAGE> 9
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety
(90) days after the effective date of the first registration statement filed by
the Company for the offering of its securities to the general public;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after
the end of the fiscal year in which the first registration statement filed by
the Company for the offering of its securities to the general public is
declared effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably requested
in availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 FORM S-3 REGISTRATION. In case the Company shall
receive from any Holder or Holders of twenty percent (20%) or more of the
Registrable Securities then outstanding a written request or requests that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders; and
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this Section
1.12: (1) if Form S-3 is not available for such offering by the Holders; (2) if
the Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than
$250,000; (3) if the Company shall furnish to the Holders a certificate signed
by the president of the Company stating that in the good faith judgment of the
Board of Directors of the
9.
<PAGE> 10
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than sixty (60) days after receipt of the
request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any twelve-
month period; (4) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two registrations on Form
S-3 for the Holders pursuant to this Section 1.12; or (5) in any particular
jurisdiction in which the Company would be required to qualify to do business
or to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 1.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, but excluding any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne pro rata by
the Holder or Holders participating in the Form S-3 Registration. Registrations
effected pursuant to this Section 1.12 shall not be counted as demands for
registration or registrations effected pursuant to Sections 1.2 or 1.3,
respectively.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least 500,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalization), or if less, the entire amount of Registrable Securities held
by such Holder is transferred, provided the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and address
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by
gift, will or intestate succession) shall be aggregated together and with the
partnership; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights receiving notices or
taking any action under this Section 1. For the purposes of determining the
number of shares of Registrable Securities held by a transferee or assignee the
holdings of transferees and assignees of a trust who are beneficiaries of such
trust (including spouses and ancestors, lineal descendants and siblings of such
beneficiaries or spouses who acquire Registrable Securities by gift, will or
intestate succession) shall be aggregated together and with the trust; provided
that all assignees and transferees who would not qualify individually for
assignment of registration rights shall have a single attorney-in-fact for the
purpose of exercising any rights, receiving notices or taking any action under
this Section 1.
10.
<PAGE> 11
The registration rights of the Holders under this Agreement may be transferred
to any transferee which is an affiliated Limited Partnership (as defined in the
Series B Warrant) or fund of such Holder ("Affiliated Fund") without the prior
written consent of the Company and without regard to the number of shares of
Registrable Securities held by such transferee.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of his securities will not reduce the amount of
the Registrable Securities of the Holders which is included or (b) to make a
demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
subsection 1.2(a) or within one hundred twenty (120) days of the effective date
of any registration effected pursuant to Section 1.2.
1.15 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby
agrees that, during the period of duration specified by the Company and an
underwriter of Common Stock or other securities of the Company, following the
effective date of a registration statement of the Company filed under the Act,
shall not, to the extent requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell (including,
without limitation, any short sale), grant any option to purchase or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound)
any securities of the Company held by it at any time during such period except
Common Stock included in such registration; provided, however, that (i) all
officers and directors of the Company and all other persons with registration
rights (whether or not pursuant to this Agreement) enter into similar
agreements, (ii) the provisions of this Section 1.15 shall terminate and be of
no further force or effect three (3) years after the consummation of the
initial public offering of securities of the Company (other than a registration
statement relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145
transaction) and (iii) such period of duration shall not exceed one hundred
eighty (180) days; provided that the parties hereto expressly agree to and
understand that such 180-day period may be shortened or lengthened by a writing
signed by the holders of a majority of the Registrable Securities.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.16 AMENDMENT AND WAIVER OF REGISTRATION RIGHTS. Any provision
of this Section 1 may be amended and the observance thereof 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 fifty percent (50%) of the Registrable Securities then outstanding.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Registrable Securities then outstanding, each
future holder of all such Registrable Securities, and the Company.
11.
<PAGE> 12
1.17 TERMINATION OF REGISTRATION RIGHTS. No Holder shall
be entitled to exercise any right provided for in this Section ! after five (5)
years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with
the initial firm commitment underwritten offering of its securities to the
general public.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENT. The Company shall
deliver to each Major Investor who holds at least an aggregate of 400,000 shams
of the Series A, Series B, Series C, Series D or Series E Preferred Stock of
the Company (or the common stock issued upon conversion thereof) ("Major
Investor"):
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a schedule as to the
sources and applications of funds for such year, such year-end financial
reports to be in reasonable detail, prepared in accordance with generally
accepted accounting principles ("GAAP"), and audited and certified by
independent public accountants of nationally recognized standing selected by
the Company;
(b) as soon as practicable, but in any event within
forty- five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement,
schedule as to the sources and application of funds for such fiscal quarter, an
unaudited balance sheet and a statement of shareholder's equity as of the end
of such fiscal quarter and a statement showing the number of shares of each
class and Series of capital stock and securities convertible into or
exercisable for shares of capital stock outstanding at the end of the period,
the number of common shares issuable upon conversion or exercise of any
outstanding securities convertible or exercisable for common shares and the
exchange ratio or exercise price applicable thereto, all in sufficient detail
as to permit the Major Investor to calculate its percentage equity ownership in
the Company;
(c) within thirty (30) days of the end of each month, an
unaudited income statement and schedule as to the sources and application of
funds and balance sheet for and as of the end of such month, in reasonable
detail;
(d) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, including balance sheets and
sources and applications of funds statements for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company;
(e) with respect to the financial statements called for
in subsections (b) and (c) of this Section 2.1, an instrument executed by the
Chief Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with
prior practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment;
12.
<PAGE> 13
(f) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time request,
provided, however, that the Company shall not be obligated under this
subsection (f) or any other subsection of Section 2.1 to provide information
which it deems in good faith to be a trade secret or similar confidential
information.
2.2 INSPECTION. The Company shall permit each Major Investor,
at such Major Investor's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Major Investor; provided, however,
that the Company shall not be obligated pursuant to this Section 2.2 to provide
access to any information which it reasonably considers to be a trade secret or
similar confidential information.
2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS.
The covenants set forth in subsections 2.1(c), (d) and (f) and Section 2.2
shall terminate as to Investors and be of no further force or effect when the
sale of securities pursuant to a registration statement filed by the Company
under the Act in connection with the firm commitment underwritten offering of
its securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of Sections 12(g) or
15(d) of the 1934 Act, whichever event shall first occur.
3. RIGHT OF FIRST REFUSAL.
3.1 GENERAL. No party to this Agreement other than the
Company shall sell, assign, transfer, or in any other manner dispose of or
alienate, or transfer or assign any interest in, any or all of the Shares (as
such term is defined below) which now or hereafter may be held or owned by them
to any person or entity unless such party (for purposes of this Section 3 only
referred to as "Offeror") shall have first made the written offer to sell as
hereinafter described, and the offered Shares shall not have been purchased,
within the time hereinafter provided.
For purposes of this Section 3, "Shares" shall include and be deemed
to mean: (i) Series A Preferred Stock, (ii) Series B Preferred Stock, (iii)
Series C Preferred Stock, (iv) Series D Preferred Stock, (v)Series E Preferred
Stock, (vi) the Common Stock issued or issuable upon conversion of the Series
A, Series B, Series C, Series D or Series E Preferred Stock, and (vii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Series A, Series B, Series C, Series D, or Series E Preferred Stock or
Common Stock.
3.2 OFFER BY STOCKHOLDER. The Shares which the Offeror desires
to sell, assign, or transfer (the "Offered Shares") shall first be offered to
the Company by a written offer (the "Offer") to sell at the price, and on the
terms, set forth in subsection 3.4 below) to which shall be attached a
statement of intention to sell, assign, transfer, or otherwise dispose of the
Shares being offered, as the case may be, the name and address of each
prospective purchaser or assignee, if any, the number of Shares involved in the
proposed sale, assignment, or transfer, and
13.
<PAGE> 14
the price and terms of any such bona fide offer. The Offer shall be signed by
the Offeror and shall be delivered pursuant to the notice provisions of Section
5.5.
3.3 OPTION OF COMPANY TO PURCHASE. For thirty (30) days after
the receipt of the Offer (the "Offer Period"), the Company shall have the
right, but not the obligation to purchase all or some of the Offered Shares. If
the Company elects to purchase any of the Offered Shares, it shall so notify
the Offeror prior to the end of the Offer Period. The notice shall specify a
date for the closing of the purchase which shall not be more than thirty (30)
days after the date of the giving of such notice.
3.4 PURCHASE PRICE AND TERMS. The purchase price of the Shares
offered by the Offeror pursuant to this Section 3 to the Company shall be equal
to the price offered for the Shares by a prospective purchaser pursuant to a
bona fide offer of purchase (if received), as set forth in the Offer. The
Company shall purchase the Shares, on terms and conditions no less favorable to
the Company than those received by the Offeror in a bona fide offer of purchase
by a third party. In the event the purchase price specified in the Offer is
payable in property other than cash, the Company shall have the right to pay
the purchase price in the form of cash equal in amount to the fair market value
of such property as determined in good faith by the parties. If the Offeror and
the Company cannot agree on such cash value within ten (10) days after the
Company's receipt of the notice by the Offeror pursuant to this Section 3, the
valuation shall be made by an appraiser of recognized standing selected by the
Offeror and the Company or, if they cannot agree on an appraiser within twenty
(20) days after receipt of such notice, each shall select an appraiser of
recognized standing and the two appraisers shall designate a third appraiser of
recognized standing, whose appraisal shall be determinative of such value, and
which appraisal shall be completed within forty-five (45) days after receipt of
such notice. The closing for such purchase shall then be held on the later of
(i) the 15th business day following the exercise of the rights hereunder or
(ii) the 15th day after such cash valuation shall have been made.
3.5 RELEASE FROM RESTRICTION. If all of the Offered Shares are
not purchased by the Company in accordance with the terms of this Section 3,
the Offeror's offer shall be deemed rejected with respect to the remaining
Offered Shares, and, subject to the provisions of this Section 3 below, the
Offeror may make a bona fide sale, assignment, transfer, or other disposition
of all, but not less than all, of the remaining Offered Shares to the
prospective purchaser named in the statement attached to the offer at a price
not less than, and upon terms not more favorable than, the bona fide offer, if
any, described in the Offer.
If the Offeror shall fail to make such sale, assignment, transfer, or
other disposition within one hundred twenty (120) days following the expiration
of all periods of time hereinabove provided for purchase by the Company, the
remaining Offered Shares shall again become subject to all of the restrictions
of this Agreement and except as otherwise provided in this Agreement, the
Offeror shall not sell, assign, transfer or otherwise dispose of or alienate
the Shares without again offering said Shares to the Company as hereinabove
provided.
3.6 ASSIGNMENT. The Company may assign its right of first
refusal under this Section 3 to any party or parties.
14.
<PAGE> 15
3.7 LAPSE. The right of first refusal under this Section 3
shall not be applicable to any sale of Shares pursuant to Section 1 of this
Agreement. In addition, the right of first refusal shall not apply to the
distribution of any Shares (i)held by the Trust to its beneficiaries; provided,
that the Trust obtains the prior written consent of the Company to such
distribution, and (ii) by a party to an Affiliated Fund. The right of first
refusal shall lapse upon the consummation of the Company's sale of its Common
Stock in a bona fide, firm commitment underwriting pursuant to a registration
statement on Form S-1 under the Act, the public offering price of which was not
less than $5.00 per share (adjusted to reflect subsequent stock dividends,
stock splits or recapitalization) and $10,000,000 in the aggregate.
4. RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 4, the Company hereby grants to each Major Investor a
right of first offer with respect to future sales by the Company of its Company
Shares (as hereinafter defined). A Major Investor shall be entitled to
apportion the right of first offer hereby granted it among itself and its
partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Company Shares"), the Company shall first make an offering of such
Company Shares to each Major Investor in accordance with the following
provisions:
4.1 NOTICE. The Company shall deliver a notice by
certified mail ("Notice") to the Major Investors stating (i)its bona fide
intention to offer such Company Shares, (ii)the number of such Company Shares
to be offered, and (iii) the price and terms, if any, upon which it proposes to
offer such Company Shares.
4.2 ELECTION TO EXERCISE. Within ten (10) days after
receipt of the Notice, the Major Investor may elect to purchase or obtain, at
the price and on the terms specified in the Notice, up to that portion of such
Company Shares which equals the proportion that the number of shares of Common
Stock issued and held, or issuable upon conversion of the Series A, Series B,
Series C, Series D and Series E Preferred Stock then held, by such Major
Investor bears to the total number of shares of Common Stock (assuming
conversion of the Series A, Series B, Series C, Series D and Series E Preferred
Stock and the exercise or conversion of all outstanding options, warrants and
other instruments convertible into or exercisable for either Common Stock or
securities convertible into or exercisable for Common Stock) of the Company
then outstanding.
4.3 UNSUBSCRIBED PORTIONS. If all Company Shares referred
to in the Notice are not elected to be obtained as provided in subsection 4.2
hereof, the Company may, during the 30-day period following the expiration of
the period provided in subsection 4.2 hereof, offer the remaining unsubscribed
portion of such Company Shares to any person or persons at a price not less
than, and upon terms no more favorable to the offeree than those specified in
the Notice. If the Company does not enter into an agreement for the sale of the
Company Shares within such period, or if such agreement is not consummated
within thirty (30) days of the execution thereof, the right provided hereunder
shall be deemed to be revived and such Company Shares shall not be offered
unless first reoffered to the Major Investors in accordance herewith.
15.
<PAGE> 16
4.4 APPLICABILITY. The right of first offer in this Section 4
shall not be applicable (i)to the issuance or sale of shares of Common Stock
(or options therefor) to employees, directors or consultants of the Company,
(ii) the issuance of securities pursuant to the conversion or exercise of
convertible or exercisable securities, (iii) the issuance of securities in
connection with a bona fide business acquisition of or by the Company, whether
by merger, consolidation, sale of assets, sale or exchange of stock or
otherwise, (iv)the issuance of securities pursuant to a corporate partnership
(as determined by the Board of Directors), (v) the issuance of stock, warrants
or other securities or rights to persons or entities with which the Company has
business relationships, provided such issuances are for other than primarily
equity financing purposes, (vi)the issuance of securities pursuant to an
underwritten offering of the Company's securities, whether in a public offering
or in a private placement, or (vii)after consummation of the Company's sale of
its Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement on Form S-1 under the Act, the public offering price of
which was not less than $5.00 per share (adjusted to reflect subsequent stock
dividends, stock splits or recapitalization) and $10,000,000 in the AGGREGATE.
4.5 WAIVER OF RIGHT OF FIRST OFFER. Those undersigned Investors
who are parties to the Prior Rights Agreement hereby agree that the issuance of
shares of Series E Preferred Stock to the Investors listed in Schedule A hereto
shall not be subject to the right of first offer held by the Prior Investors
pursuant to Section 4 of the Prior Rights Agreement. In addition, the Prior
Investors hereby waive the notice provisions contained in Section 4.1 of the
Prior Rights Agreement. The Prior Investors represent at least a majority of
the shares held by the "Major Investors" (as defined in the Prior Rights
Agreement).
Each of the parties to this Agreement expressly agrees and
acknowledges that any rights specified in this Section 4 may be waived for any
reason by a writing signed by Major Investors holding a majority of the shares
held by all Major Investors. The Major Investors acknowledge and agree that
they owe no duty by reason of this Agreement to each other or among themselves
to provide any opportunity to exercise the right of first offer set forth in
this Section 4, and that any waiver in accordance with this provision shall be
binding on all of them.
5. MISCELLANEOUS.
5.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
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 (including
transferees of any shares of Registrable Securities). 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.
5.2 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware as applied to agreements
among Delaware residents entered into and to be performed entirely within
Delaware.
16.
<PAGE> 17
5.3 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.
5.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.5 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
5.6 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
5.7 AMENDMENTS AND WAIVERS. Except with respect to Sections 1
and 4, 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 a majority of the Common Stock issued
or issuable upon conversion of the Series A, Series B, Series C, Series D and
Series E Preferred Stock, so long as such amendment or waiver does not treat
the holders of Common Stock issued or issuable upon conversion of a particular
Series of Preferred Stock differently than the holders of Common Stock issued
or issuable upon conversion of another Series of Preferred Stock. Any amendment
or waiver effected in accordance with any applicable provision of this
Agreement shall be binding upon each holder of any such Series A, Series B,
Series C, Series D or Series E Preferred Stock (including the Common Stock into
which such Preferred Stock are convertible) each future party to this
Agreement, and the Company.
5.8 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 the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
5.9 ASSIGNMENT. Except as provided in Sections 1.13 and 3.6,
neither this Agreement nor the rights and obligations contained herein may
be assigned by an Investor without the prior written consent of the Company.
Any assignment in violation of the preceding sentence shall be void.
5.10 ENTIRE AGREEMENT. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
5.11 AGGREGATION OF STOCK. All shares of the Company's Common
Stock or Preferred Stock held or acquired by affiliated venture capital or
partnerships or limited or general
17.
<PAGE> 18
partners of such partnerships shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
5.12 TERMINATION OF PRIOR RIGHTS AGREEMENT. This Agreement
amends and supersedes the Prior Rights Agreement. The Prior Rights Agreement
was amended pursuant to Section 5.7 of that agreement pursuant to the written
consent of the company and the holders of a majority of the Common Stock issued
or issuable upon conversion of the Series A, Series B, Series C and Series D
Preferred Stock, and, with respect to Section 1 of the Prior Rights Agreement
by the holders of a majority of the Registrable Securities and with respect to
Section 4 of the Prior Rights Agreement by a majority of the shares held by the
Major Investors (as defined in the Prior Rights Agreement).
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
BIOSTAR, INC.
By: /s/ Henry T. Pietraszek
-----------------------------
Henry T. Pietraszek, President
Address: 6655 Lookout Road
Boulder, CO 80301
INVESTORS:
KLEINER PERKINS CAUFIELD & BYERS VI
By:
-----------------------------
A general partner
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
HILL PARTNERSHIP III
By: Hill, Carman Ventures
A Limited Partnership
By:
-----------------------------
A general partner
Address: 885 Arapahoe Avenue
Boulder, CO 80303
18.
<PAGE> 19
MARQUETTE VENTURE PARTNERS II, L.P.
By: Marquette General II, L.P.
its General Partner
By:
-----------------------------
An authorized signatory
Address: 520 Lake Cook Road,
Suite 450
Deerfield, IL 60015
MVP II AFFILIATES FUND, L.P.
By: Marquette General II,
its General Partner
By:
-----------------------------
An authorized signatory
Address: 520 Lake Cook Road, Suite 450
Deerfield, IL 60015
INTEGRAL CAPITAL PARTNERS, L.P.
By: Integral Capital Management, L.P.,
its General Parmer
By:
-----------------------------
Its general partner
Address: Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
19.
<PAGE> 20
INTEGRAL CAPITAL PARTNERS INTERNATIONAL, C.V.
By: Integral Capital Management, L.P.,
its investment General Partner
By:
-----------------------------
Its general partner
Address: Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
WILLIAM H. GATES, L.P.
By:
-----------------------------
Address: 15302 Woodfern Drive, S.E.
Millcreek, WA 98012
DOMINION VENTURES, INC.
By:
-----------------------------
Address:
SKANDIGEN AB
By:
-----------------------------
Address: Norrlandsgatan 15
S-111 43
Stockholm, Sweden
20.
<PAGE> 21
AB THOMAS FISCHER & CO.
By:
-----------------------------
Address: Skandigen AB
c/o Krister Wallin
Norrlandsgatan 15
S-Ill 43
Stockholm, Sweden
BMPI LIQUIDATING TRUST
By:
-----------------------------
Address: c/o Colorado Venture
Management Inc.
4845 Pearl Street, East
Suite 300
Boulder, CO 80301
PHILIP L. MCMAHON
By:
-----------------------------
Address: c/o BioStar, Inc.
6655 Lookout Road
Boulder, CO 80301
MARC D. BEER
By:
-----------------------------
Address: c/o BioStar, Inc.
6655 Lookout Road
Boulder, CO 80301
MARVIN H. CARUTHERS TRUST FOR
JONATHAN MARVIN CARUTHERS
By:
-----------------------------
Trustee
Address:
21.
<PAGE> 22
MARVIN H. CARUTHERS TRUST FOR
ANDREW HARRY CARUTHERS
By:
-----------------------------
Trustee
Address:
GC&H INVESTMENTS
By:
-----------------------------
Address: c/o Cooley Godward LLP
One Maritime Plaza
20th Floor
San Francisco, CA 94111-3580
KPCB VI FOUNDERS FUND
By:
-----------------------------
A general partner
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
MAYFIELD VI
By:
-----------------------------
A general partner
22.
<PAGE> 23
MAYFIELD ASSOCIATES
By:
-------------------------
A general partner
Address: 2800 Sand Hill Rd., Suite 250
Menlo Park, CA 94025
FRANK BARNES
-----------------------------
Frank Barnes
Address: Frank Barnes & Associates
809 W. 57th Street
Kansas City, MO 64113
23.
<PAGE> 24
SCHEDULE A
SCHEDULE OF INVESTORS
Kleiner Perkins Caufield & Byers VI
Hill Partnership III
Marquette Venture Partners II, L.P.
MVP II Affiliates Fund L.P.
Integral Capital Partners
Integral Capital Partners International
Skandigen AB
BMPI Liquidating Trust
Thomas Fischer
KPCB VI Founders Fund
Mayfield VI
Mayfield Associates
Mayfield Medical Partners
William H. Gates, L.P.
Dominion Ventures, Inc.
AB Thomas Fischer & Co.
Henry T. Pietraszek
Philip L. McMahon
Marc D. Beer
Marvin H. Caruthers Trust for Jonathan Marvin Caruthers
Marvin H. Caruthers Trust for Andrew Harry Caruthers
GC&H Investments
Frank Barnes
24.
<PAGE> 25
AMENDMENT TO RESTATED INVESTORS' RIGHTS AGREEMENT
Section 1.1(c) of the Restated Investors' Rights Agreement dated as of
June 27, 1994, as amended, by and among BioStar, Inc. and the investors listed
on Schedule A thereto (the "Investors' Rights Agreement") shall be amended and
restated to read in its entirety as follows:
(a) The term "REGISTRABLE SECURITIES" means (1) the
Common Stock issuable or issued upon conversion of the Series A Preferred
Stock, (2) the Common Stock issuable upon conversion of the Series B Preferred
Stock, (3) the Common Stock issuable upon conversion of the Series B Preferred
Stock issuable upon exercise of a warrant potentially exercisable for a maximum
of 60,750 shares of the Company's Series B Preferred Stock (the "Series B
Warrant") issued to DVI pursuant to that certain Warrant to Purchase Shares of
Series B Preferred Stock, dated November 2, 1992, (4) the Common Stock issuable
upon conversion of the Series C Preferred Stock issuable upon conversion or
exercise of a convertible instrument potentially convertible into a maximum of
1,600,000 shares of the Company's Series C Preferred Stock (the "Convertible
Instrument") issued to the Trust pursuant to that certain Asset Purchase
Agreement dated June 17, 1992, by and between the Company and the Trust (the
"Asset Purchase Agreement"), (5) the Common Stock issuable upon conversion of
the Series D Preferred Stock, (6) the Common Stock issuable upon conversion of
the Series E Preferred Stock, (7) the Common Stock issuable upon conversion of
the Series E Preferred Stock issuable upon exercise of warrants potentially
exercisable for a maximum of 53,357 shares of the Company's Series E Preferred
Stock issued to DVI pursuant to that certain Warrant to Purchase shares of
Series D Preferred Stock, dated February 18, 1994, (8) the Common Stock
issuable upon exercise of warrants potentially exercisable for a maximum of
2,571,429 shares of the Company's Common Stock, issued pursuant to that certain
Note and Warrant Purchase Agreement dated as of March 20, 1996 by and between
the Company and various investors, (9) the Common Stock issuable upon
conversion of the Series E Preferred Stock issuable upon exercise of warrants
potentially exercisable for a maximum of 85,714 shares of the Company's Series
E Preferred stock issued to Silicon Valley Bank pursuant to that certain Loan
and Security Agreement, dated September 15, 1995 and the Common Stock issuable
upon conversion of the Series E Preferred Stock issuable upon exercise of
warrants potentially exercisable for a maximum of 1,000,000 shares of the
Company's Series E Preferred Stock issued to Venture Lending, a Division of
Cupertino National Bank and Trust pursuant to that certain Bridge Loan
Agreement, dated April 30, 1997, (10) the Common Stock issuable upon conversion
of the Series F Preferred Stock issuable upon exercise of warrants potentially
exercisable for a maximum of 2,238,000 shares of the Company's Series F
Preferred Stock (the "Series F Warrants") and (11) any Common Stock of the
Company issued (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such Series A, Series
B, Series C, Series D, Series E or Series F Preferred Stock or Common Stock,
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which his rights under this Section 1 are not assigned;"
The introductory paragraph to Section 2.1 of the Investors' Rights
Agreement shall be amended and restated to read in its entirety as follows:
1.
<PAGE> 26
"2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to each
Investor and Warrant Investor who holds at least an aggregate of 400,000 shares
of the Series A, Series B, Series C, Series D, Series E or Series F Preferred
Stock of the Company (or the common stock issued upon conversion thereof)
("Major Investor"):"
Section 3.1 of the Investors' Rights Agreement shall be amended and
restated to read in its entirety as follows:
"3.1 GENERAL. No party to this Agreement other than the Company shall sell,
assign, transfer, or in any other manner dispose of or alienate, or transfer or
assign any interest in, any or all of the Shares (as such term is defined
below) which now or hereafter may be held or owned by them to any person or
entity unless such party (for purposes of this Section 3 only referred to as
"Offeror") shall have first made the written offer to sell as hereinafter
described, and the offered Shares shall not have been purchased, within the
time hereinafter provided.
For purposes of this Section 3, "Shares" shall include and be deemed
to mean: (i) Series A Preferred Stock, (ii) Series B Preferred Stock, (iii)
Series C Preferred Stock, (iv) Series D Preferred Stock, (v) Series E Preferred
Stock, (vi) Series F Preferred Stock, (vii) the Common Stock issued or issuable
upon conversion of the Series A, Series B, Series C, Series D, Series E or
Series F Preferred Stock, and (vii) any Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, such Series A, Series B, Series C,
Series D, Series E or Series F Preferred Stock or Common Stock."
Section 4.2 of the Investors' Rights Agreement shall be amended and
restated to read in its entirety as follows:
"4.2 ELECTION TO EXERCISE. Within ten (10) days after receipt of the
Notice, the Major Investor may elect to purchase or obtain, at the price and on
the terms specified in the Notice, up to that portion of such Company Shares
which equals the proportion that the number of shares of Common Stock issued
and held, or issuable upon conversion of the Series A, Series B, Series C,
Series D, Series E and Series F Preferred Stock then held, by such Major
Investor bears to the total number of shares of Common Stock (assuming
conversion of the Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock and the exercise or conversion of all outstanding options,
warrants and other instruments convertible into or exercisable for either
Common Stock or securities convertible into or exercisable for Common Stock) of
the Company then outstanding."
Section 5.7 of the Investors' Rights Agreement shall be amended and
restated to read in its entirety as follows:
"5.7 AMENDMENTS AND WAIVERS. Except with respect to Sections 1 and 4, 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 a majority of the Common Stock issued or issuable
upon conversion of the Series A, Series B, Series C, Series D, Series E and
Series F
2.
<PAGE> 27
Preferred Stock, so long as such amendment or waiver does not treat the holders
of Common Stock issued or issuable upon conversion of a particular series of
Preferred Stock differently than the holders of Common Stock issued or issuable
upon conversion of another series of Preferred Stock. Any amendment or waiver
effected in accordance with any applicable provision of this Agreement shall be
binding upon each holder of any such Series A, Series B, Series C, Series D,
Series E or Series F Preferred Stock (including the Common Stock into which
such Preferred Stock are convertible) each future party to this Agreement, and
the Company."
3.
<PAGE> 1
RESTATED INVESTORS' RIGHTS AGREEMENT
THIS RESTATED INVESTORS' RIGHTS AGREEMENT (the "AGREEMENT") is made as of
____________, 1998 by and among BIOSTAR, INC., a Delaware corporation, and its
successors or assigns (the "COMPANY"), Cortech, Inc., a Delaware corporation
("Cortech") and the investors listed on Schedule A hereto. Each such investor is
herein referred to individually as an "INVESTOR" and collectively as the
"INVESTORS."
RECITALS
WHEREAS, the Company has entered into an Agreement and Plan of Merger and
Reorganization dated as of December 22, 1997 (the "MERGER AGREEMENT") with
Cortech, and Cortech Merger Sub, Inc., a wholly-owned subsidiary of Cortech
("MERGER SUB"), pursuant to which Merger Sub will merge with and into the
Company (the "MERGER"). Upon consummation of the Merger, Merger Sub will cease
to exist and the Company will be a wholly-owned subsidiary of Cortech;
WHEREAS, stock rights were previously granted to the Investors pursuant to
the Restated Investors' Rights Agreement dated as of June 27, 1994, as amended
November 14, 1994, March 12, 1996, June 20, 1997 and February 2, 1998 (the
"PRIOR RIGHTS AGREEMENT");
WHEREAS, pursuant to Section 5.14 of the Merger Agreement, upon the
Effective Time of the Merger, Cortech shall assume the Company's obligations
under the Prior Agreement, as to be amended and restated as further set forth
herein; and
WHEREAS, in order to induce Cortech, Merger Sub and the Company to
consummate the Merger, the Investors and the Company hereby agree to amend and
restate the Prior Rights Agreement as further set forth herein;
NOW, THEREFORE, the parties hereby agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Agreement:
(a) The term "ACT" means the Securities Act of 1933, as amended;
(b) The term "REGISTER," "REGISTERED," and "REGISTRATION" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(c) The term "REGISTRABLE SECURITIES" means the Cortech Common
Stock (as defined in the Merger Agreement) issued in exchange for: (1) the
Series A Preferred Stock, (2) the Series B Preferred Stock, (3) the Series B
Preferred Stock issuable upon exercise of a warrant potentially exercisable for
a maximum of 60,750 shares of the Company's Series B Preferred Stock (the
"SERIES B WARRANT") issued to Dominion Ventures, Inc. ("DVI") pursuant
1.
<PAGE> 2
to that certain Warrant to Purchase Shares of Series B Preferred Stock, dated
November 2, 1992, (4) the Series C Preferred Stock issuable in exchange for
cancellation of the Convertible Contingent Payment Instrument (the "CONVERTIBLE
INSTRUMENT") issued to the BMPI Liquidating Trust (the "TRUST") pursuant to that
certain Asset Purchase Agreement dated June 17, 1992, by and between the Company
and the Trust (the "ASSET PURCHASE Agreement"), (5) the Series D Preferred
Stock, (6) the Series E Preferred Stock, (7) the Series E Preferred Stock
issuable upon exercise of warrants potentially exercisable for a maximum of
53,357 shares of the Company's Series E Preferred Stock issued to DVI pursuant
to that certain Warrant to Purchase shares of Series E Preferred Stock, dated
February 18, 1994, (8) the Common Stock issuable upon exercise of warrants
potentially exercisable for a maximum of 2,571,426 shares of the Company's
Common Stock, issued pursuant to that certain Note and Warrant Purchase
Agreement dated as of March 20, 1996 by and between the Company and various
investors, (9) the Series E Preferred Stock issuable upon exercise of warrants
potentially exercisable for a maximum of 85,714 shares of the Company's Series E
Preferred stock issued to Silicon Valley Bank pursuant to that certain Loan and
Security Agreement, dated September 15, 1995 and the Series E Preferred Stock
issuable upon exercise of warrants potentially exercisable for a maximum of
321,429 shares of the Company's Series E Preferred Stock issued to Venture
Lending, a Division of Cupertino National Bank and Trust ("VENTURE LENDING")
pursuant to that certain Bridge Loan Agreement, dated April 30, 1997, (10) the
Series F Preferred Stock issuable upon exercise of warrants issued in connection
with the sale of Subordinated Notes in June 1997 and issued to Venture Lending
in connection with the Loan and Security Agreement, dated January , 1998, upon
conversion of Convertible Notes issued in March and April of 1996 (as amended)
and accrued interest thereon and upon conversion of Subordinated Notes issued in
June 1997 (as amended) and accrued interest thereon and (11) any Common Stock of
the Company issued (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such Series A, Series
B, Series C, Series D, Series E or Series F Preferred Stock or Common Stock,
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which his rights under this Section 1 are not assigned;
(d) The number of shares of "REGISTRABLE SECURITIES THEN
OUTSTANDING" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(e) The term "HOLDER" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof; and
(f) The term "FORM S-3" means such form under the Act as in effect
on the date hereof or any registration form under the Act subsequently adopted
by the Securities and Exchange Commission ("SEC") which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
2.
<PAGE> 3
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive after the earlier of (A) ninety
(90) days after the effective date of a registration statement for the first
public offering of securities of Cortech (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction)
following the Effective Time of the Merger (as defined in the Merger Agreement),
and (B) the first anniversary of the Effective Time of the Merger, a written
request from the Holders of at least a majority of the Registrable Securities
then outstanding that the Company file a registration statement under the Act
covering the registration of at least twenty percent (20%) of the Registrable
Securities then outstanding (or a lesser percent if the anticipated aggregate
offering price, net of underwriting discounts and commissions would exceed
$5,000,000), then the Company shall, within ten (10) days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 1.2(b), effect as soon as practicable, and in
any event shall use its best efforts to effect within sixty (60) days of the
receipt of such request, the registration under the Act of all Registrable
Securities which the Holders request to be registered within twenty (20) days of
the mailing of such notice by the Company in accordance with paragraph 2.6.
(b) If the Holders initiating the registration request hereunder
("INITIATING HOLDERS") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders. In such event,
the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder; provided, however, that the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
underwriting.
(c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by
3.
<PAGE> 4
the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be filed and it
is therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer taking action with respect to such filing
for a period of not more than 60 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve-month period.
1.3 COMPANY REGISTRATION. If, after the earlier of (A) ninety (90)
days after the effective date of a registration statement for the first public
offering of securities of Cortech following the Effective Time of the Merger and
(B) the first anniversary of the Effective Time of the Merger (but without any
obligation to do so), the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holders) any of its stock or other securities under the Act in connection with
the public offering of such securities solely for cash (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give each Holder written notice of such
registration.
Upon the written request of each Holder given within twenty (20) days after
mailing of such notice by the Company in accordance with Section 2.6, the
Company shall, subject to the provisions of Section 1.8, cause to be registered
under the Act all of the Registrable Securities that each such Holder has
requested to be registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdiction as
4.
<PAGE> 5
shall be reasonably requested by the Holders, provided that the Company shall
not be required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service of process in any such
states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
1.5 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a) or subsection
1.12(b)(2), whichever is applicable.
5.
<PAGE> 6
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2 including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel or the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all Participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 1.2; provided
further, however, that if at the time of such withdrawal, the Holders have
learned of a material adverse change in the condition, business, or prospects of
the Company from that known to the Holders at the time of their request and have
withdrawn the request with reasonable promptness following disclosure by the
Company of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to Section
1.2.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and Commissions relating
to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders) but in no event shall (i) the amount of securities
of the selling Holders included in the offering be reduced below thirty percent
(30%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities in which
case the selling stockholders may be excluded if the underwriters make the
determination described above and no other stockholder's securities are included
or (ii) notwithstanding (i) above, any shares being sold by a stockholder
exercising a demand registration right similar to that granted in Section 1.2 be
excluded from such offering. For purposes of the preceding parenthetical
concerning
6.
<PAGE> 7
apportionment, for any selling stockholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and stockholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling stockholder," and
any pro-rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling stockholder," as defined in
this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 ACT"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "VIOLATION"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the Act, the
1934 Act or any state securities law; and the Company will pay to each such
Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under
7.
<PAGE> 8
the Act, the 1934 Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 1.10(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; provided, that, in no event
shall any indemnity under this subsection 1.10(b) exceed the gross proceeds from
the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
8.
<PAGE> 9
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.1 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the Effective Time of the Merger;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the 1998 fiscal year;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 FORM S-3 REGISTRATION. In case, after the earlier of (A) ninety
(90) days after the effective date of a registration statement for the first
public offering of Cortech's shares following the Effective Time of the Merger
and (B) the first anniversary of the Effective Time of the Merger, the Company
shall receive from any Holder or Holders of twenty percent (20%) or more of the
Registrable Securities then outstanding a written request or requests that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
9.
<PAGE> 10
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.12: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $250,000; (3) if the
Company shall furnish to the Holders a certificate signed by the president of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than sixty (60) days after
receipt of the request of the Holder or Holders under this Section 1.12;
provided, however, that the Company shall not utilize this right more than once
in any twelve-month period; (4) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected two registrations on
Form S-3 for the Holders pursuant to this Section 1.12; or (5) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 1.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, but excluding any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne pro rata by
the Holder or Holders participating in the Form S-3 Registration. Registrations
effected pursuant to this Section 1.12 shall not be counted as demands for
registration or registrations effected pursuant to Sections 1.2 or 1.3,
respectively.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least 500,000 shares of Registrable Securities (subject to appropriate
adjustment to reflect the Exchange Ratio (as defined in the Merger Agreement),
stock splits, stock dividends, combinations and other recapitalization), or if
less, the entire amount of Registrable Securities held by such Holder is
transferred, provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration
10.
