BIOPURE CORP, 424B4, 1999-07-30

BIOPURE CORP
424B4, 1999-07-30
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-78829

PROSPECTUS

3,500,000 Shares

[Biopure Logo]

Class A Common Stock

Biopure Corporation is selling all of the shares of class A common stock in this
offering.

Prior to the offering, there has been no public market for our class A common
stock. The shares of class A common stock have been approved for listing on the
Nasdaq National Market under the symbol "BPUR".

INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 8.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT BIOPURE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share $12.00 $0.84 $11.16
- --------------------------------------------------------------------------------------------------------------
Total $42,000,000 $2,940,000 $39,060,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>

We have agreed to grant the underwriters the right to purchase up to an
additional 525,000 shares of class A common stock to cover over-allotments.

The underwriters expect to deliver the shares of class A common stock to
investors on or about August 4, 1999.

J.P. MORGAN & CO.

ADAMS, HARKNESS & HILL, INC.

ROBERT W. BAIRD & CO.
INCORPORATED

July 29, 1999
<PAGE> 2

[BIOPURE'S OXYGEN THERAPEUTICS:

ILLUSTRATION 1 is a schematic of a blood vessel with normal blood flow and
oxygen delivery. The heart, lungs and circulating blood regulate the oxygenation
of tissues. Hemoglobin, a protein inside red blood cells, is responsible for the
transport of oxygen from the lungs to the body's tissues.

ILLUSTRATION 2 is a schematic of a blood vessel with anemic blood flow and
oxygen delivery. With anemia, a shortage of red blood cells disrupts this oxygen
delivery system. In severe cases, anemia can cause cell damage and, if
prolonged, death.

ILLUSTRATION 3 is a schematic of a blood vessel depicting oxygen delivery after
treatment with Biopure's products. Biopure's products are designed to compensate
for the decreased oxygen content of the blood caused by anemia.

Pictures of Biopure's products: Hemopure, the human product, is in U.S. Phase
III clinical testing; Oxyglobin, the veterinary product, is approved by the FDA
for canine anemia and commercially available.]
<PAGE> 3

You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of class A common stock only in jurisdictions where we are permitted
to make offers and sales. The information in this prospectus is current only as
of its date.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.......................... 5
Risk Factors................................ 8
Use of Proceeds............................. 12
Dividend Policy............................. 12
Capitalization.............................. 13
Dilution.................................... 14
Selected Consolidated Financial Data........ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 16
Business.................................... 20
</TABLE>

<TABLE>
<CAPTION>
PAGE
<S> <C>
Management.................................. 33
Certain Relationships and Related
Transactions.............................. 40
Principal Stockholders...................... 41
Description of Capital Stock................ 44
Shares Eligible for Future Sale............. 50
Underwriting................................ 52
Legal Matters............................... 54
Experts..................................... 54
Available Information....................... 54
Index to Consolidated Financial
Statements................................ F-1
</TABLE>

------------------------

Until August 23, 1999, all dealers that effect transactions in our class A
common stock, whether or not participating in the offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
------------------------

Biopure(R), Hemopure(R) and Oxyglobin(R) are registered trademarks of Biopure.

3
<PAGE> 4

PROSPECTUS SUMMARY

This summary may not contain all the information that may be important to you.
You should read the entire prospectus, especially "Risk Factors" and the
Consolidated Financial Statements and the related Notes, before deciding to
invest in shares of our class A common stock. Unless otherwise indicated, all
information in this prospectus (1) reflects a two for three stock split of our
class A common stock which occurred on July 21, 1999, and (2) assumes that the
underwriters will not exercise their right to purchase an additional 525,000
shares of class A common stock.

BIOPURE

Biopure is a leading developer, manufacturer and marketer of oxygen
therapeutics. Our oxygen therapeutics are pharmaceuticals administered
intravenously into the circulatory system to increase oxygen delivery to the
body's tissues. We have developed and manufacture two hemoglobin-based oxygen
therapeutic products -- Hemopure, for human use, and Oxyglobin, for veterinary
use. Hemopure is currently in a pivotal Phase III clinical trial in the United
States. Oxyglobin, the only hemoglobin-based oxygen carrier approved by the U.S.
Food and Drug Administration, or the FDA, has been commercially available since
March 1998 for the treatment of anemia in dogs, regardless of cause.