<PAGE> 11
rights are being assigned; and provided, further, that such assignment shall be
effective only if immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the Act. For
the purposes of determining the number of shares of Registrable Securities held
by a transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for assignment
of registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights receiving notices or taking any action under this Section
1. For the purposes of determining the number of shares of Registrable
Securities held by a transferee or assignee the holdings of transferees and
assignees of a trust who are beneficiaries of such trust (including spouses and
ancestors, lineal descendants and siblings of such beneficiaries or spouses who
acquire Registrable Securities by gift, will or intestate succession) shall be
aggregated together and with the trust; provided that all assignees and
transferees who would not qualify individually for assignment of registration
rights shall have a single attorney-in-fact for the purpose of exercising any
rights, receiving notices or taking any action under this Section 1. The
registration rights of the Holders under this Agreement may be transferred to
any transferee which is an affiliated Limited Partnership (as defined in the
Series B Warrant) or fund of such Holder ("AFFILIATED FUND") without the prior
written consent of the Company and without regard to the number of shares of
Registrable Securities held by such transferee.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.2 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which is included or (b) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either of the dates set forth in subsection 1.2(a) or within one
hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby agrees that,
during the period of duration specified by the Company and an underwriter of
Common Stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Act, shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration; provided, however, that (i) all officers and directors of the
Company and all other persons with registration rights (whether or not pursuant
to this Agreement) enter into similar agreements, (ii) the provisions of this
Section 1.15 shall terminate and be of no further force or effect three (3)
years after the consummation of the first public offering of securities of
Cortech after the Effective Time of the
11.
<PAGE> 12
Merger (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction) and (iii) such period of
duration shall not exceed one hundred eighty (180) days; provided that the
parties hereto expressly agree to and understand that such 180-day period may be
shortened or lengthened by a writing signed by the holders of a majority of the
Registrable Securities.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.16 AMENDMENT AND WAIVER OF REGISTRATION RIGHTS. Any provision of
this Section 1 may be amended and the observance thereof 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 fifty percent (50%) of the Registrable Securities then outstanding. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities, and the Company.
1.17 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled
to exercise any right provided for in this Section 1 after five (5) years after
the earlier of (A) one (1) year following the Effective Time of the Merger or
(B) ninety (90) days after the effective date of the registration statement for
the consummation of the first public offering of securities of Cortech after the
Effective Time of the Merger.
2. MISCELLANEOUS.
2.1 EFFECTIVENESS OF AGREEMENT; SUPERSEDES PRIOR RIGHTS AGREEMENT;
ASSUMPTIONS OF OBLIGATIONS BY CORTECH. This Agreement shall be effective from
and after the Effective Time of the Merger and shall supersede the Prior
Agreement, which agreement shall be terminated as of the Effective Time of the
Merger without any liability to any party thereto and shall be of no further
force or effect. By executing this Agreement, each signatory consents to the
termination of such prior agreement, without liability to any party thereto, as
provided by this Section 2. Upon the effectiveness of this Agreement, Cortech
shall be deemed a successor and assign of the Company for purposes of this
Agreement and shall assume all of the Company's obligations under this
Agreement, and the term the "Company" as used herein shall be deemed to
specifically include Cortech from and after the effectiveness hereof.
2.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, 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 (including
transferees of any shares of Registrable Securities). 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.
12.
<PAGE> 13
2.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware as applied to agreements among Delaware
residents entered into and to be performed entirely within Delaware.
2.4 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.
2.5 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.
2.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
2.7 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.8 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 as
set forth in Section 1.16 above. Any amendment or waiver effected in accordance
with this Agreement shall be binding upon each holder of any Cortech Common
Stock issued in exchange for any Registrable Securities pursuant to the Merger
Agreement and the Company.
2.9 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 the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
2.10 ASSIGNMENT. Except as provided in Section 1.13, neither this
Agreement nor the rights and obligations contained herein may be assigned by an
Investor without the prior written consent of the Company. Any assignment in
violation of the preceding sentence shall be void.
2.11 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
2.12 AGGREGATION OF STOCK. All shares of the Company's Common Stock or
Preferred Stock held or acquired by affiliated venture capital or partnerships
or limited or general partners of such partnerships shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
13.
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
BIOSTAR, INC. CORTECH, INC.
By: By:
------------------------------- -------------------------------
Teresa W. Ayers, President/Chief Kenneth R. Lynn, President/Chief
Executive Officer Executive Officer
Address: 6655 Lookout Road Address: 6850 N. Broadway, Suite G
Boulder, CO 80301 Denver, CO 80221
INVESTORS:
KLEINER PERKINS CAUFIELD & BYERS VI SILICON VALLEY BANK
By: By:
------------------------------- --------------------------------
A general partner
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
HILL PARTNERSHIP III SKANDIGEN AB
By: Hill, Carman Ventures
A Limited Partnership By:
---------------------------------
By:
------------------------------- Address: Norrlandsgatan 15
A general partner S-111 43
Stockholm, Sweden
Address: 885 Arapahoe Avenue
Boulder, CO 80303
MARQUETTE VENTURE PARTNERS II, L.P. MVP II AFFILIATES FUND, L.P.
By: Marquette General II, L.P. By: Marquette General II,
its General Partner its General Partner
By: By:
------------------------------- --------------------------------
An authorized signatory An authorized signatory
Address: 520 Lake Cook Road, Suite 450 Address: 520 Lake Cook Road,
Deerfield, IL 60015 Suite 450
Deerfield, IL 60015
14.
<PAGE> 15
INTEGRAL CAPITAL PARTNERS, L.P. INTEGRAL CAPITAL PARTNERS
INTERNATIONAL, C.V.
By: Integral Capital Management, L.P., By: Integral Capital Management, L.P.,
its General Parmer its Investment General Partner
By: By:
------------------------------- -------------------------------------
Its general partner Its general partner
Address: 2750 Sand Hill Road Address: 2750 Sand Hill Road
Menlo Park, CA 94025 Menlo Park, CA 94025
WILLIAM H. GATES, L.P. DOMINION VENTURES, INC.
By: By:
------------------------------- -------------------------------------
Address: 15302 Woodfern Drive, S.E. Address: Attn: Andy Evans
Millcreek, WA 98012 15302 25th Drive, SE
Millcreek, WA 98012
AB THOMAS FISCHER & CO.
By:
------------------------------- -------------------------------------
Marc D. Beer
Address: 50 Silverhill Road Address: Skandigen AB
Sudbury, MA 01776 c/o Krister Wallin
Norrlandsgatan 15
S-111 43
Stockholm, Sweden
BMPI LIQUIDATING TRUST
By:
-------------------------------- -------------------------------------
Philip L. McMahon
Address: c/o Colorado Venture
Management Inc. Address: 2200 Alpine Drive
4845 Pearl Street, East Boulder, CO 80304
Suite 300
Boulder, CO 80301
15.
<PAGE> 16
MARVIN H. CARUTHERS TRUST FOR MARVIN H. CARUTHERS TRUST FOR
ANDREW HARRY CARUTHERS JONATHAN MARVIN CARUTHERS
By: By:
-------------------------------- ----------------------------------
Trustee Trustee
Address: 2450 Cragmoor Road Address: 2450 Cragmoor Road
Boulder, CO 80303 Boulder, CO 80303
VENTURE BANKING GROUP, A DIVISION GC&H INVESTMENTS
OF CUPERTINO NATIONAL BANK AND TRUST
By: By:
---------------------------------- -----------------------------------
Address: Three Palo Alto Square Address: c/o Cooley Godward LLP
Suite 150 One Maritime Plaza
Palo Alto, CA 94306 20th Floor
San Francisco, CA 94111-3580
---------------------------------- -------------------------------------
Henry T. Pietraszek Frank Barnes
Address: 4951 North Abendia de Vizcaya Address: Frank Barnes & Associates
Tucson, AZ 85718 809 W. 57th Street
Kansas City, MO 64113
MAYFIELD MEDICAL PARTNERS MAYFIELD ASSOCIATES
By: By:
------------------------------- -------------------------------
A general partner A general partner
Address: 2800 Sand Hill Rd., Suite 250 Address: 2800 Sand Hill Rd.,
Menlo Park, CA 94025 Suite 250
Menlo Park, CA 94025
16.
<PAGE> 17
MAYFIELD VI
By:
------------------------------------
A general partner
Address: 2800 Sand Hill Rd., Suite 250
Menlo Park, CA 94025
17.
<PAGE> 18
SCHEDULE A
SCHEDULE OF INVESTORS
Kleiner Perkins Caufield & Byers VI
Hill Partnership III
Marquette Venture Partners II, L.P.
MVP II Affiliates Fund L.P.
Integral Capital Partners
Integral Capital Partners International
Skandigen AB
BMPI Liquidating Trust
Thomas Fischer
Mayfield VI
Mayfield Associates
Mayfield Medical Partners
William H. Gates, L.P.
Dominion Ventures, Inc.
AB Thomas Fischer & Co.
Henry T. Pietraszek
Philip L. McMahon
Marc D. Beer
Marvin H. Caruthers Trust for Jonathan Marvin Caruthers
Marvin H. Caruthers Trust for Andrew Harry Caruthers
GC&H Investments
Frank Barnes
Venture Banking Group
<PAGE> 1
MASTER LEASE AGREEMENT
COMDISCO, INC. - LESSOR
MASTER LEASE AGREEMENT, May 3, 1995 by and between COMDISCO, INC.
("Lessor") and BIOSTAR, INC. ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties
agree as follows (all capitalized terms are defined in Section 14.19):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each
Schedule. In the event of a conflict, the terms of a Schedule prevail over
this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the
Equipment, will be bound to its rental obligations for each item of Equipment
and the term of a Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance, in immediately available funds, on
the first day of each Rent Interval to the payee and at the location specified
in Lessor's invoice. Interim Rent is due and payable when invoiced. If any
payment is not made when due, Lessee will pay interest at the Overdue Rate.
Upon Lessee's execution of each Schedule, Lessee will pay Lessor the Advance
specified on the Schedule. The Advance will be credited towards the final Rent
payment if Lessee is not then in default. No interest will be paid on the
Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the
Equipment and disclaims any reliance upon statements made by the Lessor.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to
Lessee that, so long as Lessee is not in default, Lessor will not disturb
Lessee's quiet and peaceful possession, and unrestricted use of the Equipment.
To the extent permitted by the manufacturer, Lessor assigns to Lessee during
the term of the Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage
1.
<PAGE> 2
caused by the negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to
the rights of the Owner, Lessor, any Assignee and any Secured Party. Lessee
authorizes Lessor, as Lessee's agent, to prepare, execute and file in Lessee's
name precautionary Uniform Commercial Code financing statements showing the
interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in Schedules as appropriate. Lessee
will, at its expense, keep the Equipment free and clear from any liens or
encumbrances of any kind (except any caused by Lessor) and will indemnify and
hold Lessor, Owner, any Assignee and Secured Party harmless from and against
any loss caused by Lessee's failure to do so.
5.2 RELOCATION OR SUBLEASE. Upon prior written consent, Lessee
may relocate Equipment to any location within the continental United States
provided (i) the Equipment will not be used by an entity exempt from federal
income tax, (ii) all additional costs (including any administrative fees,
additional taxes and insurance coverage) are reconciled and promptly paid by
Lessee.
Lessee may sublease the Equipment upon the reasonable consent
of the Lessor and the Secured Party. Such consent to sublease will be granted
if: (i) Lessee meets the relocation requirements set out above, (ii) the
sublease is expressly subject and subordinate to the terms of the Schedule,
(iii) Lessee assigns its rights in the sublease to Lessor and the Secured Party
as additional collateral and security, (iv) Lessee's obligation to maintain and
insure the Equipment is not altered, (v) all financing statements required to
continue the Secured Party's prior perfected security interest are filed, and
(vi) the sublease is not to a leasing entity affiliated with the manufacturer
of the Equipment described on the Schedule. Lessor acknowledges Lessee's right
to sublease for a term which extends beyond the expiration of the Initial Term.
If Lessee subleases the Equipment for a term extending beyond the expiration of
such Initial Term of the applicable Schedule, Lessee will remain obligated upon
the expiration of the Initial Term to return such Equipment, or, at Lessor's
sole discretion to (i) return Like Equipment or (ii) negotiate a mutually
acceptable lease extension or purchase. If the parties cannot mutually agree
upon the terms of an extension or purchase, the term of the Schedule will
extend upon the original terms and conditions until terminated pursuant to
Section 2.
No relocation or sublease will relieve Lessee from any of its
obligations under this Master Lease and the relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each
Schedule have been fixed by Lessor in order to permit Lessor to sell and/or
assign or transfer its interest or grant a security interest in each Schedule
and/or the Equipment to a Secured Party or Assignee. In that event, the term
Lessor will mean the Assignee and any Secured Party. However, any assignment,
sale, or other transfer by Lessor will not relieve Lessor of its obligations to
Lessee and will not materially change Lessee's duties or materially increase
the burdens or risks imposed on Lessee. The Lessee consents to and will
acknowledge such assignments in a written notice given to Lessee. Lessee also
agrees that:
2.
<PAGE> 3
(a) The Secured Party will be entitled to exercise all of
Lessor's rights, but will not be obligated to perform any of the obligations of
Lessor. The Secured Party will not disturb Lessee's quiet and peaceful
possession and unrestricted use of the Equipment so long as Lessee is not in
default and the Secured Party continues to receive all Rent payable under the
Schedule; and
(b) Lessee will pay all Rent and all other amounts
payable to the Secured Party, despite any defense or claim which it has against
Lessor. Lessee reserves its right to have recourse directly against Lessor for
any defense or claim;
(c) Subject to and without impairment of Lessee's
leasehold rights in the Equipment, Lessee holds the Equipment for the Secured
Party to the extent of the Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Schedule constitutes a net lease. Lessee's
obligation to pay Rent and all other amounts is absolute and unconditional and
is not subject to any abatement, reduction, set-off, defense, counterclaim,
interruption, deferment or recoupment for any reason whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor
for all taxes, fees or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising
during the term of each Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state and local taxes on the
capital or the net income of Lessor). Lessor will file all personal property
tax returns for the Equipment and pay all property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days of receipt of an
invoice.
7. CARE, USE AND MAINTENANCE; ATTACHMENTS AND RECONFIGURATIONS; AND
INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment
in good operating order and appearance, protect the Equipment from
deterioration, other than normal wear and tear, and will not use the Equipment
for any purpose other than that for which it was designed. If commercially
available, Lessee will maintain in force a standard maintenance contract with
the manufacturer of the Equipment, or another party acceptable to Lessor, and
will provide Lessor with a complete copy of that contract. If Lessee has the
Equipment maintained by a party other than the manufacturer, Lessee agrees to
pay any costs necessary for the manufacturer to bring the Equipment to then
current release, revision and engineering change levels, and to re-certify the
Equipment as eligible for manufacturer's maintenance at the expiration of the
lease term. The lease term will continue upon the same terms and conditions
until recertification has been obtained.
7.2 ATTACHMENTS AND RECONFIGURATIONS. Upon receiving the prior
written consent of Lessor, Lessee may reconfigure and install Attachments on
the Equipment. In the event of such a Reconfiguration or Attachment, Lessee
will, upon return of the Equipment, at its expense, restore the Equipment to
the original configuration specified on the Schedule in accordance with
3.
<PAGE> 4
the manufacturer's specifications and in the same operating order, repair and
appearance as when installed (normal wear and tear excluded). If any parts of
the Equipment are removed during a Reconfiguration or Attachment, Lessor may
require Lessee to provide additional security, satisfactory to the Lessor, in
order to ensure performance of Lessee's obligations set forth in this
subsection. Neither Attachments nor parts installed on Equipment in the course
of Reconfiguration will be accessions to the Equipment.
7.3 INSPECTION BY LESSOR. Upon request, Lessee, during reasonable
business hours and subject to Lessee's security requirements, will make the
Equipment and its related log and maintenance records available to Lessor for
inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents,
warrants and covenants that with respect to the Master Lease and each Schedule
executed hereunder:
(a) The Lessee is a corporation duly organized and
validly existing in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified to do business in each jurisdiction (including
the jurisdiction where the Equipment is, or is to be, located) where its
ownership or lease of property or the conduct of its business requires such
qualification; and has full corporate power and authority to hold property
under the Master Lease and each Schedule and to enter into and perform its
obligations under such Lease.
(b) The execution and delivery by the Lessee of the
Master Lease and each Schedule and its performance thereunder have been duly
authorized by all necessary corporate action on the part of the Lessee, and the
Master Lease and each Schedule are not inconsistent with the Lessee's
Certificate of Incorporation or Bylaws, do not contravene any law or
governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Master Lease and each Schedule constitute legal, valid and
binding agreements of the Lessee, enforceable in accordance with their terms.
(c) There are no actions, suits, proceedings or patent
claims pending or, to the knowledge of the Lessee, threatened against or
affecting the Lessee in any court or before any governmental commission, board
or authority which, if adversely determined, will have a material adverse
effect on the ability of the Lessee to perform its obligations under the Master
Lease and each Schedule.
(d) The Equipment is personal property and when subjected
to use by the Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or
obligations, absolute or contingent (individually or in the aggregate), except
the liabilities and obligations of the Lessee as set forth in the Financial
Statements and liabilities and obligations which have occurred in the ordinary
course of business, and which have not been, in any case or in the aggregate,
materially adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee
owns, possesses, has access to, or can become licensed on reasonable terms
under all patents, patent applications, trademarks, trade names, inventions,
franchises, licenses, permits, computer software and
4.
<PAGE> 5
copyrights necessary for the operations of its business as now conducted, with
no known infringement of, or conflict with, the rights of others.
(g) All material contracts, agreements and instruments to
which the Lessee is a party are in full force and effect in all material
respects, and are valid, binding and enforceable by the Lessee in accordance
with their respective terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally, and rules of
law concerning equitable remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and
in-transit insurance to Lessee's premises and installation thereat of the
Equipment. Upon termination (by expiration or otherwise) of each Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear
and tear. Lessee shall return the Equipment to Lessor at its address set forth
herein or at such other address within the continental United States as
directed by Lessor, provided, however, that Lessee's expense shall be limited
to the cost of returning the equipment to Lessor's address as set forth herein.
During the period subsequent receipt of a notice under Section 2, Lessor may
demonstrate the Equipment's operation in place and Lessee will supply any of
its personnel as may reasonably be required to assist in the demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's
interest. Lessee will keep all Equipment free from any other marking or
labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
Lessee will indemnify and hold Lessor, any Assignee and any Secured
Party harmless from and against any and all claims, costs, expenses, damages
and liabilities, including reasonable Attorneys' fees, arising out of the
ownership (for strict liability in tort only), selection, possession, leasing,
operation, control, use, maintenance, delivery, return or other disposition of
the Equipment. However, Lessee is not responsible to a party indemnified
hereunder for any claims, costs, expenses, damages and liabilities occasioned
by the negligent acts of such indemnified party. Lessee agrees to carry bodily
injury and property damage liability insurance during the term of the Master
Lease in amounts and against risks customarily insured against by the Lessee on
equipment owned by it. Any amounts received by Lessor under that insurance
will be credited against Lessee's obligations under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee
relieves Lessor of responsibility for all risks of physical damage to or loss
or destruction of the Equipment. Lessee will carry casualty insurance for each
item of Equipment in an amount not less than the Casualty
5.
<PAGE> 6
Value. All policies for such insurance will name the Lessor and any Secured
Party as additional insured and as loss payee, and will provide for at least
thirty (30) days prior written notice to the Lessor of cancellation or
expiration, and will insure Lessor's interests regardless of any breach or
violation by Lessee of any representation, warranty or condition contained in
such policies and will be primary without right of contribution from any
insurance effected by Lessor. Upon the execution of any Schedule, the Lessee
will furnish appropriate evidence of such insurance acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such
Equipment has suffered a Casualty Loss. Within fifteen (15) days of a Casualty
Loss, Lessee will provide written notice of that loss to Lessor and Lessee
will, at Lessor's option, either (a) replace the item of Equipment with Like
Equipment and marketable title to the Like Equipment will automatically vest in
Lessor or (b) pay the Casualty Value and after that payment and the payment of
all other amounts due and owing, Lessee's obligation to pay further Rent for
the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following
Events of Default constitutes a default under a Schedule:
(a) Lessee's failure to pay Rent or other amounts payable
by Lessee when due if that failure continues for five (5) days after written
notice; or
(b) Lessee's failure to perform any other term or
condition of the Schedule or the material inaccuracy of any representation or
warranty made by the Lessee in the Schedule or in any document or certificate
furnished to the Lessor hereunder if that failure or inaccuracy continues for
ten (10) days after written notice; or
(c) An assignment by Lessee for the benefit of its
creditors, the failure by Lessee to pay its debts when due, the insolvency of
Lessee, the filing by Lessee or the filing against Lessee of any petition under
any bankruptcy or insolvency law or for the appointment of a trustee or other
officer with similar powers, the adjudication of Lessee as insolvent, the
liquidation of Lessee, or the taking of any action for the purpose of the
foregoing; or
(d) The occurrence of an Event of Default under any
Schedule or other agreement between Lessee and Lessor or its Assignee or
Secured Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of
Default, Lessor, at its option, may:
(a) Enforce Lessee's performance of the provisions of the
applicable Schedule by appropriate court action in law or in equity;
(b) Recover from Lessee any damages and or expenses,
including Default Costs;
6.
<PAGE> 7
(c) With notice and demand, recover all sums due and
accelerate and recover the present value of the remaining payment stream of all
Rent due under the defaulted Schedule (discounted at the same rate of interest
at which such defaulted Schedule was discounted with a Secured Party plus any
prepayment fees charged to Lessor by the Secured Party or, if there is no
Secured Party, then discounted at 6%) together with all Rent and other amounts
currently due as liquidated damages and not as a penalty;
(d) With notice and process of law and in compliance with
Lessee's security requirements, Lessor may enter on Lessee's premises to remove
and repossess the Equipment without being liable to Lessee for damages due to
the repossession, except those resulting from Lessor's, its assignees', agents'
or representatives' negligence; and
(e) Pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent
permitted by law, are cumulative and may be exercised successively or
concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the
terms of Section 13.2, Lessor will use its best efforts in accordance with its
normal business procedures (and without obligation to give any priority to such
Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET
FORTH IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER
CONFERRED BY STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS
DAMAGES OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may
sell, lease or otherwise dispose of all or any part of the Equipment at a
public or private sale for cash or credit with the privilege of purchasing the
Equipment. The proceeds from any sale, lease or other disposition of the
Equipment are defined as either:
(a) If sold or otherwise disposed of, the cash proceeds
less the Fair Market Value of the Equipment at the expiration of the Initial
Term less the Default Costs; or
(b) If leased, the present value (discounted at three
points over the prime rate as referenced in the Wall Street Journal at the time
of the mitigation) of the rentals for a term not to exceed the Initial Term,
less the Default Costs.
Any proceeds will be applied against liquidated damages and
any other sums due to Lessor from Lessee. However, Lessee is liable to Lessor
for, and Lessor may recover, the amount by which the proceeds are less than the
liquidated damages and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. Lessor or its duly appointed representative
will have the right to attend Lessee's corporation Board of Directors meetings
and Lessee will give Lessor reasonable notice in advance of any special Board
of Directors meeting, which notice will provide an agenda of the subject matter
to be discussed at such board meeting. Lessee will provide Lessor with a
certified copy of the minutes of each Board of Directors meeting within thirty
(30) days following the date of such meeting held during the term of this
Lease.
7.
<PAGE> 8
14.2 FINANCIAL STATEMENTS. Lessee will provide to Lessor the
financial statements specified in this Section, prepared in accordance with
generally accepted accounting principles, consistently applied (the "Financial
Statements"); provided however, after the effective date of the initial
registration statement covering a public offering of Lessee's securities, the
term "Financial Statements" will be deemed to refer to only those statements
required by the Securities and Exchange Commission, to be provided no less
frequently than quarterly. Lessee will provide to Lessor (i) as soon as
practicable (within thirty (30) days) after the end of each month, the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement
of cash flows, certified by Lessee's Chief Executive or Financial Officer to be
true and correct; and (ii) as soon as practicable (and in any event within
ninety (90) days) after the end of each fiscal year, audited balance sheets as
of the end of such year (consolidated if applicable), and related statements of
income or loss, retained earnings or deficit and changes in the financial
position and capital structure of Lessee for such year, setting forth in
comparative form the corresponding figures for the preceding fiscal year, and
accompanied by an audit report and opinion of the independent certified public
accountants selected by Lessee. Lessee will promptly furnish to Lessor any
additional information (including but not limited to tax returns, income
statements, balance sheets, and names of principal creditors) as Lessor
reasonably believes necessary to evaluate Lessee's continuing ability to meet
financial obligations.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to
Lessee, Lessor will not be obligated to lease any Equipment which would have a
Commencement Date after said notice if: (i) Lessee is in default under this
Master Lease or any Schedule; (ii) Lessee is in default under any loan
agreement, the result of which would allow the Lender or any secured party to
demand immediate payment of the indebtedness; (iii) there is a material adverse
change in Lessee's credit standing; or (iv) Lessor determines (in reasonable
good faith) that Lessee will be unable to perform its obligations under this
Master Lease.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any
proposed Merger at least twenty (20) days prior to the closing date. Lessor
may, in its discretion, either (i) consent to the assignment of the Master
Lease and all relevant Schedules to the successor entity, or (ii) terminate the
Master Lease and all relevant Schedules. If Lessor elects to consent to the
assignment, Lessee and its successor will sign the assignment documentation
provided by Lessor. If Lessor elects to terminate the Master Lease and all
relevant Schedules, then Lessee will pay Lessor all amounts then due and owing
and a termination fee equal to the present value (discounted at 6%) of the
remaining Rent for the balance of the Initial Term(s) of all Schedules, and
will return the Equipment in accordance with Section 9.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules
supersede all other oral or written agreements or understandings between the
parties concerning the Equipment including, for example, purchase orders. ANY
AMENDMENT OF THIS MATER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A
WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE
ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed
to constitute a waiver of compliance with any representation, warranty or
covenant contained in this Master
8.
<PAGE> 9
Lease or a Schedule. The waiver by Lessor or Lessee of a breach of any
provision of this Master Lease or a Schedule will not operate or be construed
as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to
the benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR
OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations
including, but not limited to those arising under Section 6.2, representations
and warranties contained in this Master Lease, any Schedule or in any document
delivered in connection with those agreements are for the benefit of Lessor and
any Assignee or Secured Party and survive the execution, delivery, expiration
or termination of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either
party by the other will be given in writing and deemed received upon the
earlier of actual receipt or three days after mailing if mailed postage prepaid
by regular or airmail to Lessor (to the attention of "Lease Administrator") or
Lessee, at the address set out in the Schedule or, one day after it is sent by
courier or on the same day as sent via facsimile transmission, provided that
the original is sent by personal delivery or mail by the receiving party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE
WILL HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL
BE GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO
RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE
WILL BE CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A
SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this
Master Lease or any Schedule is for any reason held invalid, illegal or
unenforceable, the remaining provisions of this Master Lease and any such
Schedule will be unimpaired, and the invalid, illegal or unenforceable
provision replaced by a mutually acceptable valid, legal and enforceable
provision that is closest to the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be
executed in any number of counterparts, each of which will be deemed an
original, but all such counterparts together constitute one and the same
instrument. If Lessor grants a security interest in all or any part of a
Schedule, the Equipment or sums payable thereunder, only that counterpart
Schedule marked "Secured Party's Original" can transfer Lessor's rights and all
other counterparts will be marked "Duplicate".
14.13 NONSPECIFIED FEATURES AND LICENSED PRODUCTS. If the Equipment
is supplied from Lessor's inventory and contains any features not specified in
the Schedule, Lessee grants Lessor the right to remove any such feature. Any
removal will be performed by the manufacturer or another party unacceptable to
Lessee, upon the request of Lessor, at a time convenient to Lessee, provided
that Lessee will not unreasonably delay the removal of such features.
9.
<PAGE> 10
Lessee will obtain no title to Licensed Products which will at
all times remain the property of the owner of the Licensed Products. A license
from the owner may be required and it is Lessee's responsibility to obtain any
required license before the use of the Licensed Products. Lessee agrees to
treat the Licensed Products as confidential information of the owner, to
observe all copyright restrictions, and not to reproduce or sell the Licensed
Products.
14.14 ADDITIONAL DOCUMENTS. Lessee will, upon execution of this
Master Lease and as may be requested thereafter, provide Lessor with a
secretary's certificate of incumbency and authority and any other documents
reasonably requested by Lessor. Upon the execution of each Schedule with a
purchase price in excess of $1,000,000, Lessee will provide Lessor with an
opinion from Lessee's counsel in a form acceptable to Lessor regarding the
representations and warranties in Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may
communicate with the other by electronic means under mutually agreeable terms.
14.16 LESSOR'S RIGHT TO MATCH. Lessee's rights under Section 5.2
and 7.2 are subject to Lessor's right to match any sublease or upgrade proposed
by a third party. Lessee will provide Lessor with the terms of the third party
offer and Lessor will have three (3) business days to match the offer. Lessee
will obtain such upgrade from or sublease the Equipment to Lessor if Lessor has
timely matched the third party offer.
14.17 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor
with a Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver
shall be in a form satisfactory to Lessor.
14.18 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee
hereby agrees that Lessor shall not, by virtue of its entering into this Lease,
be required to remit any payments to any manufacturer or other third party
until Lessee accepts the Equipment subject to this Lease.
14.19 DEFINITIONS.
ADVANCE - means the amount due to Lessor by Lessee upon
Lessee's execution of each Schedule.
ASSIGNEE - means an entity to whom Lessor has sold or assigned
its rights as owner and Lessor of Equipment.
ATTACHMENT - means any accessory, equipment or device and the
installation thereof that does not impair the original function or use of the
Equipment and is capable of being removed without causing material damage to
the Equipment and is not an accession to the Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of
Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent
remaining to be paid for the balance of the lease term or the Fair Market Value
of the Equipment immediately prior to
10.
<PAGE> 11
the Casualty Loss. However, if a Casualty Value Table is attached to the
relevant Schedule its terms will control.
COMMENCEMENT CERTIFICATE - means the Lessor provided
certificate which must be signed by Lessee within ten (10) days of the
Commencement Date as requested by Lessor.
COMMENCEMENT DATE - is defined in each Schedule.
DEFAULT COSTS - means reasonable attorney's fees and
remarketing costs resulting from a Lessee default or Lessor's enforcement of
its remedies.
EQUIPMENT - means the property described on a Schedule and any
replacement for that property required or permitted by this Master Lease or a
Schedule but not including any Attachment.
EVENT OF DEFAULT - means the events described in Subsection
13.1.
FAIR MARKET VALUE - means the aggregate amount which would be
obtainable in an arm's-length transaction between an informed and willing
buyer/user and an informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first
day of the first full Rent Interval following the Commencement Date for all
items of Equipment and continuing for the number of Rent Intervals indicated on
a Schedule.
INSTALLATION DATE - means the day on which Equipment is
installed and qualified for a commercially available manufacturer's standard
maintenance contract or warranty coverage, if available.
INTERIM RENT - means the pro-rata portion of Rent due for the
period from the Commencement Date through but not including the first day of
the first full Rent Interval included in the Initial Term.
LICENSED PRODUCTS - means any software or other licensed
products attached to the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien
free and of the same model, type, configuration and manufacture as Equipment.
LIKE PART - means a substituted part which is lien free and of
the same manufacturer and part number as the removed part, and which when
installed on the Equipment will be eligible for maintenance coverage with the
manufacturer of the Equipment.
MERGER - means any consolidation or merger of the Lessee with
or into any other corporation or entity, any sale or conveyance of all or
substantially all of the assets of the Lessee to any other person or entity or
any stock acquisition of the Lessee by any other person or entity.
11.
<PAGE> 12
NOTICE PERIOD - means the time period described in a Schedule
during which Lessee may give Lessor notice of the termination of the term of
that Schedule.
OVERDUE RATE - means the lesser of five percent (5%) of the
payment due or the maximum rate permitted by the law of the state where the
Equipment is located.
OWNER - means the owner of Equipment.
RECONFIGURATION - means any change to Equipment that would
upgrade or downgrade the performance capabilities of the Equipment in any way.
RENT - means the rent, including Interim Rent, Lessee will pay
for each item of Equipment expressed in a Schedule either as a specific amount
or an amount equal to the amount which Lessor pays for an item of Equipment
multiplied by a lease rate factor plus all other amounts due to Lessor under
this Master Lease or a Schedule.
RENT INTERVAL - means a full calendar month or quarter as
indicated on a Schedule.
SCHEDULE - means an Equipment Schedule which incorporates all
of the terms and conditions of this Master Lease and, for purposes of Section
14.12, its associated Commencement Certificate(s).
SECURED PARTY - means an entity to whom Lessor has granted a
security interest in a Schedule and related Equipment for the purpose of
securing a loan.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease
on or as of the day and year first above written.
BIOSTAR, INC. COMDISCO, INC.
AS LESSEE AS LESSOR
By: /s/ Teresa W. Ayers By: /s/ James P. Labe
----------------------------- --------------------------------------
Title: Vice President Finance Title: President Venture Lease Division
-------------------------- -----------------------------------
12.
<PAGE> 13
ADDENDUM TO THE MASTER LEASE AGREEMENT
DATED AS OF MAY 3, 1995
BETWEEN COMDISCO, INC., AS LESSOR,
AND BIOSTAR, INC., AS LESSEE
The undersigned hereby agree that the terms and conditions of the
above-referenced Master Lease Agreement are amended and modified as follows:
1. In the first paragraph after the words "MASTER LEASE
AGREEMENT" insert "(the "Master Lease")."
2. Section 1, "PROPERTY LEASED."
In the first sentence before the word "Schedule" insert the
words "Summary Equipment"
Second sentence, second line, replace "a Schedule" with "the
applicable Schedule"
3. Section 2, "TERM."
In the second line, delete "a" and insert "the applicable
Summary Equipment" before "Schedule".
4. Section 3, "RENT AND PAYMENT."
In the third sentence, delete the words "interest at the
Overdue Rate." and replace with "a Late Charge on the overdue
amount."
5. Section 4, "SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES."
Subsection 4.2, fourth sentence, line 3, insert "or willful
misconduct" after the words "negligent acts".
6. Section 5, "TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT."
Subsection 5.1, line 4, before "Schedules" insert "Summary
Equipment".
In the second paragraph, fourth sentence, insert "Summary
Equipment" before "Schedule".
Subsection 5.2, first paragraph, line 3, insert "and" after
the words "federal income tax,"
Subsection 5.3, paragraph (b), first sentence, line 1, add the
phrase "After receipt of written notice of assignment from
Lessor" before the word "Lessee".
1.
<PAGE> 14
7. Section 6, "NET LEASE; TAXES AND FEES"
Subsection 6.2, add the following paragraph at the end of this
subsection:
"Lessee shall not be liable for any taxes, fees or charges to
the extent the same result from any sale or assignment or
grant of security interest by Lessor, or to the extent any
such action increases the taxes, fees or charges that would
otherwise be payable. Lessee shall have the right to contest
by proper legal proceedings any taxes levied, as agent for or
in the name of Lessor. Lessor will cooperate in any legal
proceedings being prosecuted by Lessee with regard to any
taxes, but Lessee will pay the expenses in such litigation.
Lessee shall have the right to contest in good faith and by
appropriate proceeding the validity or the amount of taxes
unless such contest would adversely affect the title of the
Lessor to the Equipment or would subject it to forfeiture or
sale. Lessee shall have the rights to any refund received as
a result of any such contest or proceeding."
8. Section 7, "CARE, USE AND MAINTENANCE; ATTACHMENTS AND
RECONFIGURATIONS; AND INSPECTION BY LESSOR."
Subsection 7.1, second sentence, line 3, insert "at
commercially reasonable prices" after "commercially
available"; line 4, after the words "another party acceptable
to Lessor", add the words "including self-maintenance by
Lessee"; third sentence, in line 2 after the words "other than
the manufacturer", add "or self-maintains the Equipment.";
last sentence, insert the following at the end thereof: "or
Lessee has exercised its option to purchase such Equipment."
Subsection 7.2, first sentence, line 1, after the word
"Lessor", insert ", which consent shall not be unreasonably
withheld". Second sentence, line 3, after the words
"specified on the" insert "Summary Equipment". Fourth
Sentence, line 1, delete "the" and insert "such" between
accessions to" and "Equipment".
Subsection 7.3, add the following sentence at the end thereof:
"Notwithstanding the foregoing, in no event shall such
inspection occur more than twice in a calendar year, unless
otherwise agreed to between Lessee and Lessor."
9. Section 8, "REPRESENTATIONS AND WARRANTIES OF LESSEE"
Paragraph (a), line 4, insert the words "and where the failure
to be qualified would materially adversely affect the Lessee;"
after the words "requires such qualification".
Paragraph (b), add the following clause at the end thereof:
"subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally, and
rules of law concerning equitable remedies."
Paragraph (c), line 3, delete "if adversely determined, will"
and insert "are reasonably likely to".
2.
<PAGE> 15
10. Section 9
Second sentence, line 1, insert "Summary Equipment" before
"Schedule" and insert "and provided that the Equipment is not
purchased or the term extended as permitted by the applicable
Schedule" after "Schedule". Third sentence, line 2, delete
"its address set forth herein" and insert "6111 N. River Road,
Rosemont, IL 60018." Fourth sentence, insert "to" after
"subsequent".
11. Section 11, "INDEMNITY."
First sentence, line 4, after the word "Equipment", insert
"arising from acts or events during the term of each Summary
Equipment Schedule and prior to re-delivery of the Equipment
to Lessor in accordance with the terms of this Master Lease."
Second sentence, line 3, insert "or willful misconduct".
12. Section 13, "DEFAULT; REMEDIES AND MITIGATION."
Subsection 13.1
Introductory sentence, line 2, insert "Summary Equipment"
after the word "under'".
Paragraph (b), line 1, insert "the applicable" before the word
"Schedule".
Paragraph (c), line 4, insert the following after "powers":
"which petition or appointment is not dismissed or vacated
within sixty (60) days."
Subsection 13.2, paragraph (d), line 4, insert "or willful
misconduct" after "negligence".
Subsection 13.3, second sentence, line 1, insert "AND TO THE
FULLEST EXTENT PERMITTED BY LAW" after the words "IN THIS
SECTION".
13. Section 14, "ADDITIONAL PROVISIONS."
Subsection 14.1, is deleted in its entirety and replaced with
the following:
"Lessee agrees to provide to Lessor on a monthly basis the
executive summary and minutes of the Board of Directors
meetings which are sent to all investors, including all
attachments so distributed. In addition, the following
statements will accompany the report on a monthly basis:
Profit and Loss Statement, Balance Sheet, Cash Flow Statement
and Pro Forma Operating Plan (as developed)."
Subsection 14.2, second sentence, line 2, delete the words
"the same information..." through the words "Directors, but"
and replace with the words "reasonably detailed monthly
financial statements"; and line 5, delete "ninety (90)" and
insert "one hundred twenty (120)" before the word "(days)".
3.
<PAGE> 16
Subsection 14.4, to the end of this subsection add the
following:
"Notwithstanding the forgoing, Lessor hereby consents to any
merger which will result in a surviving entity with a Moody's
Bond Rating of BAA or better, or the equivalent if the entity
is not rated by Moody's."
Subsection 14.7, second sentence, add the following at the end
thereof: "except as provided for in this Agreement."
Subsection 14.9, line 4, insert "applicable" before "Schedule".
Subsection 14.10, lines 2 and 3, substitute "State of
Illinois" with the "State of California".
Subsection 14.13, first sentence, insert, "Summary Equipment"
before "Schedule".
Subsection 14.14, second sentence, line 2, insert "reasonably"
before "acceptable".
Subsection 14.16 is deleted in its entirety.
Definition "CASUALTY VALUE", line 1, insert "present value of
the" after the words "greater of the" and line 2, insert
"discounted at the U.S. Treasury rate of comparable maturity
to the remaining term" after the word "term".
Definition "COMMENCEMENT CERTIFICATE" delete this definition
in its entirety.
Add the following definition "DELIVERY DATE - means the date
of delivery of inventory Equipment to Lessee's address."
Definition "EQUIPMENT" insert "Summary Equipment" before the
word "Schedule".
Definition "INSTALLATION DATE" is deleted in its entirety.
Add the following definition: "LEASE - means a Summary
Equipment Schedule which incorporates all the terms and
conditions of the related Schedule and Master Lease."
Definition "MERGER", line 2, insert "or stock" after "assets";
delete the words "or any stock acquisition of the Lessee by
any other person or entity."
Definition "OVERDUE RATE" is amended to read "Late Charge" and
the word "rate" is deleted and "amount" is inserted.
Definition "RENT", line 2, insert "Summary Equipment" before
"Schedule."
4.
<PAGE> 17
Definition "RENT INTERVAL" insert "Summary Equipment" before
the word "Schedule".
Definition "SCHEDULE" delete this definition and replace with
the following:
"means, either an Equipment Schedule or a Licensed Product
Schedule which incorporates all of the terms and conditions of
this Master Lease."
Add the following definition: "SUMMARY EQUIPMENT SCHEDULE -
means, a Lessor provided certificate summarizing all of the
Equipment for which Lessor has received Lessee approved
invoices, purchase documentation and evidence of delivery, as
applicable, during a calendar quarter which will incorporate
all of the terms and conditions of the related Schedule and
this Master Lease and will constitute a separate Lease."
BIOSTAR, INC. COMDISCO, INC.
By: /s/ Teresa W. Ayers By: /s/ James P. Labe
---------------------------- --------------------------------------
Title: Vice President Finance Title: President Venture Lease Division
------------------------- -----------------------------------
Date: 5/3/95 Date: 5/5/95
-------------------------- ------------------------------------
5.
<PAGE> 18
(MULTIPLE QUARTER DELIVERY)
EQUIPMENT SCHEDULE NO. VL-1 DATED AS OF MAY 3, 1995
TO MASTER LEASE AGREEMENT DATED AS OF MAY 3, 1995 ("MASTER LEASE")
<TABLE>
<S> <C>
LESSEE: BioStar, Inc. LESSOR: Comdisco, Inc.
ADMIN. CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
Ms. Teresa Ayers 6111 North River Road
V.P. Finance Rosemont, Illinois 60018
(303) 530-6601 Attn: Capital Equipment Lease Administration
ADDRESS FOR NOTICES:
6655 Lookout Road
Boulder, CO 80301
Attn:
CENTRAL BILLING LOCATION: PAYING AGENT:
Same as above Comdisco, Inc.
P.O. Box 91744
Attn: Ms. Janet Taapken Chicago, Illinois 60693
Lessee Reference No.: ___________________
(24 digits maximum)
RENT INTERVAL: 1 month
LOCATION OF EQUIPMENT: INITIAL TERM: 36 months
Same as above
LEASE FACTOR: 3.178%
Attn:
ADVANCE: $31,780
</TABLE>
EQUIPMENT (AS DEFINED BELOW):
<TABLE>
<CAPTION>
ITEM MACHINE TYPE/ SERIAL
NO. QTY. MANUFACTURER FEATURE DESCRIPTION NUMBER RENT
- --- ---- ------------ ------------- ----------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Standard equipment specifically approved by Lessor, which shall be
delivered to and accepted by Lessee during the period May 3, 1995
through May 3, 1996 for which Lessor receives vendor invoices
approved for payment, up to an aggregate purchase price of
1,000,000; not including upgrades thereto and further excluding
custom use equipment, leasehold improvements, installation costs
and delivery costs, rolling stock, special tooling, custom
equipment, "stand-alone" software, application software bundled
into computer hardware, hand held items, molds and fungible items.
In no event shall any furniture exceed ten percent (10%) of
Lessor's aggregate cost hereunder.
</TABLE>
<PAGE> 19
1. NOTICE PERIOD: For purposes of notice by Lessee to Lessor of the
termination of the term of a Summary Equipment Schedule, the Notice Period
shall be not less than ninety (90) days nor more than twelve (12) months prior
to the expiration of the lease term of such Summary Equipment Schedule.
2. EQUIPMENT PURCHASE. Lessee acknowledges that it has either received
or approved Lessor's purchase documentation for the Equipment. The aggregate
purchase price referred to on the face of this Schedule shall include all
Equipment purchased by Lessor, consisting of amounts financed under Sections
(i), (ii), (iii) and (iv) below.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new
Equipment which is specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment
installed at Lessee's site and to which Lessee has clear title and ownership
may be considered by Lessor for inclusion under this Lease (the "Sale-Leaseback
Transaction"). Any request for a Sale-Leaseback Transaction must be submitted
to Lessor in writing (along with accompanying evidence of Lessee's Equipment
ownership satisfactory to Lessor for all Equipment submitted) no later than
June 3, 1995*. Lessor will not perform a Sale-Leaseback Transaction for any
request or accompanying Equipment ownership documents which arrive after the
date marked above by an asterisk (*). Further, any sale-leaseback Equipment
will be placed on lease subject to: (1) Lessor prior approval of the
Equipment; and (2) if approved, at Lessor's actual net appraised Equipment
value pursuant to the schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT PERCENT OF ORIGINAL MANUFACTURER'S NET
MANUFACTURER'S SHIP DATE EQUIPMENT COST PAID BY LESSOR
<S> <C>
Between 03/03/95 and 06/01/95 100%
Between 01/01/95 and 03/02/95 80%
Between 10/03/94 and 01/01/95 70%
</TABLE>
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase "used"
Equipment which is obtained from a third party by Lessee for its use subject
to: Lessor's prior approval of the Equipment and at Lessor's appraised value
for such used Equipment.
(iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor
may supply new or used Equipment from its inventory at rates provided by
Lessor.
3. COMMENCEMENT DATE.
The Commencement Date for each item of new on-order or used on-order
Equipment will be the date Lessee approves the vendor invoice. The
Commencement Date for sale lease-back Equipment will be the date Lessor tenders
the purchase price and the Commencement Date for inventory Equipment will be
the Delivery Date. Lessor will summarize all approved invoices, purchase
documentation and evidence of delivery, as applicable, received in the same
<PAGE> 20
calendar quarter into a Summary Equipment Schedule in the form attached to this
Schedule as Exhibit 1 and the Initial Term will begin the first day of the
calendar quarter thereafter. Each Summary Equipment Schedule will contain the
Equipment location, description, serial number(s) and cost and will incorporate
the terms and conditions of the Master Lease and this Schedule and will
constitute a separate Lease.
4. OPTION TO EXTEND.
So long as no Event of Default has occurred and is continuing
hereunder, Lessee will have the right to extend the Initial Term of a Summary
Equipment Schedule for a period of one (1) year by giving Lessor at least
ninety (90) days written notice prior to the expiration of the Initial Term of
such Summary Equipment Schedule. In such event, the rent to the paid during
said extended period shall be mutually agreed upon and if the parties cannot
mutually agree, then the Summary Equipment Schedule shall continue in full
force and effect pursuant to the existing terms and conditions until terminated
in accordance with its terms. The Summary Equipment Schedule will continue in
effect following said extended period until terminated by either party upon not
less than ninety (90) days prior written notice, which notice shall be
effective as of the date of receipt.
5. PURCHASE OPTION.
So long as no Event of Default has occurred and is continuing
hereunder, and upon written notice no earlier than twelve (12) months and no
later than ninety (90) days prior to the expiration of the Initial Term or
extended term of the applicable Summary Equipment Schedule, Lessee will have
the option at the expiration of the Initial term or extended term of such
Summary Equipment Schedule to purchase all, but not less than all, of the
Equipment listed therein for a purchase price and upon terms and conditions to
be mutually agreed upon by the parties following Lessee's written notice, plus
any taxes applicable at time of purchase. Said purchase price shall be paid to
Lessor at least thirty (30) days before the expiration date of the Initial Term
or extended term. Title to the Equipment shall automatically pass to Lessee
upon payment in full of the purchase price but, in no event, earlier than the
expiration of the fixed Initial Term or extended term, if applicable. If the
parties are unable to agree on the purchase price or the terms and conditions
with respect to said purchase, then the Summary Equipment Schedule with respect
to this Equipment shall remain in full force and effect. Notwithstanding the
exercise by Lessee of this option and payment of the purchase price, until all
obligations under the applicable Summary Equipment Schedule have been
fulfilled, it is agreed and understood that Lessor shall retain a purchase
money security interest in the Equipment listed therein and the Summary
Equipment Schedule shall constitute a Security Agreement under the Uniform
Commercial Code of the state in which the Equipment is located.
<PAGE> 21
Master Lease: This Schedule is issued pursuant to the Master Lease identified
on page 1 of this Schedule. All of the terms and conditions of the Master
Lease are incorporated in and made a part of this Schedule as if they were
expressly set forth in this Schedule. The parties hereby reaffirm all of the
terms and conditions of the Master Lease (including, without limitation, the
representations and warranties set forth in Section 8) except as modified
herein by this Schedule. This Schedule may not be amended or rescinded except
by a writing signed by both parties.
BIOSTAR, INC. COMDISCO, INC.
AS LESSEE AS LESSOR
By: /s/ Teresa W. Ayers By: /s/ James P. Labe
---------------------------- --------------------------------------
Title: Vice President Finance Title: President Venture Lease Division
------------------------- -----------------------------------
Date: 5/3/95 Date: 5/5/95
-------------------------- ------------------------------------
<PAGE> 22
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated _______________ is executed
pursuant to Equipment Schedule No. VL-1 dated May 2, 1995 to the Master
Agreement dated May 2, 1995 between Comdisco, Inc. ("Lessor") and BioStar, Inc.
("Lessee"). All of the terms, conditions, representations and warranties of
the Master Lease Agreement and Equipment Schedule No. VL-1 are incorporated
herein and made a part hereof and this Summary Equipment Schedule constitutes a
Lease for the Equipment described below.
1. EQUIPMENT:
<TABLE>
<CAPTION>
EQUIPMENT
QTY. MFGR. TYPE/MODEL SERIAL # LOCATION
<S> <C> <C> <C> <C>
(See attached invoices)
</TABLE>
2. INSTALLATION DATE: (See attached Invoices)
3. INITIAL TERM STARTS ON:
4. TOTAL EQUIPMENT COST:
5. RENT:
6. REPRESENTATIONS OF LESSEE:
Each item of Equipment has been delivered to the location indicated
above, tested, inspected, found to be in good working order and
accepted by the Lessee on its installation date as set forth above.
<PAGE> 1
DOMINION VENTURES MASTER LEASE AGREEMENT
LESSOR/AGENT: LESSEE:
Dominion Ventures, Inc. BioStar, Inc.
44 Montgomery Street, Suite 4200 6655 Lookout Road
San Francisco, CA 94104 Boulder, CO 80301
<TABLE>
<CAPTION>
MASTER LEASE LINE: INITIAL TERM: RENT FACTOR:
- ----------------- ------------ -----------
<S> <C> <C>
$750,000.00 36 Months Computer Equipment 3.259%
48 Months Test & Lab Equipment & Furniture 2.504%
</TABLE>
<TABLE>
<CAPTION>
ADVANCE RENTAL SECURITY DEPOSIT
- -------------- ----------------
<S> <C>
$19,535.00 $0.00
</TABLE>
EFFECTIVE DATE: FUNDING EXPIRATION DATE:
- --------------- ------------------------
November 2, 1992 December 15, 1993
The Master Lease Line, specified above, shall remain open until fully
funded or until the Funding Expiration Date noted above whichever occurs first.
The Term "Equipment" means the items of personal property that are listed on
the Equipment Schedule Agreements (the "Schedules") attached or from time to
time added to this Lease, together with all replacement parts, additions and
accessories incorporated thereto. Schedules, each of which shall have a total
cost of not less than ten thousand dollars ($10,000.00), may be added to this
Lease not more frequently than once per month and in any event only with the
prior approval of Lessor. Equipment is to be limited to the types of equipment
described in Exhibit A attached hereto and with the exception of Equipment
Schedule 1A, the original use shall not commence with Lessee more than sixty
(60) days prior to the date of this Lease. No item of Equipment shall have a
unit cost of less than one thousand dollars ($1,000.00) or be subject to an
invoice of less than five thousand dollars ($5,000.00). Lessee acknowledges
that Lessor must specifically segregate funds for this Master Lease Line.
Advance Rental paid under this Lease is nonrefundable for any reason; but, for
each item of Equipment shall be credited to the last complete calendar month's
rent for such item, subject to the conditions of Paragraph 6. If, as of the
Funding Expiration Date, the aggregate Cost to Lessor of all Equipment is more
than five percent (5%) less than the Master Lease Line, Lessee agrees to pay
Lessor, no later than five (5) business days thereafter, two percent (2%) of
the unexpended amount as compensation for expenses.
See attached Schedules for detailed Equipment descriptions and
effective dates.
This Lease and the Schedules attached hereto are subject to the terms
and conditions set forth above and on subsequent pages which are made part
hereof.
1. TRUE LEASE. Lessor leases to Lessee, and Lessee hires and takes from
Lessor, the Equipment. It is the intent of both Lessor and Lessee that this
agreement be a true lease and not a lease intended as security or a conditional
sales agreement. Lessor and Lessee also agree to treat this Lease as a true
lease for income tax purposes.
1.
<PAGE> 2
2. EQUIPMENT AND LIABILITY. Lessee shall select the type and quantity of
each item of Equipment designated in the appropriate Schedule. Lessee shall
defer to Lessor's ability to obtain discount pricing from suppliers of
equipment, and any discounts and rebates resulting from the purchase of
Equipment shall be remitted to Lessor. Lessee shall order each item from the
respective supplier and, in reliance thereon and subject to its prior approval,
Lessor shall be deemed to have ordered and acquired such Equipment from such
supplier. At Lessor's request, Lessee shall formally assign the purchase order
for such Equipment to Lessor. LESSEE ACKNOWLEDGES THAT LESSOR IS NOT THE
MANUFACTURER, RETAILER OR DISTRIBUTOR OF THE EQUIPMENT, THAT SAID ENTITIES ARE
NOT AGENTS OF LESSOR, THAT LESSEE RENTS THE EQUIPMENT "AS IS", AND THAT LESSOR
HAS ACCEPTED NO RESPONSIBILITY FOR THE TRANSPORTATION, INSTALLATION OR REQUIRED
LICENSING NECESSARY FOR THE TRANSFER, INSTALLATION OR USE OF THE EQUIPMENT.
Lessor shall not be liable for specific performance of this Lease nor for
damages if for any reason a supplier declines, delays or fails to fill any
order. Lessee agrees to accept the Equipment and authorizes Lessor to add the
serial number of the Equipment to this Lease. Lessor shall not be liable to
Lessee for any loss, damage or expense of any kind or nature caused directly or
indirectly by the Equipment, its use or maintenance; nor for any delay or
failure to provide any of the Equipment; nor for any interruption of service or
loss of use of the Equipment; nor for any loss of business or damages whatsoever
and howsoever caused.
3. WARRANTIES. LESSEE HAS NOT RELIED UPON AND ACKNOWLEDGES THAT LESSOR
HAS MADE NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WITH
RESPECT TO THE EQUIPMENT, INCLUDING WITHOUT LIMITATION ITS CONDITION,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. NO DEFECT OR UNFITNESS
OF THE EQUIPMENT NOR OTHER CLAIM REGARDING CONDITION OR USE OF THE EQUIPMENT
SHALL RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR ANY OTHER OBLIGATION UNDER
THIS LEASE. Lessor authorizes Lessee to enforce in its own name all warranties,
agreements or representations, if any, which may be made by any supplier to
Lessee or Lessor.
4. TERM. All obligations under this Lease, except regular rental
payments, shall commence immediately upon the Effective Date specified on the
first page of this Agreement (the "Effective Date") and shall continue until
full performance of every provision of this Lease, and each Schedule and
Addendum (the "Lease Term"). All obligations under each Schedule shall commence
upon Lessee's execution of Lessor's Certificate of Inspection and Acceptance
(the "Acceptance Certificate") for the Equipment specified on such Schedule and
shall terminate at the end of the Initial Term (The "Noncancellable Term"). The
"Initial Term", as set forth on page 1 of this Lease, shall begin on the first
day of the calendar quarter following the date of the Acceptance Certificate.
This Lease is irrevocable for its full term and until Lessee has performed all
of its obligations hereunder.
5. RENTAL PAYMENTS. Lessee shall pay to Lessor, as rental for Equipment
during each month of the Noncancellable Term of any Schedule, an amount equal to
the Rent Factor set forth on page one of this Lease multiplied by the total Cost
(as defined below in paragraph 7) of the Equipment to Lessor, which amount shall
be due and payable in advance on the first day of each calendar month during the
Noncancellable Term. If the date of the Acceptance Certificate of any Schedule
shall be other than the first day of the calendar quarter, Lessee shall make
rental
2.
<PAGE> 3
payments ("Interim Rent") equal to one-thirtieth of the monthly rental set
forth on the Schedule for each day from and including the date of the
Acceptance Certificate for such Schedule, through and including the last day of
the calendar quarter prior to the beginning of the Initial Term. Such Interim
Rent shall be due and payable on the first day of the calendar month following
the month for which such payment is assessed. In addition to any other
remedies that Lessor may have under this Lease, if Lessee fails to pay any rent
or other amount herein provided within five (5) business days after the same is
due, Lessee shall pay to Lessor a late charge of three percent (3%) of such
amount plus interest from the due date until the date of payment, calculated at
the rate of one and five tenths percent (1.5%) per month, or at the highest
rate permitted by applicable law, whichever is less, to compensate Lessor for
additional bookkeeping and collection expense. All rents, late charges and
other amounts for which Lessee is liable shall be paid to Lessor at its address
as set forth above or as otherwise directed by Lessor. Lessor's right to
receive rental payments, as well as all other rights of Lessor to payment
hereunder, shall not be subject to any defense, set off, counterclaim or
recoupment which may arise out of any breach on the part of Lessor, or by
reason of any other liability Lessor may owe Lessee.
6. ADVANCE RENTAL. Upon execution of this Lease, Lessee shall pay to
Lessor an Advance Rental in an amount equal to the Rent Factor multiplied by the
Master Lease Line (plus applicable taxes) less the commitment deposit of
$5,000.00 previously paid by Lessee to Lessor. A pro rata portion of the
Advance Rental shall be credited to the last complete calendar month's rent for
each item of Equipment. Lessee grants Lessor a security interest in the Advance
Rental to secure all of Lessee's obligations hereunder. If the Master Lease
Line has not been fully expended by the Funding Expiration Date, Lessor shall
retain the uncredited balance of the Advance Rental as compensation for
expenses. Lessor shall have the right, but not the obligation, to apply the
Advance Rental to cure any default of Lessee, in which event Lessee shall
promptly restore the Advance Rental account to its proper balance.
7. ADJUSTMENTS FOR ACTUAL COST. As used herein, "Cost" means the cost to
Lessor of purchasing the Equipment including any sales taxes and other charges
paid by Lessor and net of any discounts and rebates remitted to Lessor. The
Advance Rental is based upon the Master Lease Line, which is an estimate. If at
any time the actual aggregate Cost of all Equipment exceeds the Master Lease
Line, the Advance Rental shall be increased proportionately. Lessee shall pay
any additional sums for Advance Rental due under this Lease within five (5)
business days after receiving notice from Lessor. If any Schedule of Equipment
causes the actual aggregate Cost of all Equipment to exceed the Master Lease
Line by more than ten percent (10%), Lessor may terminate said Schedule within
fifteen (15) days after receiving invoices for such excess cost and upon request
shall promptly be reimbursed by Lessee for such excess cost. If the actual
aggregate Cost of all Equipment, together with any additional equipment proposed
to be added to the Lease, would exceed the Master Lease Line by more than ten
percent (10%), Lessor may refuse to add such equipment to this Lease and shall
so notify Lessee.
8. TITLE. All Equipment shall remain personal property, and the title
thereto shall remain exclusively in Lessor, notwithstanding the manner in which
it may be attached to realty. Lessee agrees, upon the request of Lessor at any
time during the Lease Term, to affix or permit Lessor to affix, in a permanent
place on the Equipment, labels supplied by Lessor identifying the
3.
<PAGE> 4
Equipment as property of Lessor, and shall not alter or remove any such label
from any item of Equipment. Lessee shall keep the Equipment free from any and
all liens and encumbrances except those created by Lessor. Lessee shall give
Lessor immediate notice of any judicial process or encumbrance affecting the
Equipment and shall indemnify and save Lessor harmless from any loss or damage
caused thereby, including court costs, attorney fees and expenses.
9. FILING. Lessee shall execute or cause to be executed, at Lessee's
sole expense, such supplemental instruments, financing statements and landlord's
waivers as Lessor deems necessary or advisable and shall cooperate to defend the
title of Lessor by filing or otherwise. Lessee authorizes Lessor to record in
any state, this Lease and any financing statements, security agreements and
landlord's waivers with respect to the Equipment or any collateral provided by
Lessee to Lessor. Lessee agrees to give Lessor thirty (30) days written notice
of any change in Lessee's name or place of business. Lessee agrees to give
written notice to Lessor as soon as Lessee has knowledge of any change of
ownership of the real property upon which or within which the Equipment is
located.
10. TAXES. Lessee shall pay in a timely fashion and shall indemnify and
hold Lessor harmless against all federal, state and local taxes, assessments,
license and registration fees, and other governmental charges of any kind,
including those levied on motor vehicles or trailers, and any interest or
penalties thereon, which may be levied, directly or indirectly, against the
Equipment or with respect to its ordering, purchasing, delivery, ownership,
possession, use, leasing, documentation, and return or other disposition
thereof, regardless of whether such taxes and fees are levied against Lessor or
Lessee. Lessee shall have the right to contest any material tax, fee or charge
with the applicable authorities provided that Lessee shall indemnify Lessor
against any loss or damage which Lessor may incur as a result of such contest.
Such taxes and fees to be paid by Lessee shall include, without limitation,
property, sales, rent, franchise, gross receipts, lease, and use taxes, and any
other tax measured by gross rental payments, but shall not include net income or
franchise taxes payable by Lessor on its receipt of rental payments hereunder.
Personal Property Taxes shall be reasonably estimated by Lessor and billed to
Lessee as of the date of assessment each year. Upon receipt by Lessor of the
final personal property tax assessment and invoice, Lessor shall invoice or
credit Lessee, as applicable, for any differences of such final assessment and
Lessor's original estimate. Lessor shall have the right, but not the
obligation, to pay any such taxes or fees regardless of whether levied against
Lessor or Lessee. Any and all sales taxes levied against Lessor's purchase of
Equipment shall be added to the total Cost of such Equipment as specified on the
Schedule under which such equipment is added to this Lease. With the exception
of taxes and fees which are added to the total Cost of Equipment hereunder,
Lessee shall reimburse Lessor within ten business (10) days after receipt of
invoice from Lessor specifying the amount of, and reason for, any payment by
Lessor of amounts for which Lessee is liable under this Paragraph 10. Lessee
shall timely prepare and file all reports and returns which are required to be
made with respect to such taxes and/or fees, and all such reports shall show
Lessor as owner of the Equipment.
11. ASSIGNMENTS AND SUBLEASES. Lessee shall not assign this Lease or
Lessee's rights hereunder, or sublease any Equipment, without the prior written
consent of Lessor. Lessor and Lessee agree that any purchase of all or
substantially all of Lessee's Assets, any merger or consolidation into or with
Lessee regardless of whether Lessee is the surviving entity or any entity
acquiring more than twenty percent (20%) of Lessee shall be deemed to be an
assignment
4.
<PAGE> 5
provided however, that no such consent shall be required in the event the
surviving or acquiring entity shall have a net worth in excess of that of
Lessee and such acquiring entity shall execute an assignment or guaranty (as
appropriate) of Lease, acceptable to Lessor, acknowledging and assuming the
obligations hereunder, prior to giving effect to the transaction. Lessor shall
have the right, in its sole discretion, to assign this Lease or any part
hereof, provided that any such assignment shall not materially increase
Lessee's obligations hereunder. In particular, Lessee acknowledges that it is
Lessor's intention to assign this Lease to one or more limited partnerships
with which Lessor is affiliated, that upon any such assignment the sole
liability for performance of Lessor's obligations hereunder shall fall upon
such assignee, and that the limited partners of such assignee shall have no
personal liability for the performance or observance of this Lease. Following
any assignment by Lessor, the term "Lessor", as used herein, shall include
and/or refer to Lessor's assignee, and the Equipment covered by such assignment
shall be deemed to be used by Lessee under a lease agreement between Lessee and
such assignee, the terms and conditions of which shall be the terms and
conditions of this Lease; provided, however, that any such lease agreement
shall cover only the Equipment so assigned. Subject to the foregoing, this
Lease inures to the benefit of, and is binding upon, the heirs, legatees,
representatives, successors and assigns of Lessee and Lessor.
12. POSSESSION. Lessor covenants that, to the best of its knowledge, it
is the lawful owner of the Equipment and that, conditioned upon Lessee's
performance of each of its obligations under this Lease, Lessee's use of the
Equipment shall not be interrupted by Lessor, except as provided in Paragraph
15.
13. USE AND INDEMNITY. Lessee shall use the Equipment in Lessee's
business. Lessee agrees not to allow the Equipment to be used by other than its
employees, consultants and agents. Lessee acknowledges that the Equipment is
leased for commercial purposes and not for personal use. Lessee agrees to
indemnify and hold Lessor, and Lessor's agents, servants, successors and
assigns, harmless against any and all claims, actions, liabilities and expenses
of any nature, including court costs and attorney fees, arising in connection
with the manufacture, purchase, delivery, installation, operation, use,
ownership, maintenance, storage, relocation, and return of the Equipment, except
to the extent any such claims, actions, liabilities and expenses result from the
gross negligence or willful misconduct of Lessor. The foregoing indemnity shall
continue in full force and effect notwithstanding the termination of this Lease,
whether by expiration of time, operation of law or otherwise.
14. LOCATION. Lessee shall keep the Equipment within the continental
United States and at its place of business as specified above or on the
Schedules. Lessee shall not permit any Equipment to be moved to a new location
without the prior written consent of Lessor.
15. RIGHT OF INSPECTION. Lessor and its agents shall have the right, at
any time during normal business hours, to inspect and photograph the Equipment,
to review all maintenance records related to the Equipment and, during the last
ninety (90) days of the rental term of each respective Schedule provided that
Lessee has not given notice of its intent to purchase the Equipment pursuant to
Paragraph 17 below, to demonstrate the Equipment specified thereon to
prospective purchasers; provided, however, Lessor shall give five days notice to
Lessee of any such demonstration.
5.
<PAGE> 6
16. MAINTENANCE. Lessee shall exercise due and proper care in the use,
repair and servicing of the Equipment. Lessee shall, at its own expense, make
all repairs and replacements required to maintain the Equipment in good working
condition in accordance with manufacturers' specifications and Lessor's
requirements, and shall pay all other operating expenses relating to the
Equipment. Lessee shall have the right, upon ten (10) days prior written notice
to Lessor, to make any alterations, additions or improvements which do not
render the Equipment in such a condition that it cannot, prior to the expiration
or other termination of this Lease, be restored to its original condition,
reasonable wear and tear alone excepted; provided that no such alteration,
addition or improvement shall be made by Lessee if as a result thereof any
warranties made by the supplier of the Equipment would be canceled or
terminated. If Lessee does not exercise its option to purchase the Equipment as
specified in Paragraph 17, or if Lessee should become in default of any of its
obligations hereunder, Lessee shall restore the Equipment to its original
condition, reasonable wear and tear alone excepted, prior to the expiration or
other termination of each respective Schedule. All replacement parts and
additions incorporated to the Equipment shall become the property of Lessor;
provided, however, that Lessor shall transfer to Lessee title to any
alterations, additions and improvements which were made by Lessee at its own
expense to (i) each item of Equipment which Lessee has restored to its original
condition as specified in this Paragraph 16, and (ii) each item of Equipment
purchased by Lessee pursuant to the provisions of Paragraph 17. Lessee agrees
to maintain and provide upon request of Lessor all internal maintenance reports
relating to the Equipment.
17. PURCHASE OPTION. Upon written notice to Lessor not less than 90 days
prior to the expiration of this Lease, if Lessee has fulfilled all of its
obligations hereunder, Lessee shall have the right to purchase all, but not less
than all, of the Equipment, on a Schedule by Schedule basis, for Fair Market
Value (as defined below) as such term is adopted and recognized by the American
Society of Appraisers (plus applicable taxes). Should Lessor and Lessee fail to
agree upon the fair market value purchase price of the Equipment, said price
shall be determined by an independent appraiser, and the cost shall be borne
equally by both Lessor and Lessee. Notwithstanding the date on which Lessee
exercises this option, Lessee shall acquire no rights of title to any Equipment,
nor shall any Equipment be transferred to Lessee, until the expiration of the
rental term for the Schedule on which such Equipment is specified. Lessee shall
remain liable for all rental payments and other obligations until the expiration
of the Lease Term. Any Equipment sold by Lessor shall be sold "as is", "where
is", and with no warranties, express or implied, including without limitation
implied warranties of merchantability and fitness for any particular purpose.
"Fair Market Value" is defined as the estimated amount at which the property
might be expected to exchange between a willing buyer and a willing seller,
neither being under compulsion, each having reasonable knowledge of all relevant
facts, and with equity to both.
18. RETURN OF EQUIPMENT. Upon 90 days written notice to Lessor,
in the event Lessee has not exercised its Purchase Option as specified in
Paragraph 17, after such notification and upon the expiration or termination of
this Lease, Lessee shall, at Lessee's sole expense, properly pack and return
the Equipment, insured, unencumbered and in the same condition as when received
by Lessee, reasonable wear and tear alone excepted, by such carriers as Lessor
shall approve and to such place as designated by Lessor. Should Lessee fail to
return the Equipment as directed above, all obligations of Lessee under this
Lease, including rental payments, shall remain in full force and effect during
the holdover period.
6.
<PAGE> 7
19. FINANCIAL STATEMENTS.
(a) Lessee shall provide to Lessor the financial statements
specified in this subparagraph 19(a), prepared in accordance with generally
accepted accounting principles, consistently applied (the "Financial
Statements"); provided, however, that after the effective date of any initial
registration statement covering a public offering of Lessee's securities, the
term "Financial Statements" shall be deemed to refer only to those statements
required by the Securities and Exchange Commission, to be provided no less
frequently than quarterly.
(i) As soon as practicable (and in any event within thirty
(30) days after the end of each month), a reasonably detailed balance sheet as
of the end of such month and the related statements of income or loss, cash flow
and capital structure of the Lessee during such month (including the
commencement of any material litigation by or against Lessee), certified by
Lessee's Chief Executive Officer or Chief Financial Officer fairly to present
the data reflected therein.
(ii) As soon as practicable (and in any event within one
hundred and twenty (120) days after the end of each fiscal year, audited balance
sheets as of the end of such year (consolidated if applicable), and related
statements of income or loss, retained earnings or deficit, cash flows and
capital structure of Lessee for such year, setting forth in comparative form the
corresponding figures for the preceding fiscal year, and accompanied by an audit
report and opinion of the independent certified public accountants of recognized
national standing selected by Lessee.
(b) Lessee shall promptly furnish to Lessor any additional
information (including but not limited to tax returns, income statements,
balance sheets, and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing financial obligations (the "Additional
Information").
(c) Lessor agrees to preserve the confidentiality of all information
provided to it hereunder by Lessee regarding the Lessee and its business which
Lessee designates in writing as confidential and which is otherwise not
generally known.
20. TAX INDEMNIFICATION. Lessee acknowledges that this Lease has been
entered into on the basis that Lessor or Lessor's designee intends to claim such
depreciation, interest deductions and other tax benefits as are provided to an
owner of Equipment under the Internal Revenue Code of 1986, as amended (the
"Code") (the "Tax Benefits"). If Lessor or Lessor's designee shall not have the
right to claim or there shall be disallowed or recaptured with respect to Lessor
or Lessor's designee, all or any portion of the Tax Benefits as a result of an
act or failure to act by Lessee in contravention with any of the terms and
conditions of the Lease, Lessee shall promptly pay to Lessor or Lessor's
designee, an amount which, on an after-tax basis, will compensate Lessor or
Lessor's designee for the value of the lost Tax Benefits. The Tax Benefits shall
be deemed to have been disallowed or recaptured upon the payment by Lessor to
the Internal Revenue Service or state taxing authority of the tax increase
resulting from such lost Tax Benefits. Provided Lessee has reimbursed Lessor
for the payment to the Internal Revenue Service or taxing authority for the
increase resulting from such loss of Tax Benefits, Lessee shall have the right
to contest any disallow or recapture of Tax Benefits with the
7.
<PAGE> 8
appropriate taxing authority. Lessor or Lessor's designee shall be deemed not
to have the right to claim the Tax Benefits if, in the opinion of Lessor's
independent tax counsel, reasonably acceptable to Lessee, there is no
reasonable basis for claiming the Tax Benefits.
21. NO REPRESENTATION. Lessor assumes no liability as to the treatment by
Lessee of this Lease, the Equipment or the rental payments for financial
statement or tax purposes.
22. RISK OF LOSS. Lessee assumes the entire risk of loss, theft and
damage of the Equipment from any cause whatsoever, and no such event shall
relieve Lessee of any obligation under this Lease. Lessee shall notify Lessor
in writing within ten (10) days after any such event. Lessee agrees that Lessor
shall have the following remedies upon each occurrence of the following events:
(a) In the case of damage of any kind whatsoever to any item of
Equipment (unless such item is damaged beyond repair), Lessee shall, at Lessee's
sole expense and with Lessor's reasonable consent, (i) restore such Equipment to
its original condition, reasonable wear and tear alone excepted, or (ii) replace
it with like equipment of the same or later model in good condition. Upon
Lessee's replacement of any Equipment as specified in this subparagraph
22(a)(ii), Lessor shall transfer title to such replaced Equipment to Lessee.
(b) If any item of Equipment is determined by Lessor to be damaged
beyond repair, or if Lessor has reasonable cause to believe that any item of
Equipment is stolen or lost and such item is not returned to its proper location
within thirty (30) days after notice thereof to Lessee, Lessee shall, with
Lessor's reasonable consent, immediately pay to Lessor: (i) the amount required
to replace such item with like equipment of the same or later model in good
condition, in which case Lessor shall replace such item, and rental payments
shall continue throughout the Lease Term without any interruption, or (ii) the
aggregate unpaid rent due for the balance of the rental term for the items of
Equipment involved, discounted to present value at the then current Treasury
Bill rate, the then estimated fair market value of the items of Equipment
involved, calculated as of the expiration of the Lease Term (the "Residual
Value"), discounted to present value at the then current Treasury Bill rate; any
tax payments or indemnification for which Lessee is liable under Paragraphs 10
and 20; and any other amounts for which Lessee is liable under this Lease;
provided, however, the option specified in subparagraph 22(b)(i) shall not be
available in the event of Lessee's default. Upon payment under subparagraph
22(b)(ii), this Lease shall terminate with respect to the items paid for, and
Lessee shall become entitled to such items "as is" and "where is" without any
warranty, express or implied.
(c) Any proceeds paid to Lessor from the Personal Property Insurance
specified in subparagraph 23 (a) (i) (B) shall be applied to Lessee's
obligations under this Paragraph 22.
23. INSURANCE.
(a) Lessee shall, at its own expense, maintain the following types
of insurance, with companies acceptable to Lessor, until such time as Lessee has
returned the Equipment as specified in Paragraph 18:
8.