Acute blood loss and other medical conditions can disrupt the delivery of oxygen
to the body's tissues. A red blood cell transfusion is the standard therapy for
blood loss. Hemopure compares favorably to transfused red blood cells in that
it:

- - is highly purified by proprietary and patented processes to remove possible
infectious agents;

- - has a two-year shelf life as compared to blood's 42-day shelf life;

- - does not require refrigeration;

- - maintains full oxygen-releasing capability during storage;

- - does not require blood typing or other tests for compatibility; and

- - has an abundant, low-cost raw material source -- bovine red blood cells.

We believe that Hemopure also has potential for use in the treatment of other
critical care conditions such as trauma, ischemic conditions, including stroke
and heart attack, and malignant hypoxic, or oxygen deficient, tumors. Hemopure:

- - is significantly smaller in molecular size than red blood cells, so it can
flow around partial blockages and through constricted vessels;

- - is less viscous than red blood cells and, therefore, possesses better flow
characteristics;

- - is chemically designed to release more oxygen than the hemoglobin contained in
red blood cells; and

- - facilitates the release of oxygen from red blood cells.

We have infused Hemopure into 421 humans in 19 completed clinical trials at
doses of up to 244 grams of hemoglobin contained in approximately two liters, or
eight units, of Hemopure. We believe Hemopure is a safe, effective alternative
to red blood cell transfusion after blood loss from surgery. Our trials
demonstrate Hemopure's efficacy as measured by the elimination of a significant
percentage of red blood cell transfusions. Biopure has filed for Hemopure
marketing approval as an alternative to red blood cell transfusions for
specified surgical procedures in South Africa in July 1999 and expects to file
in the United States and the European Union in 2000.

Oxyglobin is identical to Hemopure except for its molecular size distribution.
Veterinarians report successful use of Oxyglobin in critical care situations
involving blood loss, destruction of red blood cells and ineffective production
of red blood cells in dogs. In 1998, Biopure filed for regulatory approval to
market Oxyglobin to treat canine anemia in the European Union.

Biopure operates a large-scale manufacturing facility with adequate capacity to
produce both Oxyglobin for commercial sale and Hemopure for clinical trials and
market introduction following FDA approval. Biopure believes that its
manufacturing facilities comply with current Good Manufacturing Practices
established by the FDA.

Biopure's incorporation occurred in 1984 in Delaware. Our address is 11 Hurley
Street, Cambridge, Massachusetts 02141 and our telephone number is (617)
234-6500.

5
<PAGE> 5

THE OFFERING

The following information reflects 10,556,342 shares of class A common stock
outstanding as of the date of this prospectus and the conversion of our
convertible preferred stock into 8,224,535 shares of class A common stock upon
completion of this offering. The number of outstanding shares of class A common
stock does not include 1,248,295 shares of class A common stock issuable on the
exercise of outstanding stock options and warrants as of May 1, 1999 or
1,492,020 shares of class A common stock issuable on the exercise of stock
options to be granted to employees and directors upon completion of this
offering. In addition, the number of outstanding shares of class A common stock
does not include between 646,667 and 1,272,119 shares of class A common stock
issuable upon the conversion of our class B common stock following FDA approval
of Hemopure or 1,694,273 shares of class A common stock to be repurchased from a
stockholder.

CLASS A COMMON STOCK OFFERED.............3,500,000 shares of class A common
stock

CLASS A COMMON STOCK TO BE
OUTSTANDING AFTER THE OFFERING...........22,280,877 shares of class A common
stock; 22,805,877 shares of class A
common stock if the underwriters'
over-allotment option is exercised in
full

OVER-ALLOTMENT OPTION....................525,000 shares of class A common stock

USE OF PROCEEDS..........................$4.5 million to repay a loan from
Pharmacia & Upjohn, Inc., $4.0 million
to repurchase 1,694,273 shares of our
class A common stock from a
stockholder, and the balance of $29.4
million for general corporate purposes,
including approximately $22.0 million
for clinical trials for Hemopure, $15.0
million of which is for the completion
of our pivotal Phase III trial, and
$1.0 million for capital expenditures