<PAGE> 9
(i) Personal Property Insurance on all property owned by
Lessee (including but not limited to all of the Equipment), in an agreed amount
based upon the following:
(A) Standard Special Form Property Insurance,
including boiler and machinery insurance, and flood insurance if any Equipment
is located in an identified "flood hazard area," in which flood insurance has
been made available pursuant to the National Flood Insurance Act of 1968;
(B) The amount of such insurance shall be not less
than the greater of the fair market value or the full undepreciated replacement
value of the Equipment. The Amount of such insurance allocable to loss or
damage or personal property shall not have a deductible in excess of five
thousand dollars ($5,000.00) per occurrence.
(C) Such insurance shall contain an endorsement in
which Lessor is named as Loss Payee with respect to the Equipment, and shall set
aside the amount stated in subparagraph 23(a)(i)(B) for the sole benefit of, and
payable directly to, Lessor.
(ii) Business interruption insurance in an amount at all times
equal to the loss of profit plus necessary continuing expenses for the six
months following the date of calculation. In the event of any interruption of
Lessee's business, the amount payable to Lessor shall be equal to not less than
the actual loss of rental payments suffered by Lessor as the result of such
interruption, and shall be payable to Lessor within thirty (30) days from the
date of loss, and on a month-to-month basis thereafter, until Lessee's business
is returned to a fully operational state, plus ninety (90) days.
(iii) Commercial General Liability Insurance covering bodily
injury (including death) and property damage, naming Lessor, its directors,
officers, agents and employees as an Additional Insured on all policies, and
providing total limits in amounts as are at the time carried by entities engaged
in the same or similar business and which are similarly situated, but in no
event less than two million dollars ($2,000,000.00) for combined single limit
occurrence. All such policies shall cover any injury or damage occasioned by,
or occurring upon, Lessee's premises, products, operations and, at Lessor's
option, explosion, collapse and underground hazards. All such policies shall
contain contractual liability coverage including all liability assumed under
this agreement, and a cross liability clause providing that such insurance
shall, except with respect to the limits of liability, apply separately to each
insured.
(b) All insurance specified in this Paragraph 23 shall be primary
over any insurance carried by Lessor, and in no event shall any insurance
carried by Lessor be called upon to contribute to any loss relating to or
arising out of this Lease. All insurance shall be in effect, and shall be
evidenced by policies and/or endorsements delivered to Lessor no later than
twenty (20) days after the date upon which Lessee executes this Lease.
Notwithstanding anything to the contrary contained in this Lease, Lessor shall
have no obligation to purchase any Equipment until all policies are in place.
All such policies shall provide for at least thirty (30) days prior written
notice to Lessor in the event of any cancellation, non-renewal or material
change in coverage, and Lessor shall receive a copy of any and all endorsements
or other documentation relating to such policies.
9.
<PAGE> 10
(c) Should Lessee, at any time during the Lease Term, be without
sufficient insurance, as determined by Lessor in accordance with the provisions
of this Paragraph 23, Lessee appoints Lessor as its agent to obtain such
coverage, and promises to pay to Lessor the entire cost of such coverage.
24. DEFAULT. Time is of the essence of this Lease and each of its
provisions. Lessee shall be in default immediately upon the occurrence of any
of the following events:
(a) Nonpayment, by the due date specified herein, of any rental or
other payment required of Lessee under the terms of this Lease, and such
nonpayment shall continue for a period of five (5) business days;
(b) Noncompliance with any or all of the provisions of Paragraph 23,
and such noncompliance shall continue for a period of five (5) days after notice
thereof is given to Lessee;
(c) If Lessee has made a misstatement or false statement of, or
omitted to state, a material fact in connection with the execution, performance
or nonperformance of this Lease or any Schedule, or if any representation or
warranty of Lessee in this Lease or the Acceptance Certificate for any item of
Equipment is inaccurate or false;
(d) If Lessee, except as permitted in Paragraph 11 above, without
Lessor's prior written consent shall have attempted to remove, part possession
with, sell transfer, encumber, assign or sublet the Equipment or Lessee's
interest under this Lease; or if Lessee shall have attempted to convert any
interest of Lessor arising under this Lease or any purchase order, or resulting
from the purchase of Equipment;
(e) If Lessee shall encumber, without Lessor's prior written
consent, other than for valid business purposes during the normal course of
business with respect to license agreements or similar agreements, sell,
transfer or assign, except as permitted in Paragraph 11 above, Lessee's rights,
title and interest in all patents, patent applications, invention disclosures,
copyrights, copyright applications, trademarks (including service marks),
trademark registrations, trade names, computer software and hardware, microcode
and source code, trade secrets, know-how and processes owned by Lessee
(hereinafter referred to as "Intellectual Property");
(f) If any of Lessee's credit or financial information submitted to
Lessor prior or subsequent to execution of this Lease (including but not limited
to due diligence materials, Financial Statements and Additional Information)
contains any misstatement or false statement of a material fact, or fails to
state therein any material fact necessary to make the statements made, in light
of the circumstances under which they were made, not misleading;
(g) The inability of Lessee to pay debts when due, or the insolvency
of Lessee or the commission by Lessee of any act of bankruptcy as defined in the
Federal Bankruptcy Act as amended;
(h) If any single finally adjudicated judgement for payment of money
damages in excess of twenty- five thousand dollars ($25,000.00), or aggregate
judgments for
10.
<PAGE> 11
payment of money damages in excess of fifty thousand dollars ($50,000.00),
shall be rendered against Lessee and shall remain undischarged for a period of
sixty (60) days, during which period execution shall not effectively stayed;
(i) If any substantial part of Lessee's property shall remain
subjected to any levy, seizure, involuntary assignment, attachment, application
or sale for or by any creditor or governmental agency;
(j) If any single indebtedness of Lessee exceeding the sum of
twenty-five thousand dollars ($25,000.00), or aggregate indebtedness exceeding
the sum of fifty thousand dollars ($50,000.00), under any other lease or
contract for the borrowing of money or on account of the deferred purchase price
of property shall be accelerated, or subject to acceleration upon the giving of
notice, passage of time or both as a result of a default by Lessee;
(k) If an order, judgement or decree shall be entered by any court
having jurisdiction for (i) relief in respect of Lessee in an involuntary case
under any applicable bankruptcy, insolvency or other similar law (as now or
hereafter in effect), (ii) appointing of receiver, liquidator, assignee,
trustee, custodian, sequestrator (or similar official) for Lessee or for any
substantial part of its property, or sequestering any substantial part of the
property of Lessee, or (iii) liquidating of Lessee's affairs, and any such
order, judgement or decree shall remain in force undismissed, unstayed or
unvacated for a period of sixty (60) days after the date of entry thereof; or if
Lessee shall seek relief of any kind under any such law or consent to any of the
foregoing; or
(l) Nonperformance of any of Lessee's obligations other than those
described in this Paragraph 24, and such nonperformance shall continue for a
period of 15) days after notice thereof is given to Lessee.
25. REMEDIES. In the event of any default by Lessee and while such
default is continuing, or upon termination prior to the expiration of this
Lease, Lessor or its agent shall have the right, without demand or prior notice,
in Lessor's sole discretion, to exercise any one or more of the following
remedies in addition to any other remedies available to Lessor under applicable
law:
(a) To declare the entire amount of rent hereunder during the
remainder of the Lease Term immediately due and payable;
(b) To enforce Lessee's performance or recover damages for Lessee's
default as specified in Paragraph 26;
(c) To take possession of any or all items of Equipment and, in
Lessor's sole discretion, with or without any court order or other process of
law. This Lease shall terminate if all defaults on the part of Lessee are not
cured within five (5) days after such taking of possession; however, such taking
of possession and termination of this Lease shall not relieve Lessee of its
obligations to pay rent and other amounts due hereunder. Lessee waives any and
all damages occasioned by such taking of possession.
11.
<PAGE> 12
(d) To pursue any and all remedies available at law by reason of
Lessee's default.
26. DAMAGES. Lessor's damages, in the event of default by Lessee, shall
include without limitation: (i) the unpaid balance of rent and all other amounts
due and to become due hereunder, discounted to present value at then current
Treasury Bill rate, (ii) the Residual Value (as defined in Paragraph 22),
discounted to present value at the then current Treasury Bill rate,, (iii)
indemnification for any Loss of Tax Benefits under Paragraph 20, (iv) costs of
repossession and repairs and lease or sale to a third party, plus (v) all other
expenses including court cost and attorney fees. Lessor's obligation to
mitigate said damages shall be limited as follows:
(a) Lessor shall make best efforts to mitigate its damages by
re-leasing the Equipment to a third party, and any rentals received in
consideration for such third party's use of said Equipment during any period of
the Lease Term shall be applied only to that portion of Lessor's damages
resulting from loss of rentals that Lessor would have received from Lessee
during the same period had Lessee not become in default. Amounts received from
such third party shall be applied in mitigation of Lessor's damages only to the
extent such amounts are payable in connection with such third party's periodic
rental obligations as specified in the preceding sentence; in no event shall any
other amount received from such third party, including without limitation as a
security deposit or as an advance on periodic rental obligations, be applied in
mitigation of Lessor's damages hereunder.
(b) Lessor shall have no obligation to sell any of the Equipment;
however, any amounts received from a sale to a third party shall be applied to
Lessor's damages as specified in this paragraph 26.
27. CHOICE OF LAW. THIS LEASE SHALL BE DEEMED TO HAVE BEEN MADE AND
ACCEPTED AND PERFORMED IN THE COUNTY OF SAN FRANCISCO, IN THE STATE OF
CALIFORNIA, WHERE THE LESSOR'S PRINCIPAL PLACE OF BUSINESS IS LOCATED. THIS
LEASE AND ALL TRANSACTIONS HEREUNDER, AND ALL RIGHTS AND LIABILITIES OF THE
PARTIES HERETO, SHALL BE DETERMINED AND GOVERNED AS TO THE VALIDITY,
INTERPRETATION, ENFORCEMENT AND EFFECT BY THE LAWS OF THE STATE OF CALIFORNIA.
THE LESSEE HEREBY CONSENTS, IN ALL ACTIONS AND PROCEEDINGS ARISING DIRECTLY OR
INDIRECTLY FROM THIS LEASE, TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL
DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR ANY STATE COURT
LOCATED WITHIN SAN FRANCISCO COUNTY IN THE STATE OF CALIFORNIA.
28. MISCELLANEOUS.
(a) If more than one Lessee is named in or added to this Lease, the
liability of each shall be joint and several.
(b) The rent shall not abate by reason of termination of Lessee's
right of possession and/or the taking of possession by Lessor, or for any other
reason.
12.
<PAGE> 13
(c) All notices related hereto shall be mailed to Lessor or Lessee
at its respective address as specified on page one of this Lease, or at such
other address as either party may designate upon ten days written notice to the
other party.
(d) Paragraph titles are solely for convenience and are not an aid
in the interpretation of this Lease.
(e) A representative of Lessor shall have the right to meet with
Lessee's Chief Executive Officer and Chief Financial Officer once per quarter
throughout the lease term, to discuss the operating performance and financial
condition of the Company.
29. RIGHT OF FIRST OFFER. During the lease term, Lessee shall provide
Lessor with all requests for additional debt financing prior to the time that
such requests are provided to other financing sources. Should Lessor and Lessee
fail to agree within ten (10) days on the terms and conditions of such
financing, then Lessee may accept a funding source other than Lessor.
30. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee shall fail
duly and promptly to perform any of its obligations under this Lease, Lessor
may, at its option and at any time, perform the same without waiving any default
on the part of Lessee, or any of Lessor's rights. Lessee shall reimburse
Lessor, within five (5) days after notice thereof is given to Lessee, for all
expenses and liabilities incurred by Lessor in the performance of Lessee's
obligations.
31. NONWAIVER. Lessor's failure at any time to require strict performance
by Lessee shall not constitute waiver of, or diminish, Lessor's right to demand
strict compliance with any provision of this Lease. Waiver by Lessor of any
default shall not constitute waiver of any other default. Lessor's rights are
cumulative and not alternative.
32. SURVIVAL OF OBLIGATIONS. All agreements, covenants, representations
and warranties of Lessee contained in this Lease or in the Schedules or other
documents delivered pursuant hereto or in connection herewith shall survive the
execution and delivery, and the expiration or other termination of this Lease.
33. SEVERABILITY. If any provision or remedy herein provided is
determined invalid under applicable law, such provision shall be inapplicable
and deemed omitted; but the remaining provisions, including remaining default
remedies, shall be given effect in accordance with their manifest intent.
34. WARRANTS. As an inducement to Lessor to enter into the Lease,
Lessee grants to Lessor the right to purchase, at a price per share set forth
in the Warrant (as hereinafter defined), 60,750 shares of Lessee's Series B
Preferred Stock, pursuant to a definitive Warrant dated as of November ___,
1992 attached hereto as Exhibit B (the "Warrant"). If, for any reason, the
total cost to Lessor under the Lease should exceed the Master Lease Line, as
specified on page 1 of the Lease, Lessor shall have the right to purchase from
Lessee, at the price per share specified in the preceding sentence, an
additional number of shares obtained by dividing (i) the product of (A) the
amount by which the total Cost to Lessor exceeds the Master Lease Line
multiplied by (B) the number of shares specified in the preceding sentence, by
(ii) the Master Lease Line.
13.
<PAGE> 14
35. UPGRADES, ADDITIONS AND ATTACHMENTS. Any added memory, upgrades,
additions and attachments to Equipment previously placed under this Lease shall,
upon approval by Lessor, be included on a Schedule, with a Noncancellable Term
that is co-terminus with the Equipment to which such added memory, upgrade,
addition or attachment is being attached.
36. ENTIRE AGREEMENT. This instrument constitutes the entire agreement
between the parties and may not be modified except in writing executed by Lessor
and Lessee. No supplier or agent of Lessor is authorized to bind Lessor or to
waiver or modify any term of this Lease.
The undersigned representative of Lessee affirms that he or she has read and
understood this Lease and is duly authorized to execute this Lease on behalf of
Lessee and that, if Lessee is a corporation, this Lease is entered into with
consent of Lessee's Board of Directors and stockholders if so required.
In witness whereof, the parties hereto execute this noncancellable Lease as
of the effective date.
LESSEE: LESSOR:
BIOSTAR, INC. DOMINION VENTURES, INC.
By: /s/ Teresa W. Ayers By:
------------------------- --------------------------
14.
<PAGE> 1
NET LEASE AGREEMENT
THIS LEASE entered into this 1th day of September, 1992, by and
between NATIONWIDE LIFE INSURANCE COMPANY (hereinafter referred to as Lessor),
and BIOSTAR, INC. (hereinafter referred to as Lessee).
WITNESSETH:
I. PREMISES
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor
upon the terms and conditions as hereinafter set forth those certain premises
(hereinafter referred to as "Premises"), with all appurtenances thereto
situated in the County of Boulder and the State of Colorado, and more
specifically described as follows:
6655 Lookout Road
Boulder, CO 80301
II. TERM OF LEASE
The term of this Lease shall extend from twelve o'clock noon on the
1st day of November, 1992, until twelve o'clock noon on the 1st day of May,
1998, unless terminated sooner as hereinafter provided.
III. RENTAL
Lessee hereby agrees to pay to Lessor for the full term hereof the sum
of - See Additional Provisions, Paragraph XXXII, Rental Schedule - payable in
equal monthly installments of _______________ ($_____) in advance on the first
day of each month during said term without demand at the offices of said Lessor
located at c/o Irwin & Hendrick, Ltd., 2299 Pearl Street, Suite 400, Boulder,
Colorado 80302 (or at such other place as Lessor may designate in writing from
time to time) without any set off or deduction whatsoever. Receipt is hereby
acknowledged of the sum of $0 for rental from the commencement date through -
N/A -. Said payments shall be in lawful money of the United States, which
shall be legal tender in payment of all debts and dues, public and private, at
the time of payment. If said payment is not received at Lessor's office by the
10th of each month or on the first business day after a weekend where the 10th
is a Saturday or Sunday, a late fee of $500.00 will be charged by Lessor. If
the term herein commences on a day other than the first day of a calendar
month, then the Lessee shall pay to the Lessor the rental for the number of
days in that month during which the Lease is in effect, with a similar
adjustment being made at the termination of this Lease.
IV. OPTION TO RENEW
Lessee shall have the option to extend the term of this Lease for two
additional terms, each for a period of sixty additional months following
expiration of the initial term or the extended term, as the case may be.
Tenant shall give notice of exercise of its option to Landlord
1.
<PAGE> 2
at least three (3) months, but not more than six (6) months, before expiration
of the initial term or the extended term, as the case may be.
If Tenant is in default on the date of giving notice of exercise of
option or on the date any extended term is to commence, the extended term shall
not commence and this Lease shall expire at the end of the then existing
initial term or extended term. Such extended term shall be on the terms and
conditions of this Lease, except for the base rent provided herein. Base rent
shall be the mutually agreed on market rate at that time, not to exceed
$23,080.63 per month plus the Consumer Price Index increase for the prior
sixty-six (66) months of this lease.
V. SECURITY DEPOSIT
The Lessee, concurrently with the execution of this Lease, has
deposited with the Lessor and will keep on deposit at all times during the term
of the Lease, the sum of $23,000.00, the receipt of which is hereby
acknowledged as security for the faithful performance of all the terms,
conditions and covenants of this Lease. If, at any time during the term of
this Lease, the Lessee shall be in default in the performance of any of the
provisions of this Lease, the Lessor shall have the right to use the said
deposit, or as much thereof as the Lessor may deem necessary to cure, correct
or remedy any such defaults; and the Lessee, upon notification thereof, shall
forthwith pay to the Lessor any and all such expenditure or expenditures so
that the lessor will at all times have the full amount of said deposit as
security. This security deposit and application thereof shall not be
considered as liquidated damages in the event of breach but only as an
application toward actual damages. Upon the termination of this Lease in any
manner, if the Lessee be not then in default, the above deposit or so much
thereof as has not been lawfully expended by the Lessor, shall be returned to
the Lessee, without interest. In case of sale of Premises by the Lessor, the
deposit currently held by Lessor shall be transferred to the new Landlord and
Lessor shall have no further liability to Lessee for same.
VI. USE OF PREMISES
Lessee shall have the right to use and occupy the premises for Office,
R&D, Light Manufacturing. Any other use shall be permitted only with the prior
written consent of the Lessor. The Lessee covenants throughout the term of
this Lease, at Lessee's sole cost and expense, to promptly comply with all laws
and ordinances and the orders, rules, regulations and requirements of all
federal, state and municipal governments and appropriate departments,
commissions, boards and officers thereof including but not limited to the
Americans with Disabilities Act and all rules promulgated pursuant thereto.
VII. PAYMENT OF TAXES; COMMON AREA EXPENSES; AND INSURANCE
The Lessee covenants and agrees to pay, or cause to be paid, before
any fine, penalty, interest or cost may be added thereto, all license and
franchise taxes of the Lessee, all personal property taxes, water rents, sewer
rents and charges levied and other governmental charges (which are hereinafter
referred to as "Taxes") which are assessed, imposed or become a lien upon the
Premises or the contents, or become payable during the term of this Lease. Any
such Taxes falling due during the year of commencement or termination of the
term of this Lease shall
2.
<PAGE> 3
be apportioned between the Lessor and Lessee as of the date of said
commencement or termination.
All expenses, including real estate taxes, common area maintenance and
building insurance as each relates to the Premises shall be estimated and
billed on a monthly basis with an annual adjustment being made to make up any
difference between the estimated and actual expenses. An itemized statement of
will be provided.
VIII. INSURANCE
Insurance shall be provided for in the following manner:
1. Lessor shall obtain and bill Lessee for fire and extended
coverage insurance covering the Premises against loss or damage by fire and
against loss or damage by other risks now or hereafter embraced by "Extended
Coverage," vandalism, malicious mischief, special extended perils, (all risk)
and sprinkler leakage, together with an endorsement reflecting that rental loss
insurance is in force, in an amount equal to the replacement value of the
premises provided that such amounts are sufficient to prevent Lessor or Lessee
from becoming a co-insure under the terms of the applicable policies.
2. Lessee shall carry and pay for comprehensive public liability
insurance including property damage and Workman's Compensation insurance,
insuring Lessor and Lessee against liability for injury to persons or property
occurring in or about the Premises leased by Lessee or arising out of the
ownership, maintenance, use occupancy thereof. The liability under such
insurance shall not be less than $500,000.00 for any one person injured or
killed and not less than $1,000,000.00 for any one accident and not less than
$100,000.00 for personal property damage per accident.
All insurance required by virtue of this paragraph shall be written
with an insurance company licensed to do business within the State of Colorado
and with an insurance company approved by the Lessor (which approval shall not
be unreasonably withheld). The Lessee shall provide the Lessor with the
original insurance policies or a Certificate of Insurance (with proof of
payment of premium therefore) which shall provide that the insuring company
shall give notice in writing to the Lessor 30 days prior to cancellation,
expiration, or modification of such insurance for any reason whatsoever. Any
proceeds shall provide by endorsement that any loss shall be payable to Lessor.
The Lessor and Lessee mutually release each other and waive all claims
from any all liability or responsibility (to the other or anyone claiming
through or under them by way of subrogation or otherwise) for any loss or
damage to property caused by fire or any other casualties, even if such fire or
other casualty shall have been caused by the fault or negligence of the other
party or anyone for whom such party may be responsible to the extent that such
loss or damage is covered by insurance or is required to be covered by
Insurance under the terms of this lease.
3.
<PAGE> 4
IX. UTILITIES
Lessee shall promptly pay all deposits and charges for water, heating,
gas, electricity and other public utilities used on the Premises. If Lessee
shall fail to pay any utilities as required above, Lessor may, at its option,
pay such utilities (without affecting any other remedy available to the Lessor)
on account of Lessee and the same shall be deemed to be owed as additional
rental hereunder and shall be due on the date payment is made by Lessor.
X. NET LEASE
Subject to Additional Provisions #2 and #3, the Lessee has inspected
the Premises and accepts the same in their present condition. This Lease is
intended to be a pure net Lease to the Lessor except for real estate taxes,
hazard insurance, maintenance and governmental capital improvements required,
who shall have no obligation of any kind, unless otherwise, stipulated, to make
any expenditures upon the Premises. It is intended that the Lessee shall
throughout the term of this Lease, at its own costs and expense, put, keep and
maintain the Premises in good, substantial and sufficient condition, repair and
order, including but not limited to floors, walls, landscaping, parking and
lighting thereon or adjoining or in front of the demised Premises and all
connections with the street, water, electric, gas mains and sewers and air
conditioning and heating apparatus, boilers and machinery and such other
fixtures used in connection with the operation of the Premises, including glass
and any replacements made by the Lessee. Lessee covenants that it will not
permit, commit or suffer waste, impairment or deterioration of the Premises or
the improvements thereon or any part thereof, reasonable wear and tear
excepted. Landlord shall be responsible for the maintenance of the structural
walls and the roof of the property.
XI. ASSIGNMENTS AND SUBLETTING
Neither this Lease nor any interest herein may be assigned by the
Lessee, voluntarily or involuntarily, by operation of law or otherwise, and
neither all nor any part of the Premises shall be subleased by the Lessee
without the written consent of the Lessor first obtained; however, Lessor
agrees not to withhold its consent unreasonably for Lessee to assign this Lease
or sublet the Premises. Any consent to assignment or subletting given by the
Lessor shall not constitute a waiver of the necessity for such consent to a
subsequent assignment or subletting. Notwithstanding any assignment or
sublease, Lessee shall remain fully liable under the terms and conditions of
this Lease and shall not be released from performing any of the terms,
covenants and conditions. Any sublease or assignee shall specifically be
responsible for (in addition to the Lessee) all payments, conditions, covenants
and agreements in this Lease.
XI. LIABILITY OF LANDLORD
Lessor, its employees and agents shall not be liable to Lessee, any
invitee or any other person or entity for any damage (including indirect and
consequential damage), injury, loss or claim (including claims for the
interruption of or loss to business) based on or arising out of any cause
whatsoever (except as otherwise provided in this Article), including without
limitation the following: repair to any portion of the Premises; interruption
in the use of the Premises or any equipment therein; any accident or damage
resulting from any use or operation (by Lessor,
4.
<PAGE> 5
Lessee or any other person or entity of elevators or heating, cooling,
electrical, sewerage, or plumbing or mechanical equipment or apparatus;
termination of this Lease by reason of mysterious disappearance or any other
casualty; actions of any other tenant of the Building or of any other person or
entity; failure or inability to furnish any service specified in this Lease;
and leakage in any part of the Premises from water, rain, ice, snow or other
cause that may leak into, or flow from, any part of the Premises, or from
drains, pipes or plumbing fixtures in the Premises. If any condition exists
which may be the basis of a claim of constructive eviction, then Lessee shall
give Lessor written notice thereof and a reasonable opportunity to correct such
condition, and in the interim Lessee shall not claim that it has been
constructively evicted or is entitled to a rent abatement. Any property placed
by Lessee in or about the Premises shall be at the sole risk of Lessee, and
Lessor shall not in any manner be responsible therefor. Notwithstanding the
foregoing provisions of this Section, Landlord shall not be released from
liability to Lessee for any physical injury to any natural person caused by
Lessor's negligence to the extent such injury is not covered by insurance (a)
carried by Lessee or such person, or (b) required by this Lease to be carried
by Lessee.
Lessee shall reimburse Lessor for, and shall indemnify, defend upon
request and hold Lessor, its employees and agents harmless from and against,
all costs, damages, claims liabilities, expenses (including attorney's fees),
losses and court costs suffered by or claimed against Lessor, directly or
indirectly, based on or arising out of, in whole or in part, (a) use and
occupancy of the Premises or the business conducted therein, (b) any act or
omission of Lessee or any invitee, (c) any breach of Lessee's obligations under
this Lease, including failure to surrender the Premises upon the expiration or
earlier termination of the term of this Lease.
If any Landlord hereunder transfers the Building or such Landlord's
interest therein, then such Landlord shall not be liable for any obligation or
liability based on or arising out of any event or condition occurring after
such transfer. Lessee shall attorn to such transferee and, within five (5)
days after such transferee's request, shall execute, acknowledge and deliver
any document submitted to Lessee confirming such attornment.
Lessee shall not have the right to offset or deduct any amount
allegedly owed to Lessee pursuant to any claim against Lessor for any rent or
other sum payable to Lessor. Lessee's sole remedy for recovering upon such
claim shall be to institute an independent action against Lessor.
If Lessee or any invitee is awarded a money judgment against Lessor,
then recourse for satisfaction of such judgment shall be limited to execution
against Lessor's estate and interest in the Building in which the premises are
located. No other asset of Lessor, any employee, director or officer of Lessor
or any other person or entity shall be available to satisfy such judgment, nor
shall Lessor, any employee, director or officer of Lessor or another person or
entity have personal liability for satisfaction of any such claim or judgment.
The provisions of this Article XII shall survive termination of this
Lease.
XIII. OCCUPATIONAL SAFETY AND HEALTH ACT
Lessee shall fully comply with the Occupational Safety and Health Act
of 1970 (chapter XVII, Title XIX of the United States Code) (OSHA) or
applicable state statute adopted pursuant
5.
<PAGE> 6
to OSHA. It shall be Lessee's obligation to fully comply with the provisions
and standards as contained in said Act, and the Lessee shall hold Lessor
harmless from any obligations or responsibilities, if any, created under said
OSHA or applicable state statute.
XIV. MAINTENANCE AND ALTERATIONS TO PREMISES
The Lessee shall have the right to make changes or alterations to the
building on the Premises; provided, however, that any such changes or
alterations shall be made in all cases subject to the following conditions,
which Lessee agrees to observe and perform:
1. No change or alteration shall at any time be made which shall
impair the structural soundness or diminish the value of the building on the
Premises.
2. No change or alteration shall be made involving an expenditure
in excess of $5,000.00 without the written consent of the Lessor.
3. No change or alteration shall be undertaken until Lessee shall
have procured and paid for all required municipal and other governmental
permits and authorizations of the various municipal departments and
governmental subdivisions having jurisdiction.
4. All work done in connection with any change or alteration
shall be done in a good workmanlike manner and in compliance with the building
and zoning laws, and with other laws, ordinances, order, rules, regulations and
requirements of all federal, state and municipal governments and the
appropriate departments, boards and officers thereof, including, but not
limited to, local and state building codes and the Americans with Disabilities
Act.
5. At all times when any change or alteration is in progress,
there shall be maintained at Lessee's expense Workmen's Compensation insurance
in accordance with law governing all persons employed in connection with the
change or alteration builders risk insurance and general liability insurance
for the mutual benefit of the Lessor and Lessee, expressly covering the
additional hazards due to the change or alteration.
It is understood that no one shall have any lien or claim against the
Lessor his interest in the Premises on account of any such improvement or
alteration for work done or supplies furnished at the insistence of the Lessee.
Prior to the construction of any improvements, the repair or restoration of any
improvements, or any work to be done upon the Premises which shall exceed
$5,000.00, the Lessee shall furnish evidence of ability to pay for the work
which is to be performed at the Premises, and shall prepare and deliver to
Lessor for Lessor's signature, the notice of the fact that Lessor's interest is
not subject to liens as described in Section 38-22-105 (2) C.R.S. 1973.
XV. CONDEMNATION
1. COMPLETE TAKING. If, during the term of this Lease, or any
extension hereof, the whole or substantially all of the Premises shall be taken
as a result of the exercise of the power of eminent domain, this Lease shall
terminate as of the date of vesting of title of the Premises or delivery of
possession, whichever event shall first occur, pursuant to such proceeding.
For the purpose of this Article XIV "substantially all of the Premises" shall
be deemed to have taken if a
6.
<PAGE> 7
taking under any such proceeding shall involve such an area, whether the area
be improved with building or be utilized for parking area or for other use,
that Lessee cannot reasonably operate in the remainder of the Premises the
business being conducted on the Premises at the time of such proceeding.
2. PARTIAL TAKING. If, during the term of this Lease, or any
extension hereof, less than the whole or less than substantially all of the
Premises shall be taken in any such proceeding, this Lease shall not terminate.
The rent thereafter due and payable by Lessee shall be reduced in such
proportion as the nature, value and extent of the part so taken bears to the
whole of the Premises. Lessor shall, from the proceeds of the condemnation,
restore the Premises for the use of the Lessee.
3. AWARD. All awards, damages and other compensation paid by
such authority on account of any condemnation shall belong to Lessor, and
Lessee assigns to Lessor all rights to such awards, damages and compensation.
Lessee shall not make any claim against the condemning authority for any
portion of such award, damages or compensation attributable to damage to
leasehold improvements or severance damages. Nothing contained herein,
however, shall prevent Lessee from pursuing a separate claim against the
authority for the value of furnishings and trade fixtures installed in the
Premises at Lessee's expense and for relocation expenses, provided that such
claim is stated separately from any award to Lessor and provided further that
such claim shall in no way diminish the award, damages, or compensation
otherwise payable to Lessor in connection with such condemnation.
XVI. DESTRUCTION OF PREMISES
In the event the premises are damaged or rendered wholly or partially
unusable by fire, flood, windstorm, explosion or any other casualty, then the
rights and obligations of the parties shall be as follows:
If Lessor does not terminate the lease, Lessor shall promptly repair
or replace the damaged premises, and if reasonably possible the repair or
replacement shall be completed within 120 days from date of the damage. In the
event the repairs or replacements are not completed, within 120 days, the
Lessee may terminate the lease. Rent shall not be abated unless more than 30
percent of the interior floor space in the Premises is rendered untenantable
and the total repairs are not completed in 30 days, in which event there shall
be an abatement of rent in proportion to the portion of the interior floor
space rendered untenantable. In no event shall there be an abatement of rent
if the damage is caused by any casualty on the Premises as a result of acts or
omissions of the Lessee.
The parties recognize that the Lessee on most occasions will be
storing valuable materials and equipment within the premises. In the event the
Premises are so damaged by such casualty that Lessee's property would be
endangered by exposure to the elements, and in the further event that Lessee
desires to complete emergency repairs and the restoration of any alterations to
the Premises occasioned by emergency repairs shall also be borne by the Lessee.
Lessor shall have no obligation to make such emergency repairs nor any
liability for damage directly or indirectly caused to Lessee's property by such
casualty. If the damage to the Premises or the building are so extensive that
Lessor determines, in his reasonable judgement, not to rebuild the Premises,
7.
<PAGE> 8
then Lessor may terminate this Lease by sending written notice to Lessee within
thirty (30) days from the date of casualty.
XVII. DEFAULT PROVISIONS
The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Lessee:
1. The Lessee failing to pay the rent herein reserved or the
Lessee failing to make any other payments required to be made by Lessee when
due, where such failure shall continue for a period of five (5) days.
2. The Lessee failing to perform or keep any of the other terms,
covenants and conditions herein contained for which it is responsible, and such
failure continuing and not being cured for thirty (30) days after written
notice by Landlord.
3. The Lessee abandoning the Premises.
4. The Lessee being adjudicated as bankrupt or insolvent or the
Lessee filing in any court a petition in bankruptcy or for reorganization or
for the adoption of any arrangements under the Bankruptcy Act (as now or in the
future amended) or the filing of any involuntary bankruptcy against the Lessee
(unless said involuntary bankruptcy is terminated within thirty (30) days from
the date of said filing), or the Lessee filing in any court for the appointment
of a receiver or trustee for all or a portion of the Lessee's property or there
being appointed, unless said receiver or trustee is terminated within thirty
(30) days form the date of said appointment.
5. The Lessee making any general assignment or general
arrangement of its property for the benefit of its creditors.
In the event of an occurrence of default as set forth above, the
Lessor shall have the right to:
(1) Terminate this Lease and end the term hereof by giving to
Lessee written notice of such termination, in which event Lessor shall be
entitled to recover from Lessee the amount of rent reserved in the Lease for
the then balance of the term.
(2) Without resuming possession of the Premises or terminating
this Lease to sue monthly for and recover all rents, other required payments
due under this Lease and other sums including damages and legal fees at any
time and from time to time accruing hereunder.
(3) Upon notice, re-enter and take possession of the Premises or
any part thereof and repossess the same as of Lessor's former real estate and
expel the Lessee and those claiming through or under the Lessee and remove the
effects of both or either (forcibly if necessary) without being deemed guilty
in any manner of trespass and without prejudice to any remedies for arrears of
rent or preceding breach of covenant, in which event Lessor may from time to
time without terminating this Lease relet the Premises or any part thereof for
such term or terms and at such rental or rentals and upon such other terms and
conditions as Lessor may deem advisable, with the right to make alterations and
repairs to the Premises, and such re-entry or taking
8.
<PAGE> 9
possession of the Premises by Lessor shall not be construed as an election of
Lessor's part to terminate this Lease unless a written notice of termination be
given to Lessee or unless the termination thereof be decreed by a court of
competent jurisdiction. In the event of Lessor's election to proceed under
this subparagraph 3, then such repossession shall not relieve Lessee of its
obligation and liability under this Lease, all of which shall survive such
repossession, and Lessee shall pay to Lessor as current liquidated damages the
basic rental and additional rental or other sums hereinabove provided which
would be payable hereunder if such repossession had not occurred, less the net
proceeds (if any) of any reletting of the Premises after deducting all of
Lessor's expenses in connection with such reletting, including but without
limitation all repossession costs, brokerage commissions, legal expenses,
attorney's fees, expenses of employees, alteration costs to the premises as
Lessor deems appropriate and expenses of preparation for such reletting.
Lessee shall pay such current damages to Lessor on the days on which the basic
rent would have been payable hereunder if possession had not been retaken and
Lessor shall be entitled to receive the same from Lessee on each such day.
XVIII. INTEREST ON PAST DUE OBLIGATIONS
Any amount due to Lessor not paid when due shall bear interest at the
rate of two percent (2%) per month from the date due; provided, however, that
any such payments of interest shall not excuse or correct any default by the
Lessee under this Lease.
XIX. HOLD OVER
In the event the Lessee remains in possession of the Premises or any
part thereof subsequent to the expiration of the term thereof and such holding
over shall be with the consent of the Lessor, it shall be conclusively deemed
that such possession and occupancy shall be a tenancy from month-to-month only,
at a rental which is twice the rental existing at the end of the term hereof
and, further, such possession shall be subject to all of the other terms and
conditions of this Lease.
XX. SUBORDINATION AND ESTOPPEL LETTER
This Lease is subject and subordinate to all mortgages and deeds of
trust which now or hereafter may affect the Premises, and Lessee will execute
and deliver upon demand of Lessor any and all instruments desired by Lessor
subordinating this Lease in the manner requested by Lessor to any new or
existing mortgage deed of trust. Further, Lessee shall at any time and from
time to time, upon not less than ten (10) days prior written notice from
Lessor, execute, acknowledge and deliver to Lessor a statement in writing
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this
Lease as so modified is in full force and effect) and the dates to which
rental and other charges are paid in advance, if any, and acknowledging that
there are not, to Lessee's knowledge, any uncured defaults on the part of the
Lessor hereunder, or specifying such defaults, if any, are claimed.
XXI. SURRENDER OF PREMISES
Upon the expiration or termination of the term of this Lease, Lessee
shall peaceably and quietly leave and surrender the Premises in as good
condition as they are now, ordinary wear and
9.
<PAGE> 10
tear excepted. Lessee shall surrender and deliver up the building and Premises
broom-clean and free of Lessee's property. Provided the Lessee is not in
default, it shall have the right to remove all of its fixtures, equipment,
machinery and other personal property, provided that upon such removal the
Premises are delivered in the same condition as existed at the time of
commencement of this Lease. Further, in the event the Lessee does not remove
any of its own fixtures, equipment, personal property or any additions or
alterations made to the Premises during the term of this Lease, the Lessor may,
at its option, require the Lessee to remove any such improvements, alterations,
fixtures and equipment and restore the Premises to the conditions as existed at
the commencement of the Lease, or retain the same.
XXII. NOTICES
All notices, demands and requests required to be given by either party
to the other shall be in writing. All notices, demands and requests shall
either be hand delivered or shall be sent by certified or registered mail,
return receipt requested, postage prepaid, addressed to the parties at the
addresses set forth below or at such other addresses as the parties may
designate in writing delivered pursuant to the provisions hereof. Any notice
when given as provided herein shall be deemed to have been delivered on the
date personally served or three (3) days subsequent to the date that said
notice was deposited with the United States Postal Service.
<TABLE>
<S> <C> <C>
LESSOR: Ms. Jeri L. Edwards Mr. Dan A. Hendrick
Nationwide Insurance Company Irwin & Hendrick, Ltd.
One Nationwide Plaza 2299 Pearl Street, Suite 400
Columbus, OH 43216 Boulder, CO 80302
LESSEE: Mr. B. John Miller
BioStar, Inc.
6655 Lookout Road
Boulder, CO 80301
</TABLE>
XXIII. TIME OF THE ESSENCE
Time is of the essence hereof.
XXIV. QUIET ENJOYMENT
The Lessor represents and warrants that:
1. The Lessor has the right to enter into and make this Lease.
2. The Lessee, upon paying the rent herein reserved and upon
performing all of the terms and conditions of this Lease on its part to be
performed, shall at all times during the term herein demised peacefully and
quietly have, hold and enjoy the Premises.
3. To Lessors knowledge the Premises are now free from all
encumbrances except mortgages of record and those items that do not affect the
contemplated use of the Premises. However, the Lessee accepts the Premises
subject to all zoning ordinances and regulations pertaining to the Premise,
without responsibility or warranty by the Lessor.
10.
<PAGE> 11
XXV. RIGHT TO INSPECT OR SHOW PREMISES
The Lessor, or Lessor's agent and representative, shall have the right
to enter into and upon the Premises or any part thereof at all reasonable hours
for the purpose of examining the same.
The Lessor, or Lessor's agent and representative, shall have the right
to show the Premises to persons wishing to purchase or lease the same at
reasonable hours. During the 90-day period prior to the expiration of this
Lease, the Lessor, or Lessor's agent and representative, shall have the right
to place the usual "to let" or "for sale" notices on the Premises, and the
Lessee agrees to permit the same to remain thereon without hindrance or
molestation.
XXVI. MISCELLANEOUS
1. This Lease has been executed and delivered in the State of
Colorado and shall be construed in accordance with the laws of the State of
Colorado.
2. The parties mutually agree that the headings and captions
contained in this Lease are inserted for convenience of reference only and are
not to be deemed part of or to be used in construing this Lease.
3. The covenants and agreements herein contained shall be binding
upon and inure to the benefit of the Lessor, its personal representatives,
heirs, successors and assigns, and the Lessee, its personal representatives,
heirs, successors and assigns.
4. Words of any gender used in this Lease shall be held to
include any other gender, and words in the singular shall be held to include
the plural, when the sense requires.
5. All pronouns and any variation thereof shall be deemed to
refer to the neuter, masculine, feminine, singular an plural as the identity of
the Lessor or Lessee requires.
XXVII. NO WAIVER
No waiver by Lessor or any provision hereof shall be deemed a waiver
of any other provision hereof or of any subsequent breach by Lessee of the same
or any other provision. Lessor's consent to or approval of any act shall not
be deemed to render unnecessary the obtaining of Lessor's consent to or
approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so
accepted, regardless of Lessor's knowledge of such preceding breach at time of
acceptance of such rent.
XXVIII. ATTORNEY'S FEES
In case suit shall be brought to enforce any provisions of this Lease,
the prevailing party shall (in addition to other relief granted) be awarded all
reasonable attorneys' fees and costs resulting from such litigation.
11.
<PAGE> 12
XXIX. MEMORANDUM OF LEASE
Either Party, upon request from the other party, shall execute in
recordable form a short form Memorandum of Lease, which Memorandum of Lease
shall only contain the names of the parties and the dates of commencement and
termination of the term of this Lease (or any options which may be granted
hereunder), and the legal description of the Premises.
XXX. CONSUMER PRICE INDEX RENTAL ADJUSTMENT
[INTENTIONALLY OMITTED]
XXXI. TRIAL WAIVER
Lessor, Lessee, guarantors and general partners of Lessee waive trial
by jury in any action, claim or counterclaim brought in connection with any
mater arising out of or in any way connected with this Lease, the Landlord-
Tenant relationship, Lessee's use or occupancy of the premises or any claim of
injury or damage.
XXXII. ADDITIONAL PROVISIONS
1. BASE RENTAL SCHEDULE
<TABLE>
<S> <C>
November 1, 1992 - April 30, 1993 $0 Per Month
May 1, 1993 - April 30, 1994 $23,080.63 Per Month
May 1, 1994 - April 30, 1995 $23,773.04 Per Month
May 1, 1995 - April 30, 1996 $24,486.24 Per Month
May 1, 1996 - April 30, 1997 $25,220.82 Per Month
May 1, 1997 - April 30, 1998 $25,977.45 Per Month
</TABLE>
*Note:
Lessee shall pay net expenses during the six month free rent
period. The six month free rent period shall begin at such
time BioStar occupies any portion of the building. The above
rental schedule shall adjust accordingly if occupancy is
before or after November 1, 1992.
2. Lessor shall pay for the first $300,000 of tenant alteration.
Lessee shall pay for any required tenant alteration costs above $300,000. The
final alteration plans and contractor shall be mutually agreed upon.
3. Required fire sprinklers for the building shall not count as
part of the $300,000 allowance and shall be the responsibility of the Lessor to
have installed and pay for.
/s/ Robert H. McNaghten
- ------------------------------------------ ---------------------------------
LESSOR: Nationwide Life Insurance Company LESSEE: BioStar, Inc.
12.
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
I. Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. Term of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
III. Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
IV. Option to Renew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
V. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
VI. Use of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
VII. Payment of Taxes; Common Area Expenses; and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
VIII. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
IX. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
X. Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
XI. Assignments and Subletting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
XII. Liability of Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
XIII. Occupational Safety and Health Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
XIV. Maintenance and Alterations to Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
XV. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
XVI. Destruction of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
XVII. Default Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
XVIII. Interest on Past Due Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
XIX. Hold Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
XX. Subordination and Estoppel Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
XXI. Surrender of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
XXII. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
XXIII. Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
XXIV. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
XXV. Right to Inspect or Show Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
XXVI. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
XXVII. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
XXVIII. Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
XXIX. Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
XXX. Consumer Price Index Rental Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
i.
<PAGE> 14
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
XXXI. Trial Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
XXXII. Additional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
ii.
<PAGE> 15
AGREEMENT
This agreement relates to the Net Lease Agreement dated September 10, 1992
between Nationwide Insurance Company (Lessor) and BioStar, Inc. (Lessee). Due
to the extended construction time needed for Tenant Improvements, the
commencement and termination dates of this Lease shall be changed as follows:
PARAGRAPH II. TERM OF LEASE
Shall be changed to start on February 15, 1993 and terminate on August 31,
1998.
PARAGRAPH XXXII. ADDITIONAL PROVISIONS
<TABLE>
<CAPTION>
1. BASE RENTAL SCHEDULE
--------------------
<S> <C> <C>
February 15, 1993 - August 15, 1993 $ -0- Per Month
August 15, 1993 - August 31, 1994 23,080.63 Per Month
September 1, 1994 - August 31, 1995 23,773.04 Per Month
September 1, 1995 - August 31, 1996 24,486.24 Per Month
September 1, 1996 - August 31, 1997 25,220.82 Per Month
September 1, 1997 - August 31, 1998 25,977.45 Per Month
</TABLE>
AGREED AND ACCEPTED THIS 12TH DAY OF FEBRUARY, 1993
LESSOR: NATIONWIDE LIFE LESSEE: BIOSTAR, INC.
INSURANCE COMPANY
/s/ Robert H. McNaghten /s/ Teresa W. Ayers
- ------------------------------ ------------------------------
Robert H. McNaghten
Vice President
<PAGE> 1
EXHIBIT 10.85
AMENDMENT TO LEASES
THIS AMENDMENT TO LEASES ("Amendment") is made this 8th day of
September, 1997 between Clear Creek II, L.P. ("Lessor") and Cortech, Inc.
("Lessee").
WHEREAS, Lessor and Lessee have entered into a Standard Industrial
Lease, dated May 14, 1993 for 6840 North Broadway, Suite A through I, Denver,
Colorado 80221, containing approximately 15,650 square feet, a Standard
Industrial Lease, dated April 10, 1995 pertaining to 6850 North Broadway, Suite
D, containing approximately 3,990 square feet, a Standard Industrial Lease,
dated October 1, 1993 pertaining to 6850 North Broadway, Suite E, containing
approximately 5,070 square feet, a Standard Industrial Lease, dated April 2,
1992 pertaining to 6850 North Broadway, Suites F and G, containing
approximately 7,850 square feet, a Standard Industrial Lease, dated January 12,
1994 pertaining to 6860 North Broadway, Suite A, containing 2,751 square feet,
a Standard Industrial Lease, dated November 22, 1993 pertaining to 6860 North
Broadway, Suite B, containing approximately 2,639 square feet, a Standard
Industrial Lease dated April 1, 1993 pertaining to 6860 North Broadway, Suite C
and D, containing approximately 5,700 square feet, a Standard Industrial Lease,
dated January 5, 1994 pertaining to 6870 North Broadway, Suites K through M,
containing approximately 4,870 square feet, a Standard Industrial Lease, dated
March 5, 1993 pertaining to 6880 North Broadway, Suites A through C and H
through L, containing approximately 11,975 square feet, and a Standard
Industrial Lease, dated April 2, 1992 pertaining to 6880 North Broadway, Suites
D through G, containing approximately 5, 570 square feet (the foregoing
Standard Industrial Leases, and all addenda, amendments and other modifications
thereto, shall be individually referred to as "Lease" and collectively referred
to as the "Leases", to which reference should be made for all terms not
otherwise herein defined); and
WHEREAS, Lessor and Lessee desire to amend the Leases to provide for
the current status of the Term of Leases and the option to further extend the
Leases, as more fully herein set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. 6840 North Broadway.
(a) Lessor and Lessee acknowledge that the Term of the
Lease for 6840 North Broadway shall end on May 31, 1999. The Base Rent is
currently $9,578.00 per month (based upon $7.34 per square foot per year)
through May 31, 1998, and shall be $9,913.22 per month (based upon $7.60 per
square foot per year) from June 1, 1998 to May 31, 1999.
<PAGE> 2
(b) Lessee shall have the option to extend the Term of
the Lease for 6840 North Broadway for one (1) additional period of two (2)
years (June 1, 1999 to May 31, 2001) and one (1) additional period of three (3)
years (June 1, 2001 to May 31, 2004) by providing written notice thereof at
least one hundred and eighty (180) days prior to the commencement thereof. If
Lessee exercises such option, the Term of the Lease shall be extended upon the
same terms and conditions, except that the Base Rent shall be at the Market
Rate (as hereinafter defined).
2. 6850 North Broadway.
(a) Lessor and Lessee acknowledge that the Term of the
Leases for 6850 North Broadway shall end on December 31, 1997. The Base Rent
is currently $8,557.19 per month (based upon $6.07 per square foot per year)
through December 31, 1997.
(b) Lessee and Lessor acknowledge that Lessee is
currently entitled to extend the Term of Leases for 6850 North Broadway for two
(2) additional periods of one (1) year each (January 1, 1998 to December 31,
1998 and January 1, 1999 to December 31, 1999) with an increase in the Base
Rent of three and one-half percent (3.5%) from the Base Rent payable during the
calendar month immediately preceding the commencement of each such option, as
provided in the Leases. In addition, Lessee shall have the option to extend
the Term of the Leases for 6850 North Broadway for one (1) additional period of
two (2) years (January 1, 2000 to December 31, 2001) and one (1) additional
period of three (3) years (January 1, 2002 to December 31, 2004) by providing
written notice thereof at least one hundred and eighty (180) days prior to the
commencement thereof. If Lessee exercises such option, the Term of the Leases
shall be extended upon the same terms and conditions, except that the Base Rent
shall be at the Market Rate.
3. 6860 North Broadway.
(a) Lessor and Lessee acknowledge that the Term of the
Leases for 6860 North Broadway shall end on April 30, 1999. The Base Rent is
currently $5,971.15 per month (based upon $6.46 per square foot per year)
through April 30, 1998 and shall be $6,180.14 per month (based upon $6.69 per
square foot per year) from May 1, 1998 to April 30, 1999.
(b) Lessee shall have the option to extend the Term of
the Leases for 6860 North Broadway for one (1) additional period of two (2)
years (May 1, 1999 to May 1, 2001) and one (1) additional period of three (3)
years (May 31, 2001 to April 30, 2004) by providing written notice thereof at
least one hundred and eighty (180) days prior to the commencement thereof. If
Lessee exercises such option, the Term of the Leases shall be extended upon the
same terms and conditions, except that the Base Rent shall be at the Market
Rate.
-2-
<PAGE> 3
4. 6870 North Broadway.
(a) Lessor and Lessee acknowledge that the Term of the
Lease for 6870 North Broadway shall end on December 31, 1997. The Base Rent is
currently $2,578.25 per month (based upon $6.35 per square foot per year)
through December 31, 1997.
(b) Lessee and Lessor acknowledge that Lessee is
currently entitled to extend the Term of Leases for 6870 North Broadway for two
(2) additional periods of one (1) year each (January 1, 1998 to December 31,
1998 and January 1, 1999 to December 31, 1999), as provided in the Leases. The
Base Rent for 1998 shall be $2,668.49 per month (based on $6.78 per square foot
per year) and the Base Rent for 1999 shall be $2,840.83 per month (based on
$7.00 per square foot per year). In addition, Lessee shall have the option to
extend the Term of the Leases for 6870 North Broadway for one (1) additional
period of two (2) years (January 1, 2000 to December 31, 2001) and one (1)
additional period of three (3) years (January 1, 2002 to December 31, 2004) by
providing written notice thereof at least one hundred and eighty (180) days
prior to the commencement thereof. If Lessee exercises such option, the Term
of the Lease shall be extended upon the same terms and conditions, except that
the Base Rent shall be at the Market Rate.
5. 6880 North Broadway, Suites A-C and H-L.
(a) Lessor and Lessee acknowledge that the Term of the
Lease for 6880 North Broadway, Suites A-C and H-L, shall end on December 31,
1997. The Base Rent is currently $6,454.62 per month (based upon $6.47 per
square foot per year) through December 31, 1997.
(b) Lessor and Lessee acknowledge that Lessee is
currently entitled to extend the Term of the Lease for 6880 North Broadway,
Suites A-C and H-L, for one additional period of one (1) year (January 1, 1998
to December 31, 1998), as provided in the Leases. The Base Rent for 1998 shall
be $6,676.06 per month (based upon $6.69 per square foot per year). Lessee
shall have the option to extend the Term of the Lease for 6880 North Broadway,
Suites A-C and H-L, for one (1) additional period of two (2) years (January 1,
1999 to December 31, 2000) and one (1) additional period of three (3) years
(January 1, 2001 to December 31, 2003) by providing written notice thereof at
least one hundred and eighty (180) days prior to the commencement thereof. If
Lessee exercises the Renewal Option, the Term of the Lease shall be extended
upon the same terms and conditions, except that the Base Rent shall be at the
Market Rate.
6. 6880 North Broadway, Suites D-G.
(a) Lessor and Lessee acknowledge that the Term of the
Leases for 6880 North Broadway, Suites D-G, shall end on December 31, 1997.
The Base Rent shall be $2,701.97 per month (based upon $5.82 per square foot
per year) through December 31, 1997.
(b) Lessee and Lessor acknowledge that Lessee is
currently entitled to extend the Term of Leases for 6880 North Broadway, Suites
D-G, for two (2) additional periods of one (1) year each (January 1, 1998 to
December 31, 1998 and January 1, 1999
-3-
<PAGE> 4
to December 31, 1999) as provided in the Lease. The Base Rent for 1998 shall
be $3,017.08 per month (based on $6.50 per square foot per year) and the Base
Rent for 1999 shall be $3,249.17 per month (based on $7.00 per square foot per
year). In addition, Lessee shall have the option to extend the Term of the
Leases for 6880 North Broadway, Suites D-G, for one (1) additional period of
two (2) years (January 1, 2000 to December 31, 2001) and one (1) additional
period of three (3) years (January 1, 2002 to December 31, 2004) by providing
written notice thereof at least one hundred and eighty (180) days prior to the
commencement thereof. If Lessee exercises such option, the Term of the Lease
shall be extended upon the same terms and conditions, except that the Base Rent
shall be at the Market Rate.
7. Market Rate. The term "Market Rate" means the rate at which
Lessor under no compulsion to lease the Demised Premises and a tenant under no
compulsion to lease the Premises would determine as the rental for the
respective option term, as of the commencement thereof, taking into
consideration the uses permitted under the Lease, the quality, size, location
and condition of the Demised Premises (without considering any alterations or
installations made by Lessee), the rent for comparable space in the
metropolitan Denver area, and that no leasehold improvements or brokerage
commissions shall be required to be paid by Lessor in connection therewith. If
Lessor and Lessee are unable to agree upon the Market Rate, then the Market
Rate shall be determined by an appraiser mutually agreed upon by Lessor and
Lessee. If Lessor and Lessee are unable to select an appraiser, Lessor and
Lessee shall each select one appraiser and the two appraisers shall select a
third appraiser to complete the panel of appraisers, and the Market Rate shall
be the average of all three appraisals.
8. Options. Section 39.2 of the Leases is hereby deleted.
9. Force and Effect. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns.
As herein modified, the Leases shall remain in full force and effect in
accordance with the terms and conditions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
LESSEE:
CORTECH, INC.
By: /s/ Joseph L. Turner
----------------------
Name: Joseph L. Turner
------------------
Title: CFO
-----
-4-
<PAGE> 5
LESSOR:
CLEAR CREEK II, L.P.
By: /s/ Richard S. Robinson
-------------------------
Name: Richard S. Robinson
---------------------
Title: Senior Vice President
-----------------------
-5-
<PAGE> 6
ADDENDUM A TO LEASE
This Addendum A to lease (the "Lease") between CLEAR CREEK II, L.P. as
Lessor and CORTECH, INC. as Lessee covering the premises known as 6870 N.
Broadway, Suites K, L & M (4,870 square feet), Denver, Colorado 80221.
This Addendum is hereby made a part of and incorporated in the Lease
dated January 5, 1994. The Lease is hereby amended and modified as provided
below:
1. Lessor and Lessee agree to extend the term of this Lease from
March 15, 1996 to December 31, 1997.
2. Lessor and Lessee agree to the following rent schedule over
the Lease term:
3/15/96 - 3/14/97 - $2,491.06 per month
3/15/97 - 12/31/97- $2,578.25 per month
3. Lessor and Lessee agree all other terms and conditions of the
original Lease dated January 5, 1994 shall remain in full
force and effect.
CLEAR CREEK II, L.P. CORTECH, INC.
By /s/ Richard S. Robinson By/s/ Joseph L. Turner
------------------------- ---------------------
Richard S. Robinson Joseph L. Turner
Senior Vice President Vice President,
Finance & Administration
Executed on 3/28/96 Executed on 3/25/96
--------- --------
-6-
<PAGE> 7
ADDENDUM A TO LEASES
This Addendum A to leases (the "Leases") between CLEAR CREEK II, L.P.
as Lessor and CORTECH, INC. as Lessee covering the premises known as 6860 N.
Broadway, Suites A, B, C & D (11,090 square feet), Denver, Colorado 80221.
This Addendum is hereby made a part of and incorporated in the Leases
dated April 1, 1993, November 22, 1993 and January 12, 1994. The Leases are
hereby amended and modified as provided below:
1. Lessor and Lessee agree to extend the term of these Leases
from May 1, 1996 to April 30, 1999.
2. Lessor and Lessee agree to the following rent schedule over
the Lease term:
5/1/96 - 4/30/97 - $5,769.23 per month
5/1/97 - 4/30/98 - $5,971.15 per month
5/1/98 - 4/30/99 - $6,180.14 per month
Each year reflects a 3.5% upward rental adjustment.
3. Lessor and Lessee agree all other terms and conditions of the
original Leases shall remain in full force and effect.
CLEAR CREEK II, L.P. CORTECH, INC.
By /s/ Richard S. Robinson By/s/ Joseph L. Turner
------------------------- ---------------------
Richard S. Robinson Joseph L. Turner
Senior Vice President Vice President,
Finance & Administration
Executed on 3/28/96 Executed on 3/25/96
--------- --------
-7-
<PAGE> 8
ADDENDUM B TO LEASES
This Addendum B to leases (the "Leases") between CLEAR CREEK II, L.P.
as Lessor and CORTECH, INC. as Lessee covering the premises known as 6850 N.
Broadway, Suites D, E, F & G (16,910 square feet), Denver, Colorado 80221.
This Addendum is hereby made a part of and incorporated in the Leases
dated April 2, 1992, October 1, 1993 and April 10, 1995. The Leases are hereby
amended and modified as provided below:
1. Lessor and Lessee agree to extend the term of these Leases
from January 1, 1997 to December 31, 1997.
2. Lessor and Lessee agree to the following rent schedule over
the Lease term:
1/1/97 - 12/31/97 - $8,557.19 per month
3. Lessor and Lessee agree all other terms and conditions of the
original Leases shall remain in full force and effect.
CLEAR CREEK II, L.P. CORTECH, INC.
By /s/ Richard S. Robinson By/s/ Joseph L. Turner
------------------------- ---------------------
Richard S. Robinson Joseph L. Turner
Senior Vice President Vice President,
Finance & Administration
Executed on 3/28/96 Executed on 3/25/96
--------- --------
-8-
<PAGE> 9
ADDENDUM A TO LEASE
This Addendum A to lease (the "Lease") between CLEAR CREEK II, L.P.
(formerly Lyon Stewart Associates) as Lessor and CORTECH, INC. as Lessee
covering the premises known as 6840 N. Broadway, Suites A through I (15,650
square feet), Denver, Colorado 80221.
This Addendum is hereby made a part of and incorporated in the Lease
dated May 14, 1993. The Lease is hereby amended and modified as provided
below:
1. Lessor and Lessee agree to extend the term of this Lease from
June 1, 1996 to May 31, 1999.
2. Lessor and Lessee agree to the following rent schedule over
the Lease term:
6/1/96 - 5/31/97 - $9,254.10 per month
6/1/97 - 5/31/98 - $9,578.00 per month
6/1/98 - 5/31/99 - $9,913.22 per month
Each year reflects a 3.5% upward rental adjustment.
3. Lessor and Lessee agree all other terms and conditions of the
original Lease dated May 14, 1993 shall remain in full force
and effect.
CLEAR CREEK II, L.P. CORTECH, INC.
By /s/ Richard S. Robinson By/s/ Joseph L. Turner
------------------------- ---------------------
Richard S. Robinson Joseph L. Turner
Senior Vice President Vice President,
Finance & Administration
Executed on 3/28/96 Executed on 3/25/96
--------- --------
-9-
<PAGE> 10
ADDENDUM A TO LEASE
This Addendum A to lease (the "Lease") between CLEAR CREEK II, L.P. as
Lessor and CORTECH, INC. as Lessee covering the premises known as 6880 N.
Broadway, Suites A, B, C, H, I, J, K & L (11,975 square feet), Denver, Colorado
80221.
This Addendum is hereby made a part of and incorporated in the Lease
dated March 5, 1993. The Lease is hereby amended and modified as provided
below:
1. Lessor and Lessee agree to extend the term of this Lease from
March 15, 1996 to December 31, 1997.
2. Lessor and Lessee agree to the following rent schedule over
the Lease term:
3/15/96 - 3/14/97 - $6,236.35 per month
3/15/97 - 12/31/97 - $6,454.62 per month
3. Lessor and Lessee agree all other terms and conditions of the
original Lease dated March 5, 1993 shall remain in full force
and effect.
CLEAR CREEK II, L.P. CORTECH, INC.
By /s/ Richard S. Robinson By/s/ Joseph L. Turner
------------------------- ---------------------
Richard S. Robinson Joseph L. Turner
Senior Vice President Vice President,
Finance & Administration
Executed on 3/28/96 Executed on 3/25/96
--------- --------
-10-
<PAGE> 11
ADDENDUM B TO LEASE
This Addendum B to lease (the "Lease") between CLEAR CREEK II, L.P. as
Lessor and CORTECH, INC. as Lessee covering the premises known as 6880 N.
Broadway, Suites D, E, F & G (5,570 square feet), Denver, Colorado 80221.
This Addendum is hereby made a part of and incorporated in the Lease
dated April 2, 1992. The Lease is hereby amended and modified as provided
below:
1. Lessor and Lessee agree to extend the term of this Lease from
January 1, 1997 to December 31, 1997.
2. Lessor and Lessee agree to a gross monthly rental of $2,701.97.
3. Lessor and Lessee agree all other terms and conditions of the
original Lease dated April 2, 1992 shall remain in full force
and effect.
CLEAR CREEK II, L.P. CORTECH, INC.
By /s/ Richard S. Robinson By/s/ Joseph L. Turner
------------------------- ---------------------
Richard S. Robinson Joseph L. Turner
Senior Vice President Vice President,
Finance & Administration
Executed on 3/28/96 Executed on 3/25/96
--------- --------
-11-
<PAGE> 12
ADDENDUM A TO LEASE
This Addendum A to lease (the "Lease") between CLEAR CREEK II, L.P.
(formerly Lyon Stewart Associates) as Lessor and CORTECH, INC. as Lessee
covering the premises known as 6880 N. Broadway, Suites D, E, F & G (5,570 sq.
ft.) Denver, Colorado 80221.
This Addendum is hereby made a part of and incorporated in the Lease
dated April 2, 1992. The Lease is hereby amended and modified as provided
below:
1. Lessor and Lessee agree to extend the term of this Lease from
October 1, 1995 to December 31, 1996.
2. Lessor and Lessee agree to a gross monthly rental of $2,610.60.
3. Lessor and Lessee agree all other terms and conditions of the
Lease dated April 2, 1992 shall remain in full force and
effect.
CLEAR CREEK II, L.P. CORTECH, INC.
By /s/ Richard S. Robinson By/s/ Joseph L. Turner
------------------------- ---------------------
Richard S. Robinson Joseph L. Turner
Senior Vice President Vice President,
Finance & Administration
Executed on 2/9/96 Executed on 2/21/96
-------- --------
-12-
<PAGE> 1
BIOSTAR, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
as of the 10th_day of February, 1997, by and between BioStar, Inc., a Delaware
corporation (the "Company"), and Teresa W. Ayers ("Executive").
WHEREAS, Executive is currently serving as President/Chief Executive
Officer of the Company and in such position Executive is considered to be a key
employee of the Company;
WHEREAS, the Company and Executive acknowledge that Executive's
knowledge, abilities and services are unique and important to the success of
the Company; and
WHEREAS, the Company and Executive desire to set forth in writing the
terms of their agreement with respect to Executive's continued employment by
the Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth
herein, the Company agrees to employ Executive and Executive hereby accepts
such employment. Executive shall serve in an executive capacity and shall
perform such duties as are customarily associated with her then current title,
consistent with the Bylaws of the Company and as required by the President or
Board of Directors of the Company. During the term of her employment with the
Company, Executive will devote her best efforts and substantially all of her
business time and attention to the business of the Company. This Agreement is
for at-will-employment.
2. SALARY AND BENEFITS
(a) BASE SALARY AND PERFORMANCE BONUS. Executive will receive for
services to be rendered hereunder an annualized base salary of One Hundred
Eighty Thousand Dollars ($180,000), payable on a bi-weekly basis, subject to
adjustment in accordance with the policies of the Company. Executive may
receive such discretionary performance bonuses as the Compensation Committee of
the Board of Directors of the Company, in its sole discretion and from time to
time, deems appropriate. Executive shall be eligible for a cash performance
bonus of no less than twenty percent (20%) of Executive's base salary based
upon Executive's achievement of performance targets and based upon the overall
performance of the Company, all as determined by the Compensation Committee of
the Board of Directors. All such payments are subject to ordinary withholdings
for tax and social security purposes.
(b) VACATION. Executive will accrue paid vacation time pursuant
to the Company's general vacation policy, which will not be less than the
vacation policy in effect on the date of this Agreement.
(c) BENEFITS. Executive will be entitled to participate in the
Company's standard Executive benefit programs, including medical and disability
programs, and in such additional
1.
<PAGE> 2
benefit programs, as may in the future be made available by the Company to the
extent that she is eligible under the general provisions thereof. Benefit
programs made available to Executive in the future will be no less favorable
benefit programs made available to Executive in effect on the date of this
Agreement.
(d) MANAGEMENT INCENTIVE PLAN. Executive is currently allocated
25 Units out of the total 100 Units available to management of the Company in
the Management Incentive Plan in effect as of the date hereof (the "Plan").
Executive shall be compensated for such Units in accordance with the terms of
the Plan.
3. TERMINATION.
(a) MUTUAL AGREEMENT. This Agreement may be terminated at any
time by the mutual written agreement of the Company and Executive.
(b) TERMINATION OTHER THAN FOR CAUSE OR CONSTRUCTIVE TERMINATION.
If Executive is terminated by the Company for any reason other than for Cause
(as defined in Section 5 below) or is Constructively Terminated by the Company
(as defined in Section 5 below), and in exchange for Executive signing a waiver
of claims against the Company as of the termination date in a form acceptable
to the Company, Executive will receive the following for twelve (12) full
calendar months following such termination:
(i) The Company shall pay to Executive twenty-six (26)
times her last base bi-weekly salary prior to termination, net of any necessary
taxes or deductions, payable in a lump sum or with the Company's normal payroll
timetable, at the Company's option;
(ii) The Company shall pay Executive all accrued
compensation, including payment for accrued but unused vacation days,
unreimbursed expenses to the date of termination as provided herein, as well as
any expenses incurred by the Executive with the Company's prior written
approval, such as expenses incurred in returning Company records);
(iii) Pursuant to the provisions of COBRA, the Company
shall provide Executive and her family with all group health benefits which the
Company provided immediately prior to such termination; provided, however, that
such benefits will be terminated if Executive subsequently joins or becomes
employed by another organization which provides Executive and her family with
group health benefits comparable to those provided by the Company under this
paragraph. The Company shall be responsible for paying all COBRA premiums for
no more than twelve (12) months;
(iv) Twelve (12) months of vesting for all stock options
held by Executive shall automatically be accelerated to the date of termination
and all vested options may be exercised by Executive according to their terms;
and
(v) If Executive is terminated, other than for Cause, or
is Constructively Terminated within one hundred twenty (120) days of the day
that the Company enters into a
2.
<PAGE> 3
binding agreement for the Sale of the Company, which sale is consummated
pursuant to the terms of such binding agreement, then Executive shall be
entitled to receive the full amount of consideration for her Units in the Plan.
The payment under the Plan will be payable at the same time that any other
employees of the Company receive the consideration for their units under the
Plan.
(c) FOR CAUSE OR MUTUAL AGREEMENT. The Company may terminate this
Agreement at any time for Cause effective immediately upon written notice to
Executive (except termination for Cause which requires advance notice as set
forth in the definition of Cause set forth in Section 5 below). If the Company
terminates this Agreement for Cause, or if this Agreement is terminated by
Executive and the Company by mutual agreement, Executive shall not be entitled
to any further payments except (i) unreimbursed expenses to the date of
termination and (ii) any accrued compensation, including accrued benefits,
excluding any compensation under the Plan. Executive shall forfeit her units
under the Plan and accelerated stock vesting pursuant to Section 3(b)(iv) if
this Agreement is terminated pursuant to this Section.
(d) DISABILITY OR DEATH. The Company may terminate this Agreement
upon the death or disability of Executive. For purposes of this Agreement,
Executive shall be considered disabled if she is unable to perform her duties
under this Agreement as a result of injury, illness or other disability for a
period of one hundred eighty (180) consecutive days, or one hundred eighty
(180) days in a three hundred sixty-five (365) day period, and shall not have
returned to the performance of duties within thirty (30) days after receiving
written notice of termination. If the Company terminates this Agreement upon
the death or disability of Executive:
(i) The Company shall pay Executive or her estate a lump
sum equal to all accrued compensation, including accrued benefits, and
unreimbursed expenses to the date of termination as provided herein;
(ii) If the Company terminates this Agreement upon the
death or disability of Executive within one hundred twenty (120) days of the
day that the Company enters into a binding agreement for the Sale of the
Company, which sale is consummated pursuant to the terms of such binding
agreement, then Executive, or Executive's estate, shall be entitled to receive
the full amount of consideration for her units in the Plan. The payment under
the Plan will be payable at the same time that any other employees of the
Company receive the consideration for their units under the Plan.
(e) DATE OF TERMINATION; PAYMENT. In each of the foregoing cases,
except those provisions where termination is automatic upon notice to
Executive, termination is the date of actual termination, not the date notice
of termination is given. All payments for unpaid monthly compensation shall be
made based upon the normal payroll processing schedule and all payments for
reimbursement shall be made within forty-five (45) days after the end of the
month following the month in which termination occurred.
4. MISCELLANEOUS
3.
<PAGE> 4
(a) ASSIGNMENT. This Agreement may not be assigned by any party
hereto; provided, however, that the Company may assign this Agreement in
connection with a Sale of the Company so long as the assignee assumes all of
the Company's obligations thereunder.
(b) NOTICES. Any notices provided hereunder must be in writing
and shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class mail
to the recipient at the address indicated below:
To the Company:
BioStar, Inc.
6655 Lookout Road
Boulder, Colorado 80301
Attention: President
Phone: (303) 530-3888
Fax: (303) 530-6641
To Executive:
Teresa W. Ayers
5008 Carter Court
Boulder, Colorado 80301
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(c) WAIVER. A waiver by the Company or Executive of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
(d) GOVERNING LAW. This Agreement shall be deemed a contract made
under, and for all purposes shall be construed in accordance with, the laws of
the State of Colorado.
(e) SEVERABILITY. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions or portions of this Agreement shall be
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
(f) ENTIRE AGREEMENT. This Agreement and the Plan contain the
entire agreement of the parties with respect to the subject matter hereof.
This Agreement may be changed only by an agreement in writing signed by the
parties.
(g) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
4.
<PAGE> 5
5. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
(a) "CAUSE" as used herein shall mean: (i) dishonesty which is
not the result of an inadvertent or innocent mistake of Executive with respect
to the Company or any of its subsidiaries; (ii) willful misfeasance or
nonfeasance of duty by Executive that materially injures the reputation,
business or business relationships of the Company or any of its subsidiaries or
any of their respective officers, directors or Executives; (iii) any conduct
which would be sufficient to criminally charge Executive with the commission of
a crime involving moral turpitude or a crime other than a vehicle offense which
could reflect in some material fashion unfavorably upon the business or
business relationships of the Company or any of its subsidiaries or any of
their respective officers, directors or Executives; (iv) willful or prolonged
absence from work by Executive (other than by reason of disability due to
physical or mental illness) or failure, neglect or refusal by Executive to
perform her duties and responsibilities without the same being corrected upon
thirty (30) days prior written notice; or (v) if Executive materially violates
any term of this Agreement or the Company's employment policies and procedures
(including but not limited to the Company's policies with respect to sexual
harassment and discrimination) and such action or failure is not remedied or
reasonable steps to effect such remedy are not commenced within thirty (30)
days of written notice.
(b) "CONSTRUCTIVE TERMINATION" as used herein shall mean: (i) if
the Company materially violates any term of this Agreement, or (ii) if, after a
Sale of the Company (as defined below): (A) the Company moves the Executive's
primary work site more than 35 miles from the Company's location in Boulder,
Colorado; or (B) if the Company unilaterally makes significant detrimental
changes in which the Executive's job responsibilities or title is not
comparable with Executive's current job responsibilities or title, and such
action or failure is not remedied after twenty (20) days written notice, and in
the case of either (A) and (B), Executive elects to terminate this Agreement
immediately upon written notice to the Company.
(c) "SALE OF THE COMPANY" as used herein shall have the same
meaning as set forth in the Plan.
5.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BIOSTAR, INC. EXECUTIVE
By: /s/ Alexander E. Barkas /s/ Teresa W. Ayers
------------------------------- ---------------------------
Alexander E. Barkas Teresa W. Ayers
Chairman of the Board
6.
<PAGE> 1
BIOSTAR, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the AGREEMENT") is made and entered into as
of the 10th day of February, 1997, by and between BioStar, Inc., a
Delaware corporation (the "COMPANY"), and Kim Stebbings ("EXECUTIVE").
WHEREAS, Executive is currently serving as Vice President, National
Sales of the Company and in such position Executive is considered to be a key
employee of the COMPANY;
WHEREAS, the Company and Executive acknowledge that Executive's
knowledge, abilities and services are unique and important to the success of
the Company; and
WHEREAS, the Company and Executive desire to set forth in writing the
terms of their agreement with respect to Executive's continued employment by
the Company.
NOW, THEREFORE,the parties hereto agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth
herein, the Company agrees to employ Executive and Executive hereby accepts
such employment. Executive shall serve in an executive capacity and shall
perform such duties as are customarily associated with her then current title,
consistent with the Bylaws of the Company and as required by the President or
Board of Directors of the Company. During the term of her employment with the
Company, Executive will devote her best efforts and substantially all of her
business time and attention to the business of the Company. This Agreement is
for at-will-employment.