NASDAQ NATIONAL MARKET SYMBOL............"BPUR"

6
<PAGE> 6

SUMMARY CONSOLIDATED FINANCIAL DATA

The following table summarizes our consolidated statements of operations data
for the fiscal years ended October 31, 1996, 1997 and 1998 and the six months
ended May 2, 1998 and May 1, 1999. Also included in this table are our
consolidated balance sheet data at May 1, 1999, on an actual basis and on a pro
forma as adjusted basis. The following consolidated statements of operations
data for the fiscal years ended October 31, 1996, 1997 and 1998 are derived from
our consolidated financial statements that appear elsewhere in this prospectus
and that have been audited by Ernst & Young LLP, independent auditors. The
consolidated statements of operations data for the six months ended May 2, 1998
and May 1, 1999 and the consolidated balance sheet data at May 1, 1999 are
derived from our unaudited consolidated financial statements that appear
elsewhere in this prospectus, which include all adjustments that we consider
necessary for a fair presentation of the financial position and results of
operations for such periods. You should read the consolidated financial data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
related Notes included elsewhere in this prospectus. Diluted earnings per share
are not presented in the consolidated statements of operations data because we
had losses in all periods.

The pro forma loss per common share data reflect the conversion of our
convertible preferred stock upon completion of this offering. The pro forma as
adjusted balance sheet data reflect that conversion and also reflect the sale of
3,500,000 shares of class A common stock in this offering, after deducting the
underwriting discounts and offering expenses payable by us, and the use of a
portion of the net proceeds of this offering and $500,000 from existing cash to
repurchase 1,694,273 shares of class A common stock at $2.95 per share and to
repay outstanding long-term debt. In addition, the pro forma as adjusted balance
sheet data reflect the sale in May 1999 of additional shares of series D
convertible preferred stock, which will convert into 322,241 shares of class A
common stock upon completion of this offering.

<TABLE>
<CAPTION>
--------------------------------------------------------
FISCAL YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
-------------------------------- --------------------
MAY 2, MAY 1,
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
In thousands, except per share data
STATEMENTS OF OPERATIONS DATA:
Total revenues......................................... $ 71 $ -- $ 1,131 $ 214 $ 1,545
Cost of revenues....................................... -- -- 1,543 -- 3,229
-------- -------- -------- -------- --------
Gross profit (loss).................................... 71 -- (412) 214 (1,684)
Operating expenses:
Research and development............................. 18,924 23,494 22,950 12,085 9,871
Sales and marketing.................................. -- 694 2,444 1,069 1,512
General and administrative........................... 3,506 2,920 4,660 2,019 2,414
-------- -------- -------- -------- --------
Total operating expenses............................... 22,430 27,108 30,054 15,173 13,797
-------- -------- -------- -------- --------
Income (loss) from operations.......................... (22,359) (27,108) (30,466) (14,959) (15,481)
Total other income (expense)........................... 765 (310) 419 465 259
-------- -------- -------- -------- --------
Net income (loss)...................................... $(21,594) $(27,418) $(30,047) $(14,494) $(15,222)
======== ======== ======== ======== ========
Historical basic net income (loss) per common share.... $ (1.77) $ (2.23) $ (2.41) $ (1.17) $ (1.23)
Historical weighted-average common shares
outstanding.......................................... 12,215 12,300 12,460 12,425 12,333
Pro forma basic net income (loss) per common share..... $ (1.65) $ (0.80) $ (0.79)
Pro forma weighted-average common shares outstanding... 18,237 18,036 19,250
</TABLE>

<TABLE>
<CAPTION>
---------------------
AT MAY 1, 1999
---------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
(UNAUDITED)
<S> <C> <C>
In thousands
BALANCE SHEET DATA:
Cash and cash equivalents................................... $13,541 $47,101
Total current assets........................................ 22,455 56,015
Working capital............................................. 11,014 46,574
Net property and equipment.................................. 29,029 29,029
Total assets................................................ 53,471 86,031
Long-term debt (including current portion).................. 5,000 --
Common stock to be repurchased.............................. 5,300 --
Total stockholders' equity.................................. 31,818 74,678
</TABLE>

7
<PAGE> 7

RISK FACTORS

You should carefully consider each of the risks and uncertainties described
below and all of the other information contained in this prospectus before
deciding to invest in shares of our class A common stock. The trading price of
our class A common stock could decline if any of the following risks and
uncertainties develop into actual events, and you may lose all or part of the
money you paid to buy our class A common stock.