2. SALARY AND BENEFITS
(a) BASE SALARY AND PERFORMANCE BONUS. Executive will receive for
services to be rendered hereunder an annualized base salary of One Hundred
Twenty Thousand Dollars ($120,000), payable on a bi-weekly basis, subject to
adjustment in accordance with the policies of the Company. Executive may
receive such discretionary performance bonuses as the Compensation Committee of
the Board of Directors of the Company, in its sole discretion and from time to
time, deems appropriate. Executive shall be eligible for a cash performance
bonus of no less than thirty percent (30%) of Executive's base salary based
upon Executive's achievement of performance targets and based upon the overall
performance of the Company, all as determined by the Compensation Committee of
the Board of Directors. All such payments are subject to ordinary withholdings
for tax and social security purposes.
(b) VACATION. Executive will accrue paid vacation time pursuant
to the Company's general vacation policy, which will not be less than the
vacation policy in effect on the date of this Agreement.
(c) BENEFITS. Executive will be entitled to participate in the
Company's standard Executive benefit programs, including medical and disability
programs, and in such additional
1.
<PAGE> 2
benefit programs, as may in the future be made available by the Company to the
extent that she is eligible under the general provisions thereof. Benefit
programs made available to Executive in the future will be no less favorable
benefit programs made available to Executive in effect on the date of this
Agreement.
(d) MANAGEMENT INCENTIVE PLAN. Executive is currently allocated
13 Units out of the total 100 Units available to management of the Company in
the Management Incentive Plan in effect as of the date hereof (the "PLAN").
Executive shall be compensated for such Units in accordance with the terms of
the Plan.
3. TERMINATION.
(a) MUTUAL AGREEMENT. This Agreement may be terminated at any
time by the mutual written agreement of the Company and Executive.
(b) TERMINATION OTHER THAN FOR CAUSE OR CONSTRUCTIVE TERMINATION.
If Executive is terminated by the Company for any reason other than for Cause
(as defined in Section 5 below) or is Constructively Terminated by the Company
(as defined in Section 5 below), and in exchange for Executive signing a waiver
of claims against the Company as of the termination date in a form acceptable
to the Company, Executive will receive the following for twelve (12) full
calendar months following such termination:
(i) The Company shall pay to Executive thirteen (13)
times her last base bi-weekly salary prior to termination, net of any necessary
taxes or deductions, payable in a lump sum or with the Company's normal payroll
timetable, at the Company's option;
(ii) The Company shall pay Executive all accrued
compensation, including payment for accrued but unused vacation days,
unreimbursed expenses to the date of termination as provided herein, as well as
any expenses incurred by the Executive with the Company's prior written
approval, such as expenses incurred in returning Company records);
(iii) Pursuant to the provisions of COBRA, the Company
shall provide Executive and her family with all group health benefits which the
Company provided immediately prior to such termination; provided, however, that
such benefits will be terminated if Executive subsequently joins or becomes
employed by another organization which provides Executive and her family with
group health benefits comparable to those provided by the Company under this
paragraph. The Company shall be responsible for paying all COBRA premiums for
no more than six (6) months;
(iv) Six (6) months of vesting for all stock options held
by Executive shall automatically be accelerated to the date of termination and
all vested options may be exercised by Executive according to their terms; and
(v) If Executive is terminated, other than for Cause, or
is Constructively Terminated within one hundred twenty (120) days of the day
that the Company enters into a
2.
<PAGE> 3
binding agreement for the Sale of the Company, which sale is consummated
pursuant to the terms of such binding agreement, then Executive shall be
entitled to receive the full amount of consideration for her Units in the Plan.
The payment under the Plan will be payable at the same time that any other
employees of the Company receive the consideration for their units under the
Plan.
(c) FOR CAUSE OR MUTUAL AGREEMENT. The Company may terminate this
Agreement at any time for Cause effective immediately upon written notice to
Executive (except termination for Cause which requires advance notice as set
forth in the definition of Cause set forth in Section 5 below). If the Company
terminates this Agreement for Cause, or if this Agreement is terminated by
Executive and the Company by mutual agreement, Executive shall not be entitled
to any further payments except (i) unreimbursed expenses to the date of
termination and (ii) any accrued compensation, including accrued benefits,
excluding any compensation under the Plan. Executive shall forfeit her units
under the Plan and accelerated stock vesting pursuant to Section 3(b)(iv) if
this Agreement is terminated pursuant to this Section.
(d) DISABILITY OR DEATH. The Company may terminate this Agreement
upon the death or disability of Executive. For purposes of this Agreement,
Executive shall be considered disabled if she is unable to perform her duties
under this Agreement as a result of injury, illness or other disability for a
period of one hundred eighty (180) consecutive days, or one hundred eighty
(180) days in a three hundred sixty-five (365) day period, and shall not have
returned to the performance of duties within thirty (30) days after receiving
written notice of termination. If the Company terminates this Agreement upon
the death or disability of Executive:
(i) The Company shall pay Executive or her estate a lump
sum equal to all accrued compensation, including accrued benefits, and
unreimbursed expenses to the date of termination as provided herein;
(ii) If the Company terminates this Agreement upon the
death or disability of Executive within one hundred twenty (120) days of the
day that the Company enters into a binding agreement for the Sale of the
Company, which sale is consummated pursuant to the terms of such binding
agreement, then Executive, or Executive's estate, shall be entitled to receive
the full amount of consideration for her units in the Plan. The payment under
the Plan will be payable at the same time that any other employees of the
Company receive the consideration for their units under the Plan.
(e) DATE OF TERMINATION; PAYMENT. In each of the foregoing cases,
except those provisions where termination is automatic upon notice to
Executive, termination is the date of actual termination, not the date notice
of termination is given. All payments for unpaid monthly compensation shall be
made based upon the normal payroll processing schedule and all payments for
reimbursement shall be made within forty-five (45) days after the end of the
month following the month in which termination occurred.
4. MISCELLANEOUS
3.
<PAGE> 4
(a) ASSIGNMENT. This Agreement may not be assigned by any party
hereto; provided, however, that the Company may assign this Agreement in
connection with a Sale of the Company so long as the assignee assumes all of
the Company's obligations thereunder.
(b) NOTICES. Any notices provided hereunder must be in writing
and shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class mail
to the recipient at the address indicated below:
To the Company:
BioStar, Inc.
6655 Lookout Road
Boulder, Colorado 80301
Attention: President
Phone: (303) 530-3888
Fax: (303) 530-6641
To Executive:
Kim Stebbings
7466 Singing Hills Court
Boulder, Colorado 80301
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(c) WAIVER. A waiver by the Company or Executive of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
(d) GOVERNING LAW. This Agreement shall be deemed a contract made
under, and for all purposes shall be construed in accordance with, the laws of
the State of Colorado.
(e) SEVERABILITY. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions or portions of this Agreement shall be
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
(f) ENTIRE AGREEMENT. This Agreement and the Plan contain the
entire agreement of the parties with respect to the subject matter hereof.
This Agreement may be changed only by an agreement in writing signed by the
parties.
(g) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
4.
<PAGE> 5
5. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
(a) "CAUSE" as used herein shall mean: (i) dishonesty which is
not the result of an inadvertent or innocent mistake of Executive with respect
to the Company or any of its subsidiaries; (ii) willful misfeasance or
nonfeasance of duty by Executive that materially injures the reputation,
business or business relationships of the Company or any of its subsidiaries or
any of their respective officers, directors or Executives; (iii) any conduct
which would be sufficient to criminally charge Executive with the commission of
a crime involving moral turpitude or a crime other than a vehicle offense which
could reflect in some material fashion unfavorably upon the business or
business relationships of the Company or any of its subsidiaries or any of
their respective officers, directors or Executives; (iv) willful or prolonged
absence from work by Executive (other than by reason of disability due to
physical or mental illness) or failure, neglect or refusal by Executive to
perform her duties and responsibilities without the same being corrected upon
thirty (30) days prior written notice; or (v) if Executive materially violates
any term of this Agreement or the Company's employment policies and procedures
(including but not limited to the Company's policies with respect to sexual
harassment and discrimination) and such action or failure is not remedied or
reasonable steps to effect such remedy are not commenced within thirty (30)
days of written notice.
(b) "CONSTRUCTIVE TERMINATION" as used herein shall mean: (i) if
the Company materially violates any term of this Agreement, or (ii) if, after a
Sale of the Company (as defined below): (A) the Company moves the Executive's
primary work site more than 35 miles from the Company's location in Boulder,
Colorado; or (B) if the Company unilaterally makes significant detrimental
changes in which the Executive's job responsibilities or title is not
comparable with Executive's current job responsibilities or title, and such
action or failure is not remedied after twenty (20) days written notice, and in
the case of either (A) and (B), Executive elects to terminate this Agreement
immediately upon written notice to the Company.
(c) "SALE OF THE COMPANY" as used herein shall have the same
meaning as set forth in the Plan.
5.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BIOSTAR, INC. EXECUTIVE
By: /s/ Teresa W. Ayers /s/ Kim L. Stebbings
----------------------------------- ---------------------------
Teresa W. Ayers Kim Stebbings
President/Chief Executive Officer
6.
<PAGE> 1
BIOSTAR, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is made and entered into as
of the 10th day of February, 1997, by and between BioStar, Inc., a Delaware
corporation (the "COMPANY"), and Noel T. Doheny ("EXECUTIVE").
WHEREAS, Executive is currently serving as Executive Vice President,
Commercial Development of the Company and in such position Executive is
considered to be a key employee of the Company;
WHEREAS, the Company and Executive acknowledge that Executive's
knowledge, abilities and services are unique and important to the success of
the Company; and
WHEREAS, the Company and Executive desire to set forth in writing the
terms of their agreement with respect to Executive's continued employment by
the Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth
herein, the Company agrees to employ Executive and Executive hereby accepts
such employment. Executive shall serve in an executive capacity and shall
perform such duties as are customarily associated with his then current title,
consistent with the Bylaws of the Company and as required by the President or
Board of Directors of the Company. During the term of his employment with the
Company, Executive will devote his best efforts and substantially all of his
business time and attention to the business of the Company. This Agreement is
for at-will-employment.
2. SALARY AND BENEFITS
(a) BASE SALARY AND PERFORMANCE BONUS. Executive will receive for
services to be rendered hereunder an annualized base salary of One Hundred
Thirty Thousand Dollars ($130,000), payable on a bi-weekly basis, subject to
adjustment in accordance with the policies of the Company. Executive may
receive such discretionary performance bonuses as the Compensation Committee of
the Board of Directors of the Company, in its sole discretion and from time to
time, deems appropriate. Executive shall be eligible for a cash performance
bonus of no less than twenty percent (20%) of Executive's base salary based
upon Executive's achievement of performance targets and based upon the overall
performance of the Company, all as determined by the Compensation Committee of
the Board of Directors. All such payments are subject to ordinary withholdings
for tax and social security purposes.
(b) VACATION. Executive will accrue paid vacation time pursuant
to the Company's general vacation policy, which will not be less than the
vacation policy in effect on the date of this Agreement.
1.
<PAGE> 2
(c) BENEFITS. Executive will be entitled to participate in the
Company's standard Executive benefit programs, including medical and disability
programs, and in such additional benefit programs, as may in the future be made
available by the Company to the extent that he is eligible under the general
provisions thereof. Benefit programs made available to Executive in the future
will be no less favorable benefit programs made available to Executive in
effect on the date of this Agreement.
(d) MANAGEMENT INCENTIVE PLAN. Executive is currently allocated
11 Units out of the total 100 Units available to management of the Company in
the Management Incentive Plan in effect as of the date hereof (the "Plan").
Executive shall be compensated for such Units in accordance with the terms of
the Plan.
3. TERMINATION.
(a) MUTUAL AGREEMENT. This Agreement may be terminated at any
time by the mutual written agreement of the Company and Executive.
(b) TERMINATION OTHER THAN FOR CAUSE OR CONSTRUCTIVE TERMINATION.
If Executive is terminated by the Company for any reason other than for Cause
(as defined in Section 5 below) or is Constructively Terminated by the Company
(as defined in Section 5 below), and in exchange for Executive signing a waiver
of claims against the Company as of the termination date in a form acceptable
to the Company, Executive will receive the following for twelve (12) full
calendar months following such termination:
(i) The Company shall pay to Executive thirteen (13)
times his last base bi-weekly salary prior to termination, net of any necessary
taxes or deductions, payable in a lump sum or with the Company's normal payroll
timetable, at the Company's option;
(ii) The Company shall pay Executive all accrued
compensation, including payment for accrued but unused vacation days,
unreimbursed expenses to the date of termination as provided herein, as well as
any expenses incurred by the Executive with the Company's prior written
approval, such as expenses incurred in returning Company records);
(iii) Pursuant to the provisions of COBRA, the Company
shall provide Executive and his or her family with all group health benefits
which the Company provided immediately prior to such termination; provided,
however, that such benefits will be terminated if Executive subsequently joins
or becomes employed by another organization which provides Executive and his
family with group health benefits comparable to those provided by the Company
under this paragraph. The Company shall be responsible for paying all COBRA
premiums for no more than six (6) months;
(iv) Six (6) months of vesting for all stock options held
by Executive shall automatically be accelerated to the date of termination and
all vested options may be exercised by Executive according to their terms; and
2.
<PAGE> 3
(v) If Executive is terminated, other than for Cause, or
is Constructively Terminated within one hundred twenty (120) days of the day
that the Company enters into a binding agreement for the Sale of the Company,
which sale is consummated pursuant to the terms of such binding agreement, then
Executive shall be entitled to receive the full amount of consideration for his
Units in the Plan. The payment under the Plan will be payable at the same time
that any other employees of the Company receive the consideration for their
units under the Plan.
(c) For Cause or Mutual Agreement. The Company may terminate this
Agreement at any time for Cause effective immediately upon written notice to
Executive (except termination for Cause which requires advance notice as set
forth in the definition of Cause set forth in Section 5 below). If the Company
terminates this Agreement for Cause, or if this Agreement is terminated by
Executive and the Company by mutual agreement, Executive shall not be entitled
to any further payments except (i) unreimbursed expenses to the date of
termination and (ii) any accrued compensation, including accrued benefits,
excluding any compensation under the Plan. Executive shall forfeit his units
under the Plan and accelerated stock vesting pursuant to Section 3(b)(iv) if
this Agreement is terminated pursuant to this Section.
(d) Disability or Death. The Company may terminate this Agreement
upon the death or disability of Executive. For purposes of this Agreement,
Executive shall be considered disabled if he is unable to perform his duties
under this Agreement as a result of injury, illness or other disability for a
period of one hundred eighty (180) consecutive days, or one hundred eighty
(180) days in a three hundred sixty-five (365) day period, and shall not have
returned to the performance of duties within thirty (30) days after receiving
written notice of termination. If the Company terminates this Agreement upon
the death or disability of Executive:
(i) The Company shall pay Executive or his estate a lump
sum equal to all accrued compensation, including accrued benefits, and
unreimbursed expenses to the date of termination as provided herein;
(ii) If the Company terminates this Agreement upon the
death or disability of Executive within one hundred twenty (120) days of the
day that the Company enters into a binding agreement for the Sale of the
Company, which sale is consummated pursuant to the terms of such binding
agreement, then Executive, or Executive's estate, shall be entitled to receive
the full amount of consideration for his units in the Plan. The payment under
the Plan will be payable at the same time that any other employees of the
Company receive the consideration for their units under the Plan.
(e) DATE OF TERMINATION; PAYMENT. In each of the foregoing cases,
except those provisions where termination is automatic upon notice to
Executive, termination is the date of actual termination, not the date notice
of termination is given. All payments for unpaid monthly compensation shall be
made based upon the normal payroll processing schedule and all payments for
reimbursement shall be made within forty-five (45) days after the end of the
month following the month in which termination occurred.
3.
<PAGE> 4
4. MISCELLANEOUS.
(a) ASSIGNMENT. This Agreement may not be assigned by any party
hereto; provided, however, that the Company may assign this Agreement in
connection with a Sale of the Company so long as the assignee assumes all of
the Company's obligations thereunder.
(b) NOTICES. Any notices provided hereunder must be in writing
and shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class mail
to the recipient at the address indicated below:
To the Company:
BioStar, Inc.
6655 Lookout Road
Boulder, Colorado 80301
Attention: President
Phone: (303) 530-3888
Fax: (303) 530-6641
To Executive:
Noel T. Doheny
4626 Nicklaus Court
Niwot, Colorado 80503
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(c) WAIVER. A waiver by the Company or Executive of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
(d) GOVERNING LAW. This Agreement shall be deemed a contract made
under, and for all purposes shall be construed in accordance with, the laws of
the State of Colorado.
(e) SEVERABILITY. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions or portions of this Agreement shall be
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
(f) ENTIRE AGREEMENT. This Agreement and the Plan contain the
entire agreement of the parties with respect to the subject matter hereof.
This Agreement may be changed only by an agreement in writing signed by the
parties.
4.
<PAGE> 5
(g) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
5. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
(a) "CAUSE" as used herein shall mean: (i) dishonesty which is
not the result of an inadvertent or innocent mistake of Executive with respect
to the Company or any of its subsidiaries; (ii) willful misfeasance or
nonfeasance of duty by Executive that materially injures the reputation,
business or business relationships of the Company or any of its subsidiaries or
any of their respective officers, directors or Executives; (iii) any conduct
which would be sufficient to criminally charge Executive with the commission of
a crime involving moral turpitude or a crime other than a vehicle offense which
could reflect in some material fashion unfavorably upon the business or
business relationships of the Company or any of its subsidiaries or any of
their respective officers, directors or Executives; (iv) willful or prolonged
absence from work by Executive (other than by reason of disability due to
physical or mental illness) or failure, neglect or refusal by Executive to
perform his duties and responsibilities without the same being corrected upon
thirty (30) days prior written notice; or (v) if Executive materially violates
any term of this Agreement or the Company's employment policies and procedures
(including but not limited to the Company's policies with respect to sexual
harassment and discrimination) and such action or failure is not remedied or
reasonable steps to effect such remedy are not commenced within thirty (30)
days of written notice.
(b) "CONSTRUCTIVE TERMINATION" as used herein shall mean: (i) if
the Company materially violates any term of this Agreement, or (ii) if, after a
Sale of the Company (as defined below): (A) the Company moves the Executive's
primary work site more than 35 miles from the Company's location in Boulder,
Colorado; or (B) if the Company unilaterally makes significant detrimental
changes in which the Executive's job responsibilities or title is not
comparable with Executive's current job responsibilities or title, and such
action or failure is not remedied after twenty (20) days written notice, and in
the case of either (A) and (B), Executive elects to terminate this Agreement
immediately upon written notice to the Company.
(c) "SALE OF THE COMPANY" as used herein shall have the same
meaning as set forth in the Plan.
5.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BIOSTAR, INC. EXECUTIVE
By: /s/ Teresa W. Ayers /s/ Noel T. Doheny
--------------------------------- -----------------------------------
Teresa W. Ayers Noel T. Doheny
President/Chief Executive Officer
6.
<PAGE> 7
[BioStar Letterhead]
June 16, 1997
Mr. Noel Doheny
4626 Nicklaus Court
Niwot, CO 80503
Dear Noel:
In follow up to our conversation today, I am confirming to you that it is the
intention of the undersigned to award you a minimum of an additional five (5)
Units of the Acquisition Pool, both as defined in the Management Incentive
Plan. This is in addition to the eleven (11) units which you have currently
been awarded. This additional award is in recognition of the success you have
had regarding business development opportunities, specifically, closing the
next phase of the Biota Agreement, signing Sangtec as a product development
partner, and your advancement of the Asahi negotiations to a position which is
favorable to BioStar, Inc.
The Plan Administrators, as defined in the Management Incentive Plan, initially
include Alex Barkas, Teresa Ayers and Lyndal Hesterberg. The responsibilities
of the Plan Administrators are defined in Section 3 of the Management Incentive
Plan.
/s/ Teresa W. Ayers /s/ Lyndal K. Hesterberg
Teresa W. Ayers Lyndal K. Hesterberg
President/CEO VP-Scientific Affairs
Plan Administrator Plan Administrator
<PAGE> 1
BIOSTAR, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is made and entered into as
of the 1st day of September, 1997, by and between BioStar, Inc., a Delaware
corporation (the "COMPANY"), and Edward C. Pritchard ("EXECUTIVE").
WHEREAS, Executive is currently serving as Vice President, Finance and
Manufacturing and in such position Executive is considered to be a key employee
of the Company;
WHEREAS, the Company and Executive acknowledge that Executive's
knowledge, abilities and services are unique and important to the success of
the Company; and
WHEREAS, the Company and Executive desire to set forth in writing the
terms of their agreement with respect to Executive's continued employment by
the Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth
herein, the Company agrees to employ Executive and Executive hereby accepts
such employment. Executive shall serve in an executive capacity and shall
perform such duties as are customarily associated with his then current title,
consistent with the Bylaws of the Company and as required by the President or
Board of Directors of the Company. During the term of his employment with the
Company, Executive will devote his best efforts and substantially all of his
business time and attention to the business of the Company. This Agreement is
for at-will-employment.
2. SALARY AND BENEFITS
(a) BASE SALARY AND PERFORMANCE BONUS. Executive will receive for
services to be rendered hereunder an annualized base salary of One Hundred Ten
Thousand Dollars ($110,000), payable on a bi-weekly basis, subject to
adjustment in accordance with the policies of the Company. Executive may
receive such discretionary performance bonuses as the Compensation Committee of
the Board of Directors of the Company, in its sole discretion and from time to
time, deems appropriate. Executive shall be eligible for a cash performance
bonus of no less than twenty percent (20%) of Executive's base salary based
upon Executive's achievement of performance targets and based upon the overall
performance of the Company, all as determined by the Compensation Committee of
the Board of Directors. All such payments are subject to ordinary withholdings
for tax and social security purposes.
(b) VACATION. Executive will accrue paid vacation time pursuant
to the Company's general vacation policy, which will not be less than the
vacation policy in effect on the date of this Agreement.
(c) BENEFITS. Executive will be entitled to participate in the
Company's standard Executive benefit programs, including medical and disability
programs, and in such additional
1.
<PAGE> 2
benefit programs, as may in the future be made available by the Company to the
extent that he is eligible under the general provisions thereof. Benefit
programs made available to Executive in the future will be no less favorable
benefit programs made available to Executive in effect on the date of this
Agreement.
(d) MANAGEMENT INCENTIVE PLAN. Executive is currently allocated 4
Units out of the total 100 Units available to management of the Company in the
Management Incentive Plan in effect as of the date hereof (the "Plan").
Executive shall be compensated for such Units in accordance with the terms of
the Plan. In any event, the payment made to Executive from the Plan shall not
exceed $100,000.
3. TERMINATION.
(a) MUTUAL AGREEMENT. This Agreement may be terminated at any
time by the mutual written agreement of the Company and Executive.
(b) TERMINATION OTHER THAN FOR CAUSE OR CONSTRUCTIVE TERMINATION.
If Executive is terminated by the Company for any reason other than for Cause
(as defined in Section 5 below) or is Constructively Terminated by the Company
(as defined in Section 5 below), and in exchange for Executive signing a waiver
of claims against the Company as of the termination date in a form acceptable
to the Company, Executive will receive the following for three (3) full
calendar months following such termination:
(i) The Company shall pay to Executive six and one-half
(6.5) times his last base bi-weekly salary prior to termination, net of any
necessary taxes or deductions, payable in a lump sum or with the Company's
normal payroll timetable, at the Company's option;
(ii) The Company shall pay Executive all accrued
compensation, including payment for accrued but unused vacation days,
unreimbursed expenses to the date of termination as provided herein, as well as
any expenses incurred by the Executive with the Company's prior written
approval, such as expenses incurred in returning Company records);
(iii) Pursuant to the provisions of COBRA, the Company
shall provide Executive and his or her family with all group health benefits
which the Company provided immediately prior to such termination; provided,
however, that such benefits will be terminated if Executive subsequently joins
or becomes employed by another organization which provides Executive and his
family with group health benefits comparable to those provided by the Company
under this paragraph. The Company shall be responsible for paying all COBRA
premiums for no more than twelve (12) months;
(iv) Three (3) months of vesting for all stock options
held by Executive shall automatically be accelerated to the date of termination
and all vested options may be exercised by Executive according to their terms;
and
2.
<PAGE> 3
(v) If Executive is terminated, other than for Cause, or
is Constructively Terminated within one hundred twenty (120) days of the day
that the Company enters into a binding agreement for the Sale of the Company,
which sale is consummated pursuant to the terms of such binding agreement, then
Executive shall be entitled to receive the full amount of consideration for his
Units in the Plan. The payment under the Plan will be payable at the same time
that any other employees of the Company receive the consideration for their
units under the Plan.
(c) FOR CAUSE OR MUTUAL AGREEMENT. The Company may terminate this
Agreement at any time for Cause effective immediately upon written notice to
Executive (except termination for Cause which requires advance notice as set
forth in the definition of Cause set forth in Section 5 below). If the Company
terminates this Agreement for Cause, or if this Agreement is terminated by
Executive and the Company by mutual agreement, Executive shall not be entitled
to any further payments except (i) unreimbursed expenses to the date of
termination and (ii) any accrued compensation, including accrued benefits,
excluding any compensation under the Plan. Executive shall forfeit his units
under the Plan and accelerated stock vesting pursuant to Section 3(b)(iv) if
this Agreement is terminated pursuant to this Section.
(d) DISABILITY OR DEATH. The Company may terminate this Agreement
upon the death or disability of Executive. For purposes of this Agreement,
Executive shall be considered disabled if he is unable to perform his duties
under this Agreement as a result of injury, illness or other disability for a
period of one hundred eighty (180) consecutive days, or one hundred eighty
(180) days in a three hundred sixty-five (365) day period, and shall not have
returned to the performance of duties within thirty (30) days after receiving
written notice of termination. If the Company terminates this Agreement upon
the death or disability of Executive:
(i) The Company shall pay Executive or his estate a lump
sum equal to all accrued compensation, including accrued benefits, and
unreimbursed expenses to the date of termination as provided herein;
(ii) If the Company terminates this Agreement upon the
death or disability of Executive within one hundred twenty (120) days of the
day that the Company enters into a binding agreement for the Sale of the
Company, which sale is consummated pursuant to the terms of such binding
agreement, then Executive, or Executive's estate, shall be entitled to receive
the full amount of consideration for his units in the Plan. The payment under
the Plan will be payable at the same time that any other employees of the
Company receive the consideration for their units under the Plan.
(e) DATE OF TERMINATION; PAYMENT. In each of the foregoing cases,
except those provisions where termination is automatic upon notice to
Executive, termination is the date of actual termination, not the date notice
of termination is given. All payments for unpaid monthly compensation shall be
made based upon the normal payroll processing schedule and all payments for
reimbursement shall be made within forty-five (45) days after the end of the
month following the month in which termination occurred.
3.
<PAGE> 4
4. MISCELLANEOUS.
(a) ASSIGNMENT. This Agreement may not be assigned by any party
hereto; provided, however, that the Company may assign this Agreement in
connection with a Sale of the Company so long as the assignee assumes all of
the Company's obligations thereunder.
(b) NOTICES. Any notices provided hereunder must be in writing
and shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class mail
to the recipient at the address indicated below:
To the Company:
BioStar, Inc.
6655 Lookout Road
Boulder, Colorado 80301
Attention: President
Phone: (303) 530-3888
Fax: (303) 530-6641
To Executive:
Edward C. Pritchard
2265 Knollwood Drive
Boulder, Colorado 80302-4700
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(c) WAIVER. A waiver by the Company or Executive of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
(d) GOVERNING LAW. This Agreement shall be deemed a contract made
under, and for all purposes shall be construed in accordance with, the laws of
the State of Colorado.
(e) SEVERABILITY. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions or portions of this Agreement shall be
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
(f) ENTIRE AGREEMENT. This Agreement and the Plan contain the
entire agreement of the parties with respect to the subject matter hereof.
This Agreement may be changed only by an agreement in writing signed by the
parties.
4.
<PAGE> 5
(g) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
5. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
(a) "CAUSE" as used herein shall mean: (i) dishonesty which is
not the result of an inadvertent or innocent mistake of Executive with respect
to the Company or any of its subsidiaries; (ii) willful misfeasance or
nonfeasance of duty by Executive that materially injures the reputation,
business or business relationships of the Company or any of its subsidiaries or
any of their respective officers, directors or Executives; (iii) any conduct
which would be sufficient to criminally charge Executive with the commission of
a crime involving moral turpitude or a crime other than a vehicle offense which
could reflect in some material fashion unfavorably upon the business or
business relationships of the Company or any of its subsidiaries or any of
their respective officers, directors or Executives; (iv) willful or prolonged
absence from work by Executive (other than by reason of disability due to
physical or mental illness) or failure, neglect or refusal by Executive to
perform his duties and responsibilities without the same being corrected upon
thirty (30) days prior written notice; or (v) if Executive materially violates
any term of this Agreement or the Company's employment policies and procedures
(including but not limited to the Company's policies with respect to sexual
harassment and discrimination) and such action or failure is not remedied or
reasonable steps to effect such remedy are not commenced within thirty (30)
days of written notice.
(b) "CONSTRUCTIVE TERMINATION" as used herein shall mean: (i) if
the Company materially violates any term of this Agreement, or (ii) if, after a
Sale of the Company (as defined below): (A) the Company moves the Company's
headquarters more than 35 miles from the Company's location in Boulder,
Colorado; or (B) if the Company unilaterally makes significant detrimental
changes in Executive's job responsibilities or title, and such action or
failure is not remedied after twenty (20) days written notice, and in the case
of either (A) and (B), Executive elects to terminate this Agreement immediately
upon written notice to the Company.
(c) "SALE OF THE COMPANY" as used herein shall have the same
meaning as set forth in the Plan.
5.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BIOSTAR, INC. EXECUTIVE
By: /s/ Teresa W. Ayers /s/ Edward C. Prichard
---------------------------------- ------------------------------------
Teresa W. Ayers Edward C. Prichard
President/Chief Executive Officer
6.
<PAGE> 1
BIOSTAR, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is made and entered into as
of the 10th day of February, 1997, by and between BioStar, Inc., a Delaware
corporation (the "COMPANY"), and Lyndal K. Hesterberg ("EXECUTIVE").
WHEREAS, Executive is currently serving as Vice President, Scientific
Affairs of the Company and in such position Executive is considered to be a key
employee of the Company;
WHEREAS, the Company and Executive acknowledge that Executive's
knowledge, abilities and services are unique and important to the success of
the Company; and
WHEREAS, the Company and Executive desire to set forth in writing the
terms of their agreement with respect to Executive's continued employment by
the Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth
herein, the Company agrees to employ Executive and Executive hereby accepts
such employment. Executive shall serve in an executive capacity and shall
perform such duties as are customarily associated with his then current title,
consistent with the Bylaws of the Company and as required by the President or
Board of Directors of the Company. During the term of his employment with the
Company, Executive will devote his best efforts and substantially all of his
business time and attention to the business of the Company. This Agreement is
for at-will-employment.
2. SALARY AND BENEFITS
(a) BASE SALARY AND PERFORMANCE BONUS. Executive will receive for
services to be rendered hereunder an annualized base salary of One Hundred
Fifty Thousand Dollars ($150,000), payable on a bi-weekly basis, subject to
adjustment in accordance with the policies of the Company. Executive may
receive such discretionary performance bonuses as the Compensation Committee of
the Board of Directors of the Company, in its sole discretion and from time to
time, deems appropriate. Executive shall be eligible for a cash performance
bonus of no less than thirty percent (30%) of Executive's base salary based
upon Executive's achievement of performance targets and based upon the overall
performance of the Company, all as determined by the Compensation Committee of
the Board of Directors. All such payments are subject to ordinary withholdings
for tax and social security purposes.
(b) VACATION. Executive will accrue paid vacation time pursuant
to the Company's general vacation policy, which will not be less than the
vacation policy in effect on the date of this Agreement.
(c) BENEFITS. Executive will be entitled to participate in the
Company's standard Executive benefit programs, including medical and disability
programs, and in such additional
1.
<PAGE> 2
benefit programs, as may in the future be made available by the Company to the
extent that he is eligible under the general provisions thereof. Benefit
programs made available to Executive in the future will be no less favorable
benefit programs made available to Executive in effect on the date of this
Agreement.
(d) MANAGEMENT INCENTIVE PLAN. Executive is currently allocated
23 Units out of the total 100 Units available to management of the Company in
the Management Incentive Plan in effect as of the date hereof (the "Plan").
Executive shall be compensated for such Units in accordance with the terms of
the Plan.
3. TERMINATION.
(a) MUTUAL AGREEMENT. This Agreement may be terminated at any
time by the mutual written agreement of the Company and Executive.
(b) TERMINATION OTHER THAN FOR CAUSE OR CONSTRUCTIVE TERMINATION.
If Executive is terminated by the Company for any reason other than for Cause
(as defined in Section 5 below) or is Constructively Terminated by the Company
(as defined in Section 5 below), and in exchange for Executive signing a waiver
of claims against the Company as of the termination date in a form acceptable
to the Company, Executive will receive the following for twelve (12) full
calendar months following such termination:
(i) The Company shall pay to Executive twenty-six (26)
times his last base bi-weekly salary prior to termination, net of any necessary
taxes or deductions, payable in a lump sum or with the Company's normal payroll
timetable, at the Company's option;
(ii) The Company shall pay Executive all accrued
compensation, including payment for accrued but unused vacation days,
unreimbursed expenses to the date of termination as provided herein, as well as
any expenses incurred by the Executive with the Company's prior written
approval, such as expenses incurred in returning Company records);
(iii) Pursuant to the provisions of COBRA, the Company
shall provide Executive and his or her family with all group health benefits
which the Company provided immediately prior to such termination; provided,
however, that such benefits will be terminated if Executive subsequently joins
or becomes employed by another organization which provides Executive and his
family with group health benefits comparable to those provided by the Company
under this paragraph. The Company shall be responsible for paying all COBRA
premiums for no more than twelve (12) months;
(iv) Twelve (12) months of vesting for all stock options
held by Executive shall automatically be accelerated to the date of termination
and all vested options may be exercised by Executive according to their terms;
and
(v) If Executive is terminated, other than for Cause, or
is Constructively Terminated within one hundred twenty (120) days of the day
that the Company enters into a
2.
<PAGE> 3
binding agreement for the Sale of the Company, which sale is consummated
pursuant to the terms of such binding agreement, then Executive shall be
entitled to receive the full amount of consideration for his Units in the Plan.
The payment under the Plan will be payable at the same time that any other
employees of the Company receive the consideration for their units under the
Plan.
(c) FOR CAUSE OR MUTUAL AGREEMENT. The Company may terminate this
Agreement at any time for Cause effective immediately upon written notice to
Executive (except termination for Cause which requires advance notice as set
forth in the definition of Cause set forth in Section 5 below). If the Company
terminates this Agreement for Cause, or if this Agreement is terminated by
Executive and the Company by mutual agreement, Executive shall not be entitled
to any further payments except (i) unreimbursed expenses to the date of
termination and (ii) any accrued compensation, including accrued benefits,
excluding any compensation under the Plan. Executive shall forfeit his units
under the Plan and accelerated stock vesting pursuant to Section 3(b)(iv) if
this Agreement is terminated pursuant to this Section.
(d) DISABILITY OR DEATH. The Company may terminate this Agreement
upon the death or disability of Executive. For purposes of this Agreement,
Executive shall be considered disabled if he is unable to perform his duties
under this Agreement as a result of injury, illness or other disability for a
period of one hundred eighty (180) consecutive days, or one hundred eighty
(180) days in a three hundred sixty-five (365) day period, and shall not have
returned to the performance of duties within thirty (30) days after receiving
written notice of termination. If the Company terminates this Agreement upon
the death or disability of Executive:
(i) The Company shall pay Executive or his estate a lump
sum equal to all accrued compensation, including accrued benefits, and
unreimbursed expenses to the date of termination as provided herein;
(ii) If the Company terminates this Agreement upon the
death or disability of Executive within one hundred twenty (120) days of the
day that the Company enters into a binding agreement for the Sale of the
Company, which sale is consummated pursuant to the terms of such binding
agreement, then Executive, or Executive's estate, shall be entitled to receive
the full amount of consideration for his units in the Plan. The payment under
the Plan will be payable at the same time that any other employees of the
Company receive the consideration for their units under the Plan.
(e) DATE OF TERMINATION; PAYMENT. In each of the foregoing cases,
except those provisions where termination is automatic upon notice to
Executive, termination is the date of actual termination, not the date notice
of termination is given. All payments for unpaid monthly compensation shall be
made based upon the normal payroll processing schedule and all payments for
reimbursement shall be made within forty-five (45) days after the end of the
month following the month in which termination occurred.
4. MISCELLANEOUS.
3.
<PAGE> 4
(a) ASSIGNMENT. This Agreement may not be assigned by any party
hereto; provided, however, that the Company may assign this Agreement in
connection with a Sale of the Company so long as the assignee assumes all of
the Company's obligations thereunder.
(b) NOTICES. Any notices provided hereunder must be in writing
and shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class mail
to the recipient at the address indicated below:
To the Company:
BioStar, Inc.
6655 Lookout Road
Boulder, Colorado 80301
Attention: President
Phone: (303) 530-3888
Fax: (303) 530-6641
To Executive:
Lyndal K. Hesterberg
2930 Island Drive
Boulder, Colorado 80301
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(c) WAIVER. A waiver by the Company or Executive of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
(d) GOVERNING LAW. This Agreement shall be deemed a contract made
under, and for all purposes shall be construed in accordance with, the laws of
the State of Colorado.
(e) SEVERABILITY. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions or portions of this Agreement shall be
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
(f) ENTIRE AGREEMENT. This Agreement and the Plan contain the
entire agreement of the parties with respect to the subject matter hereof.
This Agreement may be changed only by an agreement in writing signed by the
parties.
(g) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
4.
<PAGE> 5
5. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
(a) "CAUSE" as used herein shall mean: (i) dishonesty which is
not the result of an inadvertent or innocent mistake of Executive with respect
to the Company or any of its subsidiaries; (ii) willful misfeasance or
nonfeasance of duty by Executive that materially injures the reputation,
business or business relationships of the Company or any of its subsidiaries or
any of their respective officers, directors or Executives; (iii) any conduct
which would be sufficient to criminally charge Executive with the commission of
a crime involving moral turpitude or a crime other than a vehicle offense which
could reflect in some material fashion unfavorably upon the business or
business relationships of the Company or any of its subsidiaries or any of
their respective officers, directors or Executives; (iv) willful or prolonged
absence from work by Executive (other than by reason of disability due to
physical or mental illness) or failure, neglect or refusal by Executive to
perform his duties and responsibilities without the same being corrected upon
thirty (30) days prior written notice; or (v) if Executive materially violates
any term of this Agreement or the Company's employment policies and procedures
(including but not limited to the Company's policies with respect to sexual
harassment and discrimination) and such action or failure is not remedied or
reasonable steps to effect such remedy are not commenced within thirty (30)
days of written notice.
(b) "CONSTRUCTIVE TERMINATION" as used herein shall mean: (i) if
the Company materially violates any term of this Agreement, or (ii) if, after a
Sale of the Company (as defined below): (A) the Company moves the Executive's
primary work site more than 35 miles from the Company's location in Boulder,
Colorado; or (B) if the Company unilaterally makes significant detrimental
changes in which the Executive's job responsibilities or title is not
comparable with Executive's current job responsibilities or title, and such
action or failure is not remedied after twenty (20) days written notice, and in
the case of either (A) and (B), Executive elects to terminate this Agreement
immediately upon written notice to the Company.
(c) "SALE OF THE COMPANY" as used herein shall have the same
meaning as set forth in the Plan.
5.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BIOSTAR, INC. EXECUTIVE
By: /s/ Teresa W. Ayers /s/ Lyndal K. Hesterberg
---------------------------------- -----------------------------------
Teresa W. Ayers Lyndal K. Hesterberg
President/Chief Executive Officer
6.
<PAGE> 1
BIOSTAR, INC.
CONSULTING SERVICE AGREEMENT
THIS CONSULTING SERVICE AGREEMENT ("Agreement") is made and entered
into as of October 1, 1997 ("Effective Date") between BioStar, Inc. (the
"Company") and Alexander E. Barkas, Ph.D. (the "Consultant").
1. BACKGROUND. The Company desires to engage the Consultant to
provide to the Company the services specified in the attached Appendix A (the
"Services"), and the Consultant desires to accept such engagement on the terms
and conditions stated in this Agreement. Therefore, in consideration of the
mutual covenants and agreements contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
2. ENGAGEMENT. The Company hereby engages the Consultant to
provide the Services and the Consultant hereby accepts such engagement on the
terms and conditions set forth in this Agreement. During this engagement, the
Consultant shall devote adequate time and resources to complete the Services.
Consultant will be located primarily in Palo Alto, California and the Company
recognizes that he will be required to travel in order to complete his
assignments and at times he may work at various locations.
3. TERM. This Agreement shall commence on the Effective Date and
remain in effect until the earlier of (a) December 31, 1998, or (b) the
termination of this Agreement in accordance with the termination provisions in
Section 6 below.
4. COMPENSATION.
a. FEES. For the Services, the Consultant shall be paid
a consulting fee of $1,500.00 per each full business day of services rendered
by Consultant pursuant to this Agreement, with payment being rendered as part
of the transaction costs associated with any "Sale of the Company" (as defined
below). In the event of a Sale of the Company, Consultant will be paid
$50,000.00 from the net proceeds from such transaction as part of and pursuant
to the terms of the Company's Management Incentive Plan, assuming he completes
the full term of this Agreement or helps sell the Company to the acquiring
entity. The Company will not make any deductions from any amounts payable to
Consultant for taxes or other required withholdings. Taxes or other required
withholdings shall be the sole responsibility of Consultant.
b. EXPENSES. Consultant will be reimbursed for all
out-of-pocket expenses such as travel, lodging, and the like, which are
incurred at the request of and approved by the Company. All other expenses are
the responsibility of the Consultant.
A "Sale of the Company" means one or a series of related transactions resulting
in (i) the consummation of a sale, transfer or other disposition of all or
substantially all of the assets of the
1.
<PAGE> 2
Company (determined on a consolidated basis) after the date of this Agreement
to any person other than the Company or any of its direct or indirect
subsidiaries, (ii) any transfer of voting power with respect to the Company's
capital stock after the date of this Agreement (whether effected by agreement
among stockholders, irrevocable proxy, voting trust, issuance or transfer of
capital stock, merger, consolidation or other reorganization or means,
including a reorganization under bankruptcy or insolvency laws) if, as a result
of such transfer, the stockholders of the Company as of the date of this
Agreement no longer hold voting power sufficient to elect a majority of the
Board (or such surviving or resulting corporation) (including, but not limited
to, any existing stockholder acquiring over fifty (50%) of the voting power of
the Company), or (iii) the adoption by the Company of a plan of liquidation or
dissolution (other than pursuant to a bankruptcy or insolvency) after the date
of this Agreement.
5. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
a. OBLIGATION. The Consultant will hold the Company's
Confidential Information, as defined below, in the strictest confidence and
will not disclose or use the Confidential Information except as permitted by
this Agreement in connection with the Services, unless expressly authorized to
act otherwise in writing by an officer of the Company. The Consultant's
obligations under this Section shall survive any termination of this Agreement.
b. "CONFIDENTIAL INFORMATION." "Confidential
Information" means trade secrets, confidential information, data or any other
proprietary information of the Company. By way of illustration, but not
limitation, "Confidential Information" includes (a) information relating to the
Company's technology, including inventions, ideas, processes, formulas, data,
know-how, designs and techniques; and (b) information regarding plans for
research, development, new products, marketing and selling, business plans,
budgets and unpublished financial statements, licenses, prices and costs,
suppliers and customers and the skills and compensation of the Company's
employees. However, "Confidential Information" does not include information
that is:
(i) already known to the Consultant at the time
of disclosure;
(ii) publicly available or becomes publicly
available without a breach by the Consultant;
(iii) independently developed by the Consultant; or
(iv) rightfully first received by the Consultant
from a third party other than the Company.
c. THIRD-PARTY CONFIDENTIAL INFORMATION. The Consultant
understands that the Company has received and in the future will receive from
third parties information that is confidential or proprietary ("Third-Party
Information") subject to a duty on the part of the Company to maintain the
confidentiality of such information and to use it only for certain limited
purposes. During the term of this Agreement and thereafter, Consultant will
hold Third-Party
2.
<PAGE> 3
Information in the strictest confidence and will not disclose or use
Third-Party Information except as permitted by the agreement between the
Company and such third party, unless expressly authorized to act otherwise by
an officer of the Company in writing (other than an officer who is also a
principal of the Consultant).
6. RECOGNITION OF THE COMPANY'S RIGHTS; ASSIGNMENT OF PROPRIETARY RIGHTS.
a. PROPRIETARY INFORMATION. All Proprietary Information
shall be the sole property of the Company and its assigns, and the Company and
its assigns shall be the sole owner of all patents, copyrights and other rights
in connection with such Proprietary Information.
b. Consultant hereby assigns to the Company Consultant's
entire right, title and interest in and to any and all Inventions (and all
Proprietary Rights with respect thereto) whether or not patentable or
registrable under patent, copyright or similar statutes, made or conceived of
or reduced to practice or learned by Consultant, either alone or jointly with
others, during the term of this Agreement in the course of or as a result of
performing advisory services hereunder. Consultant agrees that all such
inventions are the sole property of the Company. Consultant understands that,
to the extent this Agreement shall be construed in accordance with the laws of
any state which precludes a requirement in an agreement to assign certain
classes of inventions made by an individual acting as a Consultant, this
paragraph 6(b) shall be interpreted not to apply to any invention which a court
rules and/or the Company agrees falls within such classes.
7. TERMINATION
a. FOR CONVENIENCE. Either party may terminate this
Agreement at any time for any or for no reason by giving thirty (30) days
written notice of termination to the other party.
b. FOR CAUSE. The Company may immediately terminate the
Consultant's engagement for Cause upon written notice of termination to the
Consultant, with the particular Cause being specified in such notice. "Cause"
means (a) the Consultant's failure or omission which has an adverse effect on
the Company; (b) the Consultant's act or acts amounting to gross negligence to
the detriment of the Company; (c) the Consultant's fraud or embezzlement of
funds or property; or (d) the Consultant's failure to observe or perform any
covenant, condition or provision of this Agreement; provided, however, where
such failure is capable of remedy, such failure is not remedied within fifteen
(15) business days after notice of such failure is given to the Consultant by
the Company.
8. INDEPENDENT CONTRACTOR. The Consultant is hereby engaged as
an independent contractor and not as an employee of the Company. In addition,
the Consultant is providing the Services under this Agreement solely at his own
direction and under his own supervision. Nothing herein shall be construed as
creating an employer/employee relationship between the Company and the
Consultant (including the Consultant's employees) or placing the parties in a
partnership or joint venture relationship. Consultant will not be eligible for
any employee benefits, cash bonuses or other commissions.
3.
<PAGE> 4
9. GENERAL.
a. Notices. Any notice required or permitted to be
given to one party by the other party pursuant to this Agreement shall be in
writing and shall be sent by machine-confirmed facsimile or personally
delivered or sent by United States mail, certified or registered, return
receipt requested, first class postage and charges prepaid, addressed to the
parties as set forth below, or at such other address as shall be designated in
writing as specified above by either party. Notices sent by facsimile or
delivered in person shall be effective on the date of delivery. Notices sent
by United States mail shall be effective on the third business day following
its posting.
THE CONSULTANT:
Alexander E. Barkas, Ph.D.
102 University Avenue, Suite C
Palo Alto, California 94301
THE COMPANY:
BioStar, Inc.
6655 Lookout Road
Boulder, CO 80301
(303) 530-3888
Attn: President/Chief Executive Officer
b. ASSIGNMENT OF RIGHTS AND DELEGATION OF DUTIES. All
rights and duties of the Company under this Agreement shall extend to its
successors and assigns. The Consultant may not delegate or subcontract any of
the Services to be provided under this Agreement, except with the Company's
written permission.
c. SEVERABLE PROVISIONS. The provisions of this
Agreement are severable and if any one or more provisions may be determined to
be illegal or otherwise unenforceable, in whole or in part, the remaining
provisions, and any partially enforceable provision to the extent enforceable,
shall nevertheless be binding and enforceable.
d. WAIVER. The waiver by one party of a breach of any
provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach of the same or any other
provision by the other party.
e. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement of the parties with respect to its subject matter, and may not
be changed orally, but only by an agreement in writing signed by the party
against whom the enforcement of any waiver, change, modification, extension or
discharge is sought.
f. GOVERNING LAW. This Agreement is governed in
accordance with the laws (other than choice-of-laws principles) of the State
of Colorado.
4.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the Effective Date.
CONSULTANT
/s/ Alexander E. Barkas
--------------------------------------------
Alexander E. Barkas
BIOSTAR, INC.
/s/ Teresa W. Ayers
---------------------------------------------
Teresa W. Ayers
President and Chief Executive Officer
5.
<PAGE> 6
APPENDIX A
1. CONSULTING SERVICES:
A) Assist the Company in identifying and evaluating alternatives
for creating shareholder value.
B) Advise on strategic alternatives and opportunities.
C) Consult directly with Teresa W. Ayers on operations issues as
requested.
D) Represent BioStar, Inc., when requested, in negotiations with
other companies (buying/selling/product development).
INITIALS: Consultant: /s/ AEB BioStar, Inc.: /s/ TWA
--------- ---------
6.
<PAGE> 1
AMENDED AND RESTATED
CONSULTING SERVICES AGREEMENT
THIS AMENDED AND RESTATED CONSULTING SERVICES AGREEMENT is made as of
this 31st day of August, 1997, between BIOSTAR, INC., a Delaware corporation
with principal offices at 6655 Lookout Road, Boulder, Colorado 80301
("BIOSTAR"), and THOMAS A. BOLOGNA ("CONSULTANT"), with principal offices at
1221 First Ave., Apt. 1811, Seattle, WA 98101.
Whereas BIOSTAR and CONSULTANT entered into a Consulting Services
Agreement dated as of May 1, 1997 (the "Prior Agreement"); and
Whereas BIOSTAR and CONSULTANT desire to amend the Prior Agreement as
further set forth herein.
Now, therefore, in consideration of the covenants set forth below
CONSULTANT and BIOSTAR agree as follows:
1. BIOSTAR hereby engages the CONSULTANT to perform and furnish
certain services as described in the attached EXHIBIT A hereto.
2. As full consideration for the services performed, the
CONSULTANT:
(a) Will be paid $1,500.00 per day for each full day of
services rendered pursuant to this Agreement with payment being rendered
monthly.
(b) In addition, the CONSULTANT will be reimbursed for
all out-of-pocket expenses such as travel, lodging, and the like, which are
incurred at the request of and approved by BIOSTAR.
(c) In the event of the Sale of the Company, CONSULTANT
will be paid 0.25% of the net proceeds from the transaction, with a minimum
amount of $50,000.00, assuming he completes the full term of this Agreement or
helped sell BIOSTAR to the acquiring entity. A "Sale of the Company" means one
or a series of related transactions resulting in (i) the
1.
<PAGE> 2
consummation of a sale, transfer or other disposition of all or substantially
all of the assets of the Company (determined on a consolidated basis) after the
date of this Agreement to any person other than the Company or any of its
direct or indirect subsidiaries, (ii) any transfer of voting power with respect
to the Company's capital stock after the date of this Agreement (whether
effected by agreement among stockholders, irrevocable proxy, voting trust,
issuance or transfer of capital stock, merger, consolidation or other
reorganization or means, including a reorganization under bankruptcy or
insolvency laws) if, as a result of such transfer, the stockholders of the
Company as of the date of this Agreement no longer hold voting power sufficient
to elect a majority of the Board (or such surviving or resulting corporation)
(including, but not limited to, any existing stockholder acquiring over fifty
(50%) of the voting power of the Company), or (iii) the adoption by the Company
of a plan of liquidation or dissolution (other than pursuant to a bankruptcy or
insolvency) after the date of this Agreement.
(d) The Company granted Mr. Bologna an option to purchase
53,336 shares of Common Stock priced at $0.23 per share, of which 26,668 vested
under the terms of the Prior Agreement. CONSULTANT and BIOSTAR agree to
terminate the option with regard to the remaining unvested shares.
All payments under this Agreement shall be made to Mr. Bologna, with
mailing address of 1221 First Ave., Apt. 1811, Seattle, WA 98101.
3. The parties warrant and represent that they have the right to
enter into this Agreement. The CONSULTANT further warrants and represents that
the terms of this Agreement are not inconsistent with other contractual
obligations, expressed or implied, which he may have.
4. In view of BIOSTAR'S proprietary rights and interests
concerning its facilities and technology, the CONSULTANT agrees that during the
term of any subsequent extension of this Agreement and for a period of five (5)
years thereafter, the CONSULTANT shall hold in confidence any information
concerning BIOSTAR or the field of diagnostic products which is disclosed to
the CONSULTANT by BIOSTAR or that results from services under this Agreement.
Such information includes, but is not limited to, confidential or proprietary
information,
2.
<PAGE> 3
materials, know-how and other data, both technical and nontechnical. The
CONSULTANT shall not disclose such information to any third party or use such
information for any purpose, except as provided herein, without the prior
written approval by BIOSTAR.
The CONSULTANT shall have no obligations with respect to any portion
of such information which:
(A) is, or later becomes, generally available to the
public by use, publication or the like, through no fault of the CONSULTANT; or
(B) is obtained from a third party who had the legal
right to disclose the same to the CONSULTANT; or
(C) the CONSULTANT already possesses, as evidenced by his
written records, predating receipt thereof from BIOSTAR.
The CONSULTANT further agrees that during the term of this Agreement,
he will not disclose to BIOSTAR any information which in confidential or
proprietary to himself or any third party.
5. The CONSULTANT agrees that any information, including but not
limited to discoveries, inventions, innovations, suggestions, know-how, ideas
and reports made by the CONSULTANT in connection with the services performed by
CONSULTANT under this Agreement shall become the sole property of BIOSTAR and
shall be disclosed to BIOSTAR. The CONSULTANT will treat such new developments
as information which is subject to the confidentiality provisions of paragraph
four (4) herein. BIOSTAR shall have the unrestricted right to use all new
developments under this Agreement.
6. It is understood that no patent right or license is hereby
granted to either party by this Agreement and that the disclosure of
proprietary information shall not result in any obligation to grant either
party any rights in and to the subject matter of the other party.
3.
<PAGE> 4
7. This Agreement shall be effective through December 31, 1998,
and may be extended upon mutually written agreement of the parties. However,
either party may terminate this Agreement upon thirty (30) days written notice.
Any rights or obligations set forth herein, which are accrued prior to the
termination of this Agreement, shall survive termination of this Agreement.
Payments under paragraph 2A will be paid on a pro rata basis if this Agreement
is terminated prior to December 31, 1998.
8. The relationship created by this Agreement shall be that of
independent contractor without the authority to bind or act as agent for
BIOSTAR or its employees for any purpose.
9. Neither party hereto will use the name of the other party in
publicity or advertising involving this Agreement without the prior written
approval of the other party hereto.
10. This Agreement shall be governed by the laws of the State of
Colorado, U.S.A., and the parties hereby submit to the jurisdiction of the
Colorado courts, both state and federal.
11. No modification to this Agreement shall be effective unless
made in writing and signed by a duly authorized representative of each party.
12. This Agreement constitutes the entire Agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings between the parties (whether written or oral)
relating to said subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates
set forth below.
BIOSTAR, INC. CONSULTANT
By: /s/ Teresa W. Ayers By: /s/ Thomas A. Bologna
----------------------------------------- ------------------------------
Name: Teresa W. Ayers Name: Thomas A. Bologna
--------------------------------------- ----------------------------
Title: President/Chief Executive Officer Date: 12/18/97
-------------------------------------- ----------------------------
Date: 11/26/97
---------------------------------------
4.
<PAGE> 5
EXHIBIT A
(a) Assist the Company in identifying and evaluating alternatives for
creating shareholder value.
(b) Advise on strategic alternatives and opportunities.
(c) Consult directly with Teresa W. Ayers on operations issues as
requested.
(d) Represent BioStar, Inc., when requested, in negotiations with other
companies (buying/selling/product development).
5.
<PAGE> 1
BIOSTAR, INC.
1995 EQUITY INCENTIVE PLAN
ADOPTED APRIL 20, 1995
AMENDED DECEMBER 6, 1996
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which
selected Employees and Directors of and Consultants to the Company, and its
Affiliates, may be given an opportunity to benefit from increases in value of
the stock of the Company through the granting of (i) Incentive Stock Options,
(ii) Nonstatutory Stock Options, and (iii) stock bonuses, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees or Directors of or Consultants to the
Company or its Affiliates, to secure and retain the services of new Employees,
Directors and Consultants, and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the
Plan shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be either (i) options granted pursuant to Section 6 hereof,
including Incentive Stock Options and Nonstatutory Stock Options, or (ii) stock
bonuses granted pursuant to Section 7 hereof. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and in such form as issued pursuant to Section 6, and a separate
certificate or certificates will be issued for shares purchased on exercise of
each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
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(e) "COMPANY" means BioStar, Inc., a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged
by the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT"
means the employment or relationship as a Director or Consultant is not
interrupted or terminated. The Board, in its sole discretion, may determine
whether Continuous Status as an Employee, Director or Consultant shall be
considered interrupted in the case of: (i) any leave of absence approved by
the Board, including sick leave, military leave, or any other personal leave;
or (ii) transfers between locations of the Company or between the Company,
Affiliates or their successors.
(h) "COVERED EMPLOYEE" means the Chief Executive Officer and the
four (4) other highest compensated officers of the Company.
(i) "DIRECTOR" means a member of the Board.
(j) "DISINTERESTED PERSON" means a Director who either (i) was not
during the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or any other plan of the Company
or any of its Affiliates entitling the participants therein to acquire equity
securities of the Company or any of its Affiliates except as permitted by Rule
16b-3(c)(2)(i); or (ii) is otherwise considered to be a "disinterested person"
in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules,
regulations or interpretations of the Securities and Exchange Commission.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate. Neither service as a Director nor
payment of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the
common stock of the Company determined as follows and in each case in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations:
(1) If the common stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ")
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System, the Fair Market Value of a share of common stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in common stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(2) If the common stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of common stock shall be the mean between the bid and
asked prices for the common stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(3) In the absence of an established market for the
common stock, the Fair Market Value shall be determined in good faith by the
Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(s) "OPTIONEE" means an Employee, Director or Consultant who holds
an outstanding Option.
(t) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (as defined in
the Treasury regulations promulgated under Section 162(m) of the Code), is not
a former employee of the Company or an affiliated corporation receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an affiliated corporation
at any time, and is not currently receiving compensation for
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personal services in any capacity other than as a Director, or (ii) is
otherwise considered an "outside director" for purposes of Section 162(m) of
the Code.
(u) "PLAN" means this BioStar, Inc. 1995 Equity Incentive Plan.
(v) "RULE 16B-3" MEANS Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(w) "STOCK AWARD" means any right granted under the Plan,
including any Option and any stock bonus.
(x) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until
the Board delegates administration to a Committee, as provided in subsection
3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; whether a Stock Award will be an Incentive Stock
Option, a Nonstatutory Stock Option, a stock bonus, or a combination of the
foregoing; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; and the number of shares with respect
to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in
Section 13.
(c) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee shall be Disinterested Persons and may also be,
in the discretion of the Board, Outside Directors. If administration is
delegated to a Committee, the Committee
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shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board (and references in this Plan to the Board
shall thereafter be to the Committee), subject, however, to such resolutions,
not inconsistent with the provisions of the Plan, as may be adopted from time
to time by the Board. The Board may abolish the Committee at any time and
revest in the Board the administration of the Plan. Additionally, prior to the
date of the first registration of an equity security of the Company under
Section 12 of the Exchange Act, and notwithstanding anything to the contrary
contained herein, the Board may delegate administration of the Plan to any
person or persons and the term "Committee" shall apply to any person or persons
to whom such authority has been delegated. Notwithstanding anything in this
Section 3 to the contrary, the Board or the Committee may delegate to a
committee of one or more members of the Board the authority to grant Options to
eligible persons who (1) are not then subject to Section 16 of the Exchange Act
and/or (2) are either (i) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting from such
Option, or (ii) not persons with respect to whom the Company wishes to comply
with Section 162(m) of the Code.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or the Committee expressly declares that
such requirement shall not apply. Any Disinterested Person shall otherwise
comply with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12 relating to
adjustments upon changes in stock, the stock that may be sold or awarded
pursuant to Stock Awards shall not exceed in the aggregate six million two
hundred fifty thousand (6,250,000) shares of the Company's common stock. If
any Stock Award shall for any reason expire or otherwise terminate, in whole or
in part, without having been exercised in full, the stock not purchased under
such Stock Award shall revert to and again become available for issuance under
the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants. Stock bonuses may be granted only to Employees or Consultants.
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(b) A Director shall in no event be eligible for the benefits of
the Plan unless at the time discretion is exercised in the selection of the
Director as a person to whom Options may be granted, or in the determination of
the number of shares which may be covered by Options granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies with the requirements of Rule 16b-3. The Board shall
otherwise comply with the requirements of Rule 16b-3. This subsection 5(b)
shall not apply (i) prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act, or (ii) if the
Board or Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Option if, at
the time of grant, such person owns (or is deemed to own pursuant to Section
424(d) of the Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any of its
Affiliates unless the exercise price of such Option is at least one hundred ten
percent (110%) of the Fair Market Value of such stock at the date of grant and
the Option is not exercisable after the expiration of five (5) years from the
date of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option
shall be not less than one hundred percent (100%) of the Fair Market Value of
the stock subject to the Option on the date the Option is granted. The
exercise price of each Nonstatutory Stock Option shall be not less than
eighty-five percent (85%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted.
(c) CONSIDERATION. The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, either at the time of the grant
or exercise of the Option, (a) by delivery to the Company of other common stock
of the Company, (b) according to a deferred payment or other arrangement (which
may include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the Option is
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granted or to whom the Option is transferred pursuant to subsection 6(d), or
(c) in any other form of legal consideration that may be acceptable to the
Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions
of the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order satisfying the requirements
of Rule 16b-3 and the rules thereunder (a "QDRO"), and shall be exercisable
during the lifetime of the person to whom the Option is granted only by such
person or any transferee pursuant to a QDRO. The person to whom the Option is
granted may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. The Option may be subject to such other terms and conditions
on the time or times when it may be exercised (which may be based on
performance or other criteria) as the Board may deem appropriate. The vesting
provisions of individual Options may vary but in each case will provide for
vesting of at least twenty percent (20%) per year of the total number of shares
subject to the Option. The provisions of this subsection 6(e) are subject to
any Option provisions governing the minimum number of shares as to which an
Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that
the Optionee was entitled to exercise it at the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months after the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant (or such longer or shorter period, which in no
event shall be less than thirty (30) days, specified in the Option Agreement),
or (ii) the
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expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period, which in no event shall be less than six (6) months, specified
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option after the termination of,
the Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised (to the extent the Optionee was entitled to exercise
the Option at the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date eighteen (18) months following the date of death (or such longer or
shorter period, which in no event shall be less than six (6) months, specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee,
Director or Consultant to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased shall be subject to a repurchase right in favor of
the Company, with the repurchase price to be equal to the original purchase
price of the stock, or to any other restriction the Board determines to be
appropriate; provided, however, that (i) the right to repurchase at the
original purchase
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price shall lapse at a minimum rate of twenty percent (20%) per year over five
(5) years from the date the Option was granted, and (ii) such right shall be
exercisable only within (a) the ninety (90) day period following the
termination of employment or the relationship as a Director or Consultant, or
(b) such longer period as may be agreed to by the Company and the Optionee (for
example, for purposes of satisfying the requirements of Section 1202(c)(3) of
the Code (regarding "qualified small business stock")), and (iii) such right
shall be exercisable only for cash or cancellation of purchase money
indebtedness for the shares. Should the right of repurchase be assigned by the
Company, the assignee shall pay the Company cash equal to the difference
between the original purchase price and the stock's Fair Market Value if the
original purchase price is less than the stock's Fair Market Value.
7. TERMS OF STOCK BONUSES.
Each stock bonus agreement shall be in such form and shall contain
such terms and conditions as the Board or the Committee shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to
time, and the terms and conditions of separate agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions as appropriate:
(a) CONSIDERATION. Eligible participants in the Plan shall be
awarded stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit. No payment,
whether in cash, by check, or otherwise, shall be required as consideration for
a stock bonus.
(b) TRANSFERABILITY. No rights to acquire a stock bonus shall be
transferable except by will or the laws of descent and distribution.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board or the Committee shall have the authority to effect, at any
time and from time to time (i) the repricing of any outstanding Options under
the Plan and/or (ii) with the consent of the affected holders of Options, the
cancellation of any outstanding Options and the grant in substitution therefor
of new Options under the Plan covering the same or different numbers of shares
of stock, but having an exercise price per share not less than eighty-five
percent (85%) of the Fair Market Value (one hundred percent (100%) of the Fair
Market Value in the case of an Incentive Stock Option or, in the case of a ten
percent (10%) stockholder (as defined in subsection 5(c)), not less than one
hundred and ten percent (110%) of the Fair Market Value) per share of stock on
the new grant date.
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9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the Stock Awards;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act of 1933, as amended (the "Securities Act")
either the Plan, any Stock Award or any stock issued or issuable pursuant to
any such Stock Award. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Stock Awards unless and
until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
11. MISCELLANEOUS.
(a) Neither an Employee, Director, Consultant nor any person to
whom a Stock Award is transferred under subsection 6(d) or 7(b) shall be deemed
to be the holder of, or to have any of the rights of a holder with respect to,
any shares subject to such Stock Award unless and until such person has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(b) Throughout the term of any Stock Award, the Company shall
deliver to the holder of such Stock Award, not later than one hundred twenty
(120) days after the close of each of the Company's fiscal years during the
term of such Stock Award, a balance sheet and an income statement. This
section shall not apply when issuance is limited to key employees whose duties
in connection with the Company assure them access to equivalent information.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant) or
shall affect the right of the Company or any Affiliate to terminate the
employment or relationship as a Director or Consultant of any Employee,
Director, Consultant or other holder of Stock Awards with or without cause.
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(d) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by any Optionee during
any calendar year under all plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred under subsection
6(d) or 7(b), as a condition of exercising or acquiring stock under any Stock
Award, (1) to give written assurances satisfactory to the Company as to such
person's preexisting personal or business relationship with the Company or the
Company's officers, directors, or controlling persons, and/or such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of acquiring stock under the Stock Award;
(2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the Stock Award for such person's own
account and not with any present intention of selling or otherwise distributing
the stock; and (3) to give written assurances as to any additional matters that
counsel for the Company determines to be appropriate in order to establish
compliance with applicable securities laws. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if (i)
the issuance of the shares upon the acquisition of stock under the Stock Award
has been registered under a then currently effective registration statement
under the Securities Act, or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award
Agreement, the person to whom a Stock Award is granted may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under such Stock Award by any of the following means or by
a combination of such means: (1) tendering a cash payment; (2) authorizing the
Company to withhold shares from the shares of the common stock otherwise
issuable to the participant as a result of the acquisition of stock under the
Stock Award; or (3) delivering to the Company owned and unencumbered shares of
the common stock of the Company.
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12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Stock Award (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan will be appropriately adjusted
in the class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a), and the outstanding Stock Awards will be appropriately
adjusted in the class(es) and number of shares and price per share of stock
subject to such outstanding Stock Awards.
(b) In the event of: (1) a merger or consolidation in which the
Company is not the surviving corporation or (2) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise then to the extent permitted by applicable law: (i) any surviving
corporation shall assume any Stock Awards outstanding under the Plan or shall
substitute similar Stock Awards for those outstanding under the Plan, or (ii)
such Stock Awards shall continue in full force and effect. In the event any
surviving corporation refuses to assume or continue such Stock Awards, or to
substitute similar options for those outstanding under the Plan, then such
Stock Awards shall be terminated if not exercised prior to such event. In the
event of a dissolution or liquidation of the Company, any Stock Awards
outstanding under the Plan shall terminate if not exercised prior to such
event.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 12 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(1) Increase the number of shares reserved for Stock
Awards under the Plan;
(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of
the Code); or
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
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(b) The Board may in its sole discretion submit any other
amendment to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations promulgated thereunder regarding the exclusion
of performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board may amend the terms and conditions of any Stock
Award; provided, however, that such amendments shall not be inconsistent with
the terms of the Plan, and provided further, the rights and obligations under a
Stock Award shall not be impaired by any such amendment unless (i) the Company
requests the consent of the person to whom the Stock Award was granted, and
(ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on April 19, 2005, which
shall be within ten (10) years from the date the Plan is adopted by the Board
or approved by the stockholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be altered or impaired by suspension or termination
of the Plan, except with the consent of the person to whom the Stock Award was
granted.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Stock Awards granted under the Plan shall be exercised unless and until the
Plan has been approved by the stockholders of the Company, which approval shall
be within twelve (12) months
13.
<PAGE> 14
before or after the date the Plan is adopted by the Board, and, if required, an
appropriate permit has been issued by the Commissioner of Corporations of the
State of California.
14.
<PAGE> 1
CONFIDENTIAL
EXECUTIVE COMPENSATION AND BENEFITS
CONTINUATION AGREEMENT
THIS EXECUTIVE COMPENSATION AND BENEFITS CONTINUATION AGREEMENT (the
"AGREEMENT") is entered into this 14th day of October, 1997 (the "Effective
Date") between KENNETH R. LYNN ("EXECUTIVE") and CORTECH, INC., a Delaware
corporation (the "COMPANY"). This Agreement is intended to provide Executive
with the compensation and benefits described herein upon the occurrence of
specified events as a means of reducing the inevitable distraction of Executive
created by a pending or threatened Change of Control and of encouraging
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control.
Certain capitalized terms used in this Agreement are defined in
Article VII.
The Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT BY THE COMPANY
1.1 Executive is currently employed as the President and Chief
Executive Officer of the Company.
1.2 This Agreement shall remain in full force and effect so long
as Executive is employed by the Company; provided, however, that the rights and
obligations of the parties hereto contained in Articles III through VIII shall
survive any such termination.
1.3 The Company and Executive each agree and acknowledge that
Executive is employed by the Company as an "at-will" employee and that either
Executive or the Company has the right at any time to terminate Executive's
employment with the Company, with or without cause or advance notice, for any
reason or for no reason. The Company and Executive wish to set forth the
compensation and benefits which Executive shall be entitled to receive in the
event that Executive's employment with the Company terminates under the
circumstances described in Article II of this Agreement.
1.4 The duties and obligations of the Company to Executive under
this Agreement shall be in consideration for Executive's past services to the
Company, Executive's continued employment with the Company and Executive's
execution of the waiver and release referred to in Section 4.2.
1.
<PAGE> 2
ARTICLE II
TERMINATION EVENTS
2.1 TERMINATION PRIOR TO CHANGE OF CONTROL.
(a) Prior to the occurrence of a Change of Control, (i)
if Executive's employment is involuntarily terminated at any time by the
Company without Cause or (ii) if Executive terminates his employment on account
of Good Reason, the termination of employment will be a Termination Event, and
the Company shall pay Executive the compensation and benefits described in
Article III; provided, however, that if such termination is also described in
Section 2(a)(i) of the Severance Plan, compensation and benefits shall be paid
to Executive pursuant to this Agreement and not pursuant to the Severance Plan,
and this Agreement shall be considered to have amended the Severance Plan for
this purpose.
(b) Prior to the occurrence of a Change of Control, if
Executive's employment (i) is involuntarily terminated by the Company with
Cause, (ii) is terminated on account of death or disability or (iii) is
terminated by Executive for any other reason other than Good Reason, including,
without limitation, retirement, then the termination of employment will not be
a Termination Event, Executive will not be entitled to receive any payments or
benefits under the provisions of this Agreement, except as otherwise
specifically set forth herein, and the Company will cease paying compensation
or providing benefits to Executive as of Executive's termination date, except
as otherwise provided by a written agreement between Executive and the Company.
2.2 TERMINATION ON OR AFTER CHANGE OF CONTROL. Within thirty (30)
months after the occurrence of a Change of Control, (i) if Executive's
employment is involuntarily terminated at any time by the Company without Cause
or (ii) if Executive terminates his employment on account of Good Reason, the
termination of employment will be a Termination Event, and the Company shall
pay Executive the compensation and benefits described in Article III; provided,
however, that if such termination is also described in Section 2(a)(i) of the
Severance Plan, compensation and benefits shall be paid to Executive pursuant
to this Agreement and not pursuant to the Severance Plan, and this Agreement
shall be considered to have amended the Severance Plan for this purpose.
ARTICLE III
COMPENSATION AND BENEFITS PAYABLE
3.1 RIGHT TO BENEFITS. If a Termination Event occurs, Executive
shall be entitled to receive the benefits described in this Agreement subject
to the restrictions and limitations set forth in Article IV. If a Termination
Event does not occur, Executive shall not be entitled to receive any benefits
described in this Agreement, except as otherwise specifically set forth herein.
3.2 SALARY CONTINUATION. Upon the occurrence of a Termination
Event, Executive shall be entitled to receive a salary continuation benefit
equal to twenty four (24) months of Executive's Base Salary, less any
applicable withholding of federal, state or local tax. Such
2.
<PAGE> 3
lump sum payment shall be made no later than the date the employee agreement
and release described in Section 4.2 becomes effective. If Executive dies
after a Termination Event but prior to the making of such lump sum payment,
such payment shall be made to Executive's Salary Continuation Beneficiary.
3.3 HEALTH INSURANCE COVERAGE. Following the occurrence of a
Termination Event, to the extent provided by the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and by the Company's group health
insurance policies, Executive and his covered dependents will be eligible to
continue their health insurance benefits at their own expense, and later, to
convert to an individual policy if they wish. If Executive elects such COBRA
continuation, the Company shall pay Executive's and his covered dependents'
COBRA continuation premiums for eighteen (18) months following the date of the
Termination Event, provided that the Company's obligation to make such payments
shall cease immediately if Executive becomes eligible for other health
insurance benefits at the expense of a new employer. Executive agrees to
notify a duly authorized officer of the Company, in writing, immediately upon
acceptance of any employment following the Termination Event which provides
health insurance benefits.
This Section 3.3 provides only for the Company's payment of COBRA
continuation premiums for the period specified above. This Section 3.3 is not
intended to affect, nor does it affect, the rights of Executive, or Executive's
covered dependents, under any applicable law with respect to health insurance
continuation coverage.
If the Company does not maintain a group health insurance policy at
the time of the Termination Event, then the Company shall provide Executive and
his covered dependents with individual policies of health insurance for
eighteen (18) months following the date of the Termination Event or, if such
policies cannot be purchased, shall pay to Executive a cash lump sum equal to
the cost for eighteen (18) months of group health insurance for Executive and
his covered dependents at the rate last in effect under the Company's group
health insurance policy.
3.4 STOCK OPTIONS. Executive's stock options which are
outstanding as of the date of the Termination Event (the "Stock Options") shall
become fully vested to the extent not already vested, and Executive shall be
permitted to exercise such Stock Options until the earlier of (i) the date such
Stock Options would otherwise expire in the absence of a Termination Event and
(ii) eighteen (18) months following the Termination Event.
3.5 BONUS. If a Termination Event occurs, Executive shall receive
a bonus for the fiscal year in which the Termination Event occurs if Executive
received a bonus payment for the year immediately preceding the year in which
the Termination Event occurs. The amount of the bonus shall be equal the
amount of the bonus payment, if any, paid to Executive for the year immediately
preceding the year in which the Termination Event occurs, multiplied by a
fraction, the numerator of which shall be the number of months Executive works
for the Company during the year in which the Termination Event occurs,
including the month in which the Termination Event occurs, and the denominator
of which shall be twelve (12).
3.
<PAGE> 4
3.6 MITIGATION. Executive shall not be required to mitigate
damages or the amount of any payment provided under this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment provided for
under this Agreement be reduced by any compensation earned by Executive as a
result of employment by another employer or by retirement benefits after the
date of the Termination Event, or otherwise.
ARTICLE IV
LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT
4.1 REDUCTION IN PAYMENTS AND BENEFITS; WITHHOLDING TAXES. The
benefits provided under this Agreement are in lieu of any other benefit
provided under any group severance plan of the Company in effect at the time of
a Termination Event. The Company shall withhold appropriate federal, state or
local income and employment taxes from any payments hereunder.
4.2 EMPLOYEE AGREEMENT AND RELEASE PRIOR TO RECEIPT OF BENEFITS.
Upon the occurrence of a Termination Event, and prior to the receipt of any
benefits under this Agreement on account of the occurrence of a Termination
Event, Executive shall, as of the date of a Termination Event, execute an
employee agreement and release in the form attached hereto as Exhibit A. It is
understood that Executive has twenty-one (21) days to consider whether to
execute such employee agreement and release, and Executive may revoke such
employee agreement and release within seven (7) business days after execution
of such employee agreement and release. If Executive does not execute such
employee agreement and release within the twenty-one (21) day period, or if
Executive revokes such employee agreement and release within the seven (7)
business day period, no benefits shall be payable under this Agreement and this
Agreement shall be null and void.
4.3 CERTAIN ADDITIONAL PAYMENTS. Anything in this Agreement to
the contrary notwithstanding, if it shall be determined that any payment or
distribution by the Company to or for the benefit of Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 4.3) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code or any interest or
penalties are incurred by Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then Executive shall be entitled
to receive from the Company an additional payment (a "Gross-Up Payment") in an
amount such that after payment by Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
4.4 AMENDMENT OR TERMINATION OF THIS AGREEMENT. This Agreement
may be changed or terminated only upon the mutual written consent of the
Company and Executive. The written consent of the Company to a change or
termination of this Agreement must be
4.
<PAGE> 5
signed by a duly authorized officer of the Company, after such change or
termination has been approved by the Compensation Committee of the Company's
Board of Directors.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 NONEXCLUSIVITY. Nothing in the Agreement shall prevent or
limit Executive's continuing or future participation in any benefit, bonus,
incentive or other plans, programs, policies or practices provided by the
Company and for which Executive may otherwise qualify, nor shall anything
herein limit or otherwise affect such rights as Executive may have under any
stock option or other agreements with the Company; provided, however, that in
accordance with Section 4.1, any benefits provided hereunder shall be in lieu
of any other severance payments to which Executive may otherwise be entitled,
including, without limitation, under any employment contract or severance plan,
including the Severance Plan. Except as otherwise expressly provided herein,
amounts which are vested benefits or which Executive is otherwise entitled to
receive under any plan, policy, practice or program of the Company at or
subsequent to the date of a Termination Event shall be payable in accordance
with such plan, policy, practice or program.
5.2 EMPLOYMENT STATUS. This Agreement does not constitute a
contract of employment or impose on Executive any obligation to remain as an
employee, or impose on the Company any obligation (i) to retain Executive as an
employee, (ii) to change the status of Executive as an at-will employee, or
(iii) to change the Company's policies regarding termination of employment.
ARTICLE VI
NON-ALIENATION OF BENEFITS
No benefit hereunder shall be subject to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to
do so shall be void.
ARTICLE VII
DEFINITIONS
For purposes of the Agreement, the following terms shall have the
meanings set forth below:
7.1 "AGREEMENT" means this Executive Compensation and Benefits
Continuation Agreement.
7.2 "BASE SALARY" means Executive's salary (excluding bonus, any
other incentive or other payments and stock option exercises) paid by the
Company in consideration for
5.
<PAGE> 6
Executive's service during the twelve (12) months ended on the date of
occurrence of a Termination Event, which is includable in the gross income of
Executive for federal income tax purposes or which would have been includable
in gross income except for an election either under Section 125 or 402(e)(3) of
the Code or under the terms of a nonqualified deferred compensation arrangement
sponsored by the Company.
7.3 "CAUSE" means misconduct, including: (i) conviction of any
felony or any crime involving moral turpitude or dishonesty; (ii) participation
in a fraud or act of dishonesty against the Company; (iii) willful and material
breach of the Company's policies; (iv) intentional damage to the Company's
property; (v) breach of the Proprietary Information Agreement, or any other
agreements with the Company; or (vi) conduct by Executive which in the good
faith and reasonable determination of the Board of Directors of the Company
demonstrates gross unfitness to serve. Physical or mental disability shall not
constitute "Cause."
7.4 "CHANGE OF CONTROL" means (i) a merger or consolidation in
which the Company is not the surviving corporation; (ii) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; (iii) any other capital reorganization in which more than
thirty percent (30%) of the shares of the Company entitled to vote are
exchanged; (iv) a transaction or group of related transactions involving the
sale of all or substantially all of the Company's assets; (v) the acquisition
by any person, entity or group (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or any subsidiary of the Company)
of the beneficial ownership, directly or indirectly, of securities of the
Company representing more than thirty percent (30%) of the combined voting
power in the election of directors; (vi) the liquidation or winding up of the
Company; or (vii) a change in the composition of the Company's Board of
Directors such that, during any period of two consecutive years, individuals
who, at the beginning of such period, constitute the Board, together with
individuals who are Approved New Directors (as defined below), cease for any
reason to have authority to cast at least a majority of the votes which all
directors on the Board are entitled to vote. An Approved New Director shall be
a Board member whose election, or the nomination for election by the Company's
stockholders, was approved by a vote of a majority of the votes entitled to be
cast by the directors then still in office who were directors at the beginning
of the period.
7.5 "COMPANY" means Cortech, Inc. and any successor thereto.
7.6 "GOOD REASON" means a good faith determination by Executive
that a material change in the business of the Company or a material change in
Executive's duties has occurred, in either case measured by reference to such
business or duties as of the Effective Date, in the case of a Termination Event
prior to a Change of Control, or as of the date of the Change of Control, in
the case of a Termination Event on or after a Change of Control. Anything in
this Agreement to the contrary notwithstanding, a termination by Executive for
any reason during the forty five (45) day period immediately following the date
that is three (3) months following a Change of Control shall be deemed to be a
termination on account of Good Reason for all purposes of this Agreement.
6.
<PAGE> 7
7.7 "SALARY CONTINUATION BENEFICIARY" means such person or persons
designated by Executive to receive the salary continuation benefit in
accordance with Section 3.2 following Executive's death. The designation of
the Salary Continuation Beneficiary shall be made in a writing signed by
Executive and in a form acceptable to the Company. Executive may revoke and
redesignate the Salary Continuation Beneficiary at any time and from time to
time up to the date of Executive's death. In the absence of a written Salary
Continuation Beneficiary designation by Executive, any salary continuation
benefit payable to a Salary Continuation Beneficiary shall be paid to
Executive's estate.
7.8 "SEVERANCE PLAN" means the Cortech, Inc. Executive Officers'
Severance Benefit Plan, as such plan is in effect on the date of this Agreement
and without regard to amendments to such plan after the date of this Agreement.
7.9 "TERMINATION EVENT" means a termination of employment
described in Section 2.1(a) or 2.2. No other event shall be a Termination
Event for purposes of this Agreement.
ARTICLE VIII
SOURCE OF PAYMENTS
8.1 ESTABLISHMENT OF BENEFITS TRUST. On or before the date that
is ten (10) days following a Change of Control, the Company shall establish an
irrevocable grantor trust (the "Benefits Trust") and shall contribute to the
Benefits Trust a sum of money equal to (i) the lump sum salary continuation
benefit to which Executive may become entitled pursuant to Section 3.2, plus
(ii) eighteen (18) months of estimated COBRA continuation premiums pursuant to
Section 3.3, plus (iii) the estimated bonus pursuant to Section 3.5, plus (iv)
the estimated additional payment pursuant to Section 4.3. Such trust shall be
in the form of a so-called "rabbi" trust as described in Internal Revenue
Service Revenue Procedure 92-64. All payments to Executive or COBRA premiums
paid for his or his dependents' benefit shall, to the extent of available
Benefits Trust assets, be paid from the Benefits Trust, but the Company shall
remain liable for the performance of all of its obligations under this
Agreement to the extent that assets of the Benefits Trust are insufficient to
discharge such obligations.
8.2 UNFUNDED STATUS. Notwithstanding the establishment and
funding of the Benefits Trust, payments and benefits under this Agreement shall
be considered "unfunded," as that term is used in Sections 201(2), 301(a)(3),
401(a)(11) and 4021(a)(6) of the Employee Retirement Income Security Act of
1974. Accordingly, the assets of the Benefits Trust shall be subject to the
claims of the Company's creditors in the event of its bankruptcy or insolvency.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. Any notices provided hereunder must be in writing
and such notices or any other written communication shall be deemed effective
upon the earlier of personal delivery
7.
<PAGE> 8
(including personal delivery by telex or facsimile) or the third day after
mailing by first class mail, to the Company at its primary office location and
to Executive at his address as listed in the Company's payroll records. Any
payments made by the Company to Executive under the terms of this Agreement
shall be delivered to Executive either in person or at his address as listed in
the Company's payroll records.
9.2 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
9.3 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
9.4 COMPLETE AGREEMENT. This Agreement, including Exhibits A and
B, constitutes the entire agreement between Executive and the Company and it is
the complete, final, and exclusive embodiment of their agreement with regard to
this subject matter. It is entered into without reliance on any promise or
representation other than those expressly contained herein.
9.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
9.6 HEADINGS. The headings of the Articles and Sections hereof
are inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof.
9.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive and the Company,
and their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the Company,
which consent shall not be withheld unreasonably.
9.8 ATTORNEYS' FEES. If Executive brings any action pursuant to
Section 9.9 to enforce his rights hereunder, he shall be entitled to recover
his reasonable attorneys' fees and costs incurred in connection with such
action, provided such action was not frivolous.
9.9 ARBITRATION. In order to ensure rapid and economical
resolution of any dispute which may arise under this Agreement, Executive and
the Company agree that any and all disputes or controversies, arising from or
regarding the interpretation, performance, enforcement or termination of this
Agreement shall be resolved by final and binding arbitration under the
8.
<PAGE> 9
procedures set forth in the Arbitration Procedure attached hereto as Exhibit B
and the then existing Judicial Arbitration and Mediation Services, Inc.
("JAMS") Rules of Practice and Procedure or the rules of practice and procedure
of any successor entity to JAMS (except insofar as they are inconsistent with
the procedures set forth in the enclosed Arbitration Procedure). BY ENTERING
INTO THIS AGREEMENT, THE COMPANY AND EXECUTIVE ACKNOWLEDGE THAT THEY ARE
WAIVING THEIR RIGHT TO JURY TRIAL OF ANY DISPUTE ARISING FROM OR REGARDING THE
INTERPRETATION, PERFORMANCE, ENFORCEMENT OR TERMINATION OF THIS AGREEMENT.
9.10 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of
the State of Colorado.
9.11 NON-PUBLICATION. The parties mutually agree not to disclose
publicly the terms of this Agreement except to the extent that disclosure is
mandated by applicable law; provided, however, that Executive may disclose the
terms of this Agreement to members of his family and to his professional
advisors.
9.12 CONSTRUCTION OF PLAN. In the event of a conflict between the
text of this Agreement and any summary, description or other information
regarding this Agreement, the text of the Agreement shall control.
IN WITNESS WHEREOF,the parties have executed this Agreement on the day
and year written above.
CORTECH, INC. KENNETH R. LYNN
/s/ Donald Kennedy /s/ Kenneth R. Lynn
- -------------------------------- -------------------------------
By: Donald Kenndey, Ph.D., on behalf of
the Board of Directors
Exhibit A: Employee Agreement and Release
Exhibit B: Arbitration Procedure
9.
<PAGE> 10
EXHIBIT A
EMPLOYEE AGREEMENT AND RELEASE
I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE
EXECUTIVE COMPENSATION AND BENEFITS CONTINUATION AGREEMENT.
Except as otherwise set forth in this Agreement, I hereby release,
acquit and forever discharge the Company, its parents and subsidiaries, and
their officers, directors, agents, servants, employees, shareholders,
successors, assigns and affiliates, of and from any and all claims,
liabilities, demands, causes of action, costs, expenses, attorneys fees,
damages, indemnities and obligations of every kind and nature, in law, equity,
or otherwise, known and unknown, suspected and unsuspected, disclosed and
undisclosed (other than any claim for indemnification I may have as a result of
any third party action against me based on my employment with the Company),
arising out of or in any way related to the termination of my employment with
the Company, including, but not limited to, claims of intentional and negligent
infliction of emotional distress, any and all tort claims for personal injury,
claims or demands related to salary, bonuses, commissions, stock, stock
options, or any other ownership interests in the Company, vacation pay, fringe
benefits, expense reimbursements, severance pay, or any other form of
compensation; claims pursuant to any federal, state or local law or cause of
action including, but not limited to, the federal Civil Rights Act of 1964, as
amended; the federal Age Discrimination in Employment Act of 1967, as amended
("ADEA"); the federal Americans with Disabilities Act of 1990; tort law;
contract law; wrongful discharge; discrimination; fraud; defamation; emotional
distress; and breach of the implied covenant of good faith and fair dealing;
provided, however, that nothing in this paragraph shall be construed in any way
to release the Company from its obligation to indemnify you pursuant to statute
or any indemnification agreement.
I acknowledge that I am knowingly and voluntarily waiving and
releasing any rights I may have under the ADEA. I also acknowledge that the
consideration given for the waiver and release in the preceding paragraph
hereof is in addition to anything of value to which I was already entitled. I
further acknowledge that I have been advised by this writing, as required by
the ADEA, that: (A) my waiver and release do not apply to any rights or claims
that may arise after the Effective Date of this Agreement; (B) I have the right
to consult with an attorney prior to executing this Agreement; (C) I have
twenty-one (21) days to consider this Agreement (although I may choose to
voluntarily execute this Agreement earlier); (D) I have seven (7) days
following the execution of this Agreement by the parties to revoke the
Agreement; and (E) this Agreement shall not be effective until the date upon
which the revocation period has expired, which shall be the eighth day after
this Agreement is executed by me, provided that the Company has also executed
this Agreement by that date ("Effective Date").
By:
----------------------------------
Date:
--------------------------------
<PAGE> 11
EXHIBIT B
ARBITRATION PROCEDURE
1. The parties agree that any dispute that arises in connection
with this Agreement or the termination of this Agreement shall be resolved by
binding arbitration in the manner described below.
2. A party intending to seek resolution of any dispute under the
Agreement by arbitration shall provide a written demand for arbitration to the
other party, which demand shall contain a brief statement of the issues to be
resolved.
3. The arbitration shall be conducted in Denver, Colorado by a
mutually acceptable retired judge from the panel of Judicial Arbitration and
Mediation Services, Inc. or any entity performing the same type of services
that succeeds to its business ("JAMS"). At the request of either party,
arbitration proceedings will be conducted in the utmost secrecy and, in such
case, all documents, testimony and records shall be received, heard and
maintained by the arbitrator in secrecy under seal, available for inspection
only by the parties to the arbitration, their respective attorneys, and their
respective expert consultants or witnesses who shall agree, in advance and in
writing, to receive all such information confidentially and to maintain such
information in secrecy, and make no use of such information except for the
purposes of the arbitration, unless compelled by legal process.
4. The arbitrator is required to disclose any circumstances that
might preclude the arbitrator from rendering an objective and impartial
determination. In the event the parties cannot mutually agree upon the
selection of a JAMS arbitrator, the President of JAMS shall designate the
arbitrator.
5. The party demanding arbitration shall promptly request that
JAMS conduct a scheduling conference within fifteen (15) days of the date of
that party's written demand for arbitration or on the first available date
thereafter on the arbitrator's calendar. The arbitration hearing shall be held
within thirty (30) days after the scheduling conference or on the first
available date thereafter on the arbitrator's calendar. Nothing in this
paragraph shall prevent a party from at any time seeking temporary equitable
relief, from JAMS or any court of competent jurisdiction, to prevent
irreparable harm pending the resolution of the arbitration.
6. Discovery shall be conducted as follows: (a) prior to the
arbitration any party may make a written demand for lists of the witnesses to
be called and the documents to be introduced at the hearing; (b) the lists must
be served within fifteen days of the date of receipt of the demand, or one day
prior to the arbitration, whichever is earlier; and (c) each party may take no
more than two depositions (pursuant to the procedures set forth in the Colorado
Code of Civil Procedure) with a maximum of five hours of examination time per
deposition, and no other form of pre- arbitration discovery shall be permitted.
1.
<PAGE> 12
7. It is the intent of the parties that the Federal Arbitration
Act ("FAA") shall apply to the enforcement of this provision.
8. The arbitrator shall apply Colorado law, including rules of
evidence, and shall be able to decree any and all relief of an equitable
nature, including, but not limited to such relief as a temporary restraining
order, a preliminary injunction, a permanent injunction, or replevin of Company
property. The arbitrator shall also be able to award actual, general or
consequential damages, but shall not award any other form of damage (e.g.,
punitive damages).
9. The Company shall pay the arbitrator's fees and expenses, in
addition to other expenses of the arbitration approved by the arbitrator, as
long as Executive was not frivolous in commencing an arbitration proceeding;
otherwise, the arbitrator shall have authority to award the payment of such
fees and expenses to the prevailing party, as appropriate, in the discretion of
the arbitrator. As provided in the Executive Compensation and Benefits
Continuation Agreement, the Company shall pay Executive's and its own
attorneys' fees, witness fees and other expenses incurred as long as Executive
was not frivolous in commencing an arbitration proceeding.
10. The arbitrator shall render a written award setting forth the
reasons for his or her decision. The decree or judgment of an award rendered
by the arbitrator may be entered and enforced in any court having jurisdiction
over the parties. The award of the arbitrator shall be final and binding upon
the parties without appeal or review except as permitted by the FAA.
2.
<PAGE> 13
February 12, 1998
Mr. Kenneth R. Lynn
Cortech, Inc.
6850 North Broadway, Suite G
Denver, CO 80221
Re: Amendment to Executive Compensation and Benefits Continuation
Agreement
Dear Ken:
This letter refers to the Executive Compensation and Benefits
Continuation Agreement dated October 14, 1997 by and between you and Cortech,
Inc. (the "Agreement"). As part of the arrangements relating to that certain
Agreement and Plan of Reorganization and Merger dated December 22, 1997 (the
"Merger Agreement") among Cortech, Inc. ("Cortech"), BioStar, Inc. ("BioStar")
and Cortech Merger Sub, Inc., a wholly owned subsidiary of Cortech ("Merger
Sub"), pursuant to which Merger Sub will merge with and into BioStar (the
"Merger"), you and Cortech have agreed to amend the Agreement as set forth in
this letter.
In consideration for three (3) months of the twenty-four (24)
months of salary continuation benefit you are entitled to receive pursuant the
Agreement, you agree (i) to provide Cortech with consulting services for up to
20 hours per week (on a non-cumulative basis) for the three (3) months
following the Effective Time (as such term is defined in the Merger Agreement)
of the Merger and your termination as Chief Executive Officer of Cortech and
(ii) to defer three months of the salary continuation benefit set forth in
Section 3.2 of the Agreement which would otherwise be payable following the
Effective Time of the Merger. This three months of salary continuation benefit
shall instead be paid to you on a month-to-month basis over the course of the
three month consulting period. If you are unable to provide the consulting
services described above due to death or disability, you or your beneficiary
shall still be entitled to all benefits set forth under the Agreement, and this
amendment will be deemed null and void.
If you agree to amend the Agreement as set forth above, please
indicate your acceptance by signing below.
Very truly yours,
CORTECH, INC.
By: /s/ DIARMUID BORAN
----------------------
Name: Diarmuid Boran
Title: Secretary
AGREED TO AND ACCEPTED:
/s/ KENNETH R. LYNN
- ------------------------ Date: February 12, 1998
Kenneth R. Lynn ------------------
<PAGE> 1
EXHIBIT 10.95
AGREEMENT
This Agreement is made as of February 12, 1998 (the "Effective Date")
by and between CORTECH, INC., a Delaware corporation (the "Company"), and
DIARMUID BORAN, an individual ("Employee"), with reference to the following
facts:
A. Employee is currently employed as Vice President, Corporate
Development and Planning of the Company;
B. The Company has entered into an Agreement and Plan of Merger
and Reorganization (the "Merger Agreement") dated December 22, 1997 among the
Company, BioStar, Inc., a Delaware corporation ("BioStar"), and Cortech Merger
Sub, Inc. ("Merger Sub"). Pursuant to the Merger Agreement and subject to
various conditions therein, Merger Sub will merge with and into BioStar (the
"Merger") on the closing date (the "Closing"); and
C. The Company desires to provide Employee with the compensation
and benefits described herein upon the occurrence of specified events in order
to ensure that Employee will continue to provide services to the Company.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties agree as follows:
Article I
EMPLOYMENT BY THE COMPANY FOLLOWING THE MERGER
Upon consummation of the Merger, the Company agrees to employ Employee
and Employee agrees to accept such employment upon the terms and conditions
hereinafter set forth.
1.1 Term. The Company shall employ Employee as a full-time
consultant for a period of six (6) months following the Closing.
1.2 Compensation. Employee shall receive as compensation for his
employment as a consultant by the Company following consummation of the Merger
his current base pay (excluding bonuses, draws or commissions) ("Salary"), less
required deductions for Social Security, withholding taxes and other authorized
deductions (collectively, "Deductions"), payable at times when employees of the
Company normally receive their compensation, as well as the benefits that he
currently receives.
Article II
SEVERANCE BENEFITS
Upon consummation of the Merger, Employee shall be entitled to
benefits under the Cortech, Inc. Executive Officers' Severance Benefit Plan
effective September 18, 1995. The
<PAGE> 2
Company, however, hereby agrees to pay Employee all such benefits (except for
health care benefits) at the Closing.
Article III
TERMINATION
3.1 Termination with Cause. In the event that (i) Employee's
employment following the Closing is involuntarily terminated by the Company with
Cause (as defined in Section 3.2), (ii) Employee's employment following the
Closing is terminated on account of death or disability or (iii) Employee
voluntarily terminates employment with the Company other than for Good Reason
(as defined in Section 3.3), the Company shall only be obligated to pay Employee
all payments required by law including the salary Employee earned up through the
date his employment with the Company was terminated (the "Separation Date").
3.2 Cause. The term "Cause" means misconduct including (i)
conviction of any felony or any crime involving moral turpitude or dishonesty,
(ii) participation in a fraud or act of dishonesty against the Company, (iii)
willful and material breach of the Company's policies, (iv) breach of the
Proprietary Information Agreement or any other agreement executed with the
Company, (v) intentional damage to the Company's property or (vi) conduct which
in the good faith and reasonable determination of the Company's chief executive
officer demonstrates gross unfitness to serve. Physical and/or mental
disability shall not constitute "Cause."
3.3 Good Reason. The term "Good Reason" means (i) a reduction of
Employee's rate of compensation, (ii) a reduction in the package of welfare
benefit plans provided to Employee (except that employee contributions may be
raised to the extent of any cost increases by third parties) or (iii) a request
that Employee relocate to a worksite that is more than 40 miles from his prior
worksite.
Article IV
EMPLOYMENT BY THE COMPANY IF THE MERGER
IS NOT CONSUMMATED
4.1 Severance Benefit. In the event the Merger is not consummated
and Employee is involuntarily terminated without Cause, the Company agrees to
pay Employee, in consideration for Employee providing the services set forth in
Section 4.2 and executing and delivering to the Company a general waiver and
release on the form provided by the Company which releases the Company from any
and all claims Employee may have against the Company, a sum equal to eighteen
(18) months of his current Salary, less Deductions. The Company shall pay this
sum to Employee in four installments. The first installment, equal to twelve
(12) months of Employee's current Salary, less Deductions, shall be due and
payable on the Separation Date. The second, third and fourth installments, each
equal to two (2) months of Employee's current Salary, less Deductions, shall be
due and payable, respectively, on the date two (2) months, four (4) months and
six (6) months after the Separation Date. In addition, the Company shall pay
Employee all accrued and unused vacation and, if Employee elects continuation
coverage and does not obtain coverage under another company's plan, the Company
shall pay Employee's and, if covered prior to the Separation Date, Employee's
dependents' health and dental plan premiums for coverage required under the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA Payments") for 18
months following the Separation Date.
-2-
<PAGE> 3
4.2 Employment as Consultant. In event the Merger is not
consummated, Employee shall work for the Company as a consultant for twenty
(20) hours a week for the six (6) months following Employee's Separation Date
(for a total of 520 hours).
Article V
GENERAL PROVISIONS
5.1 Survival. The obligations and rights imposed upon the parties
hereto by the provisions of this Agreement which relate to acts or events
subsequent to the termination of this Agreement shall survive the termination
of this Agreement and shall remain fully effective thereafter.
5.2 Severability. Should any one or more of the provisions of
this Agreement be determined to be illegal or unenforceable in any relevant
jurisdiction, then such illegal or unenforceable provision shall be modified by
the proper court, if possible, but only to the extent necessary to make such
provision enforceable, and such modified provision and all other provisions of
this Agreement and of each other agreement entered into pursuant to this
Agreement shall be given effect separately from the provision or portion
thereof determined to be illegal or unenforceable and shall not be affected
thereby; provided, that any such modification shall apply only with respect to
the operation of this Agreement in the particular jurisdiction in which such
determination of illegality or unenforceability is made.
5.3 Waiver. The failure of either party to enforce any provision
of this Agreement shall not be construed as a waiver of any such provision, nor
prevent such party thereafter from enforcing such provision or any other
provision of this Agreement. The rights granted both parties herein are
cumulative and the election of one shall not constitute a waiver of such
party's right to assert all other legal remedies available under the
circumstances.
5.4 Parties in Interest. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the parties hereto and the
successors, assigns and affiliates of Employer, nor is anything in this
Agreement intended to relieve or discharge the obligation or liability of any
third person to any party to this Agreement, nor shall any provision give any
third person any right of subrogation or action over or against any party to
this Agreement.
5.5 Successors and Assigns. This Agreement is intended to bind
and inure to the benefit of and be enforceable by the Company and Employee, and
their respective successors, assigns, heirs, executors and administrators,
except that Employee may not assign any of her duties hereunder and may not
assign any of her rights hereunder without the written consent of the Company,
which consent shall not be unreasonably withheld.
5.6 Entire Agreement. This Agreement contains the entire
agreement of the parties and no representation, inducement, promise or
agreement, oral or otherwise, between the parties not embodied herein or the
Exhibits attached hereto shall be of any force or effect. No
- 3 -
<PAGE> 4
modification, termination or attempted waiver shall be valid unless in writing
and signed by the party against whom such modification, termination or waiver
is sought to be enforced.
5.7 Arbitration. In order to ensure the rapid and economical
resolution of any dispute which may arise under or in connection with this
Agreement, Employee and the Company agree that any and all disputes or
controversies arising from or regarding the interpretation, performance,
enforcement or termination of this Agreement shall be resolved by final and
binding arbitration under the procedures set forth in the Arbitration Procedure
attached hereto as Exhibit "A" and the then existing Judicial Arbitration and
Mediation Services, Inc. ("JAMS") Rule of Practice and Procedure or the rules
of practice and procedure of any successor entity to JAMS (except insofar as
they are inconsistent with the procedures set forth in Exhibit "B"). BY
ENTERING INTO THIS AGREEMENT, THE COMPANY AND EMPLOYEE ACKNOWLEDGE THAT THEY
ARE WAIVING THEIR RIGHT TO JURY TRIAL OF ANY DISPUTE ARISING FROM OR REGARDING
THE INTERPRETATION, PERFORMANCE, ENFORCEMENT OR TERMINATION OF THIS AGREEMENT.
5.8 Choice of Law. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the laws of
the State of Colorado.
5.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
THE COMPANY:
CORTECH, INC.,
a Delaware corporation
By:/s/KENNETH R. LYNN
-------------------------
Kenneth R. Lynn, CEO
EMPLOYEE:
/s/DIARMUID BORAN
- ----------------------------
Diarmuid Boran
- 4 -
<PAGE> 5
EXHIBIT "A"
ARBITRATION PROCEDURE
1. The parties agree that any dispute that arises in connection with
this Agreement or the termination of this Agreement shall be resolved by
binding arbitration in the manner described below.
2. A party intending to seek resolution of any dispute under the
Agreement by arbitration shall provide a written demand for arbitration to the
other party, which demand shall contain a brief statement of the issues to be
resolved.
3. The arbitration shall be conducted in Denver, Colorado by a mutually
acceptable retired judge from the panel of Judicial Arbitration and Mediation
Services, Inc. or any entity performing the same type of services that succeeds
to its business ("JAMS"). At the request of either party, arbitration
proceedings will be conducted in the utmost secrecy and, in such case, all
documents, testimony and records shall be received, heard and maintained by the
arbitrator in secrecy under seal, available for inspection only by the parties
to the arbitration, their respective attorneys, and their respective expert
consultants or witnesses who shall agree, in advance and in writing, to receive
all such information confidentially and to maintain such information in
secrecy, and make no use of such information except for the purposes of the
arbitration, unless compelled by legal process.
4. The arbitrator is required to disclose any circumstances that might
preclude the arbitrator from rendering an objective and impartial
determination. In the event the parties cannot mutually agree upon the
selection of a JAMS arbitrator, the President of JAMS shall designate the
arbitrator.
5. The party demanding arbitration shall promptly request that JAMS
conduct a scheduling conference within fifteen (15) days of the date of that
party's written demand for arbitration or on the first available date
thereafter on the arbitrator's calendar. The arbitration hearing shall be held
within thirty (30) days after the scheduling conference or on the first
available date thereafter on the arbitrator's calendar. Nothing in this
paragraph shall prevent a party from at any time seeking temporary equitable
relief, from JAMS or any court of competent jurisdiction, to prevent
irreparable harm pending the resolution of the arbitration.
6. Discovery shall be conducted as follows: (a) prior to the
arbitration any party may make a written demand for lists of the witnesses to
be called and the documents to be introduced at the hearing; (b) the lists must
be served within fifteen days of the date of receipt of the demand, or one day
prior to the arbitration, whichever is earlier; and (c) each party may take no
more than two depositions (pursuant to the procedures set forth in the Colorado
Code of Civil Procedure) with a maximum of five hours of examination time per
deposition, and no other form of pre-arbitration discovery shall be permitted.
7. It is the intent of the parties that the Federal Arbitration Act
("FAA") shall apply to the enforcement of this provision.
- 1 -
<PAGE> 6
8. The arbitrator shall apply Colorado law, including rules of evidence,
and shall be able to decree any and all relief of an equitable nature,
including, but not limited to such relief as a temporary restraining order, a
preliminary injunction, a permanent injunction, or replevin of Company
property. The arbitrator shall also be able to award actual, general or
consequential damages, but shall not award any other form of damage (e.g.,
punitive damages).
9. The Company shall pay the arbitrator's fees and expenses, in addition
to other expenses of the arbitration approved by the arbitrator, as long as
Executive was not frivolous in commencing an arbitration proceeding; otherwise,
the arbitrator shall have authority to award the payment of such fees and
expenses to the prevailing party, as appropriate, in the discretion of the
arbitrator. As provided in the Executive Compensation and Benefits
Continuation Agreement, the Company shall pay Executive's and its own
attorneys' fees, witness fees and other expenses incurred as long as Executive
was not frivolous in commencing an arbitration proceeding.
10. The arbitrator shall render a written award setting forth the reasons
for his or her decision. The decree or judgment of an award rendered by the
arbitrator may be entered and enforced in any court having jurisdiction over
the parties. The award of the arbitrator shall be final and binding upon the
parties without appeal or review except as permitted by the FAA.
- 2 -
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and all references to our Firm) included in or made part of this
registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 12, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 12, 1998, with respect to the financial
statements of BioStar, Inc. included in the Joint Proxy Statement of Cortech,
Inc. and BioStar, Inc. that is made part of the Registration Statement and
related Prospectus of Cortech, Inc. for the registration of 28,500,000 shares of
its common stock.
ERNST & YOUNG LLP
Denver, Colorado
February 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM S-4
REGISTRATION STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND RELATED FOONOTES INCLUDED THEREIN.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,562
<SECURITIES> 3,841
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,711
<PP&E> 10,326
<DEPRECIATION> 9,592
<TOTAL-ASSETS> 16,445
<CURRENT-LIABILITIES> 1,062
<BONDS> 0
0
0
<COMMON> 37
<OTHER-SE> 15,346
<TOTAL-LIABILITY-AND-EQUITY> 16,445
<SALES> 3,451
<TOTAL-REVENUES> 3,451
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,778)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,778)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,778)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
PROXY CORTECH, INC. PROXY
6850 N. BROADWAY, SUITE G, DENVER, COLORADO 80221
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CORTECH, INC.
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON ___________, 1998
The undersigned stockholder of Cortech, Inc. ("Cortech"), a Delaware
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Joint Proxy Statement/Prospectus of Cortech and BioStar, Inc.,
each dated ____________ ___, 1998, and hereby appoints Kenneth R. Lynn proxy
and attorney-in-fact, with full power of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Special Meeting of
Stockholders of Cortech, to be held on _______________, 1998, at __:__ _.m. at
________________________________, and at any adjournments thereof, and to vote
all shares of Common Stock that the undersigned would be entitled to vote if
then and there personally present, on the matters set forth on the reverse side
hereof.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 AND 2, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF
SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE
THEREWITH.
THE BOARD OF DIRECTORS AND MANAGEMENT OF CORTECH RECOMMEND A VOTE FOR
PROPOSALS 1 AND 2.
PROPOSAL 1: To (i) adopt and approve the Agreement and Plan of Merger and
Reorganization, dated as of December 22, 1997, among Cortech,
BioStar, Inc. (?BioStar?), a Delaware corporation, and Cortech
Merger Sub, Inc., a Delaware corporation and a wholly-owned
subsidiary of Cortech (?Merger Sub?), and (ii) approve the
merger of Merger Sub with and into BioStar pursuant to which
BioStar will become a wholly-owned subsidiary of Cortech and
the issuance of shares of Cortech Common Stock to the BioStar
stockholders.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PROPOSAL 2: To adopt and approve an Amendment to the Certificate of
Incorporation of Cortech which provides for (a) a change in
the corporate name of Cortech to "BioStar Holdings, Inc." and
(b) a one-for-____ reverse stock split of shares of Cortech
Common Stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(Continued and to be signed on the other side)
1.
<PAGE> 2
(Continued from other side.)
Dated , 1998
-----------------------
Signature(s)
-------------------------
Please sign exactly as your name
appears hereon. If the stock is
registered in the names of two or
more persons, each should sign.
Executors, administrators, trustees,
guardians and attorneys-in-fact
should add their titles. If signer
is a corporation, please give full
corporate name and have a duly
authorized officer sign, stating
title. If signer is a partnership,
please sign in partnership name by
authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE> 1
EXHIBIT 99.2
PROXY BIOSTAR, INC. PROXY
6655 LOOKOUT ROAD, BOULDER, CO 80301-3371
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BIOSTAR, INC.
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON ___________, 1998
The undersigned stockholder of BioStar, Inc. ("BioStar"), a Delaware
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Joint Proxy Statement/Prospectus of Cortech, Inc., a Delaware
corporation ("Cortech") and BioStar, each dated ____________ ___, 1998, and
hereby appoints Teresa W. Ayers and Edward C. Pritchard, and each of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
Special Meeting of Stockholders of BioStar, to be held on _______________, 1998,
at __:__ _.m. at ________________________________, and at any adjournments
thereof, and to vote all shares of preferred stock and/or common stock that the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side hereof.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 AND 2, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF
SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE
THEREWITH.
THE BOARD OF DIRECTORS AND MANAGEMENT OF BIOSTAR RECOMMEND A VOTE FOR
PROPOSALS 1 AND 2.
PROPOSAL 1: To (i) adopt and approve the Agreement and Plan of Merger and
Reorganization (the "Reorganization Agreement"), dated as of
December 22, 1997, among BioStar, Cortech and Cortech Merger Sub,
Inc., a Delaware corporation and wholly-owned subsidiary of
Cortech ("Merger Sub"), and (ii) approve the merger of Merger Sub
with and into BioStar pursuant to which BioStar will become a
wholly-owned subsidiary of Cortech.
FOR |_| AGAINST |_| ABSTAIN |_|
PROPOSAL 2: To adopt and approve an amendment to the BioStar Restated
Certificate of Incorporation which provides that the holders of
BioStar preferred stock will only receive the consideration for
their shares set forth in the Reorganization Agreement.
FOR |_| AGAINST |_| ABSTAIN |_|
(Continued and to be signed on the other side)
1.
<PAGE> 2
(Continued from other side.)
Dated , 1998
-------------------------
Signature(s)
-------------------------
Please sign exactly as your name
appears hereon. If the stock is
registered in the names of two or
more persons, each should sign.
Executors, administrators, trustees,
guardians and attorneys-in-fact
should add their titles. If signer
is a corporation, please give full
corporate name and have a duly
authorized officer sign, stating
title. If signer is a partnership,
please sign in partnership name by
authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
2.