COMPANY RISKS

IF WE CANNOT GENERATE ADEQUATE, PROFITABLE SALES OF HEMOPURE, WE WILL NOT BE
SUCCESSFUL
In order to succeed as a company, we must develop Hemopure commercially and sell
adequate quantities of Hemopure at a high enough price to generate a profit. We
may not accomplish either of these objectives.

Even if we succeed in developing Hemopure commercially, a number of factors may
affect future sales of our product. These factors include:

- - whether physicians, patients and clinicians accept Hemopure as a
cost-effective and therapeutic alternative to other products, including
donated human blood;

- - whether reimbursement for the cost of Hemopure is available; and

- - whether the public accepts the use of a natural protein product extracted from
bovine red blood cells in transfusions, particularly in light of public
perceptions in Europe and elsewhere about the risk of "mad cow disease".

IF WE FAIL TO OBTAIN FDA APPROVAL, WE CANNOT MARKET HEMOPURE IN THE UNITED
STATES
We will not be able to market Hemopure in the United States until we receive FDA
approval. Obtaining FDA approval generally takes years and consumes substantial
capital resources with no assurance of ultimate success. We cannot apply for FDA
approval to market Hemopure until the product successfully completes an ongoing
U.S. pivotal Phase III clinical trial. Several factors may prevent successful
completion of this clinical trial, including an inability to enroll the required
number of patients and insufficient demonstration that Hemopure is safe and
effective for use in humans. If safety problems develop, the FDA could stop our
trial before its completion. Recent publicity about enrollment abuses in the
pharmaceutical industry and regulatory actions taken with respect to some major
research institutes engaged in the clinical testing of pharmaceutical products
could affect the ability of Biopure to enroll patients in its clinical studies.

Even if we complete the trial, we are not certain that we will be able to obtain
FDA approval of Hemopure. We believe that our ongoing U.S. pivotal Phase III
clinical trial is consistent with the FDA's most recent guidance on the design
and efficacy and safety endpoints required for approval of products such as
Hemopure. However, the FDA could change its view or require a change in study
design, additional data or even further clinical trials prior to approval of
Hemopure. If we fail to complete our ongoing U.S. pivotal Phase III clinical
trial and obtain FDA approval, we cannot market Hemopure in the United States.

OUR FAILURE TO OBTAIN REGULATORY APPROVALS IN FOREIGN JURISDICTIONS WILL PREVENT
US FROM MARKETING HEMOPURE ABROAD
We also intend to market our products in international markets, including the
European Union and South Africa. We must obtain separate regulatory approvals in
order to market our products in the European Union, South Africa and many other
foreign jurisdictions. The regulatory approval processes may differ among these
jurisdictions. Approval in any one jurisdiction does not ensure approvals in a
different jurisdiction. As a result, obtaining foreign approvals may require
additional trials and additional expenses.

WE CANNOT EXPAND INDICATIONS FOR OUR PRODUCTS UNLESS WE RECEIVE FDA APPROVAL FOR
EACH PROPOSED INDICATION
The FDA requires a separate approval for each proposed indication for the use of
Hemopure. We expect that our first indication for Hemopure will only involve its
use in elective orthopedic surgery. Subsequently, we expect to expand Hemopure's
indications. In order to do so, we will have to design additional clinical
trials, submit the trial designs to the FDA for review and complete those trials
successfully. We cannot guarantee that the FDA will approve Hemopure for any
indication. We can only promote Hemopure for indications which have been
approved by the FDA. Moreover, it is possible that the FDA may require a label
cautioning against Hemopure's use for any or all other indications.

8
<PAGE> 8

The FDA has approved the use of our veterinary product, Oxyglobin, for the
treatment of anemia in dogs, regardless of cause. Supplemental approvals are
required to market Oxyglobin for any new indications or additional species. We
cannot guarantee that we will receive such approvals.

IF WE CANNOT FIND APPROPRIATE MARKETING PARTNERS, WE MAY NOT BE ABLE TO MARKET
AND DISTRIBUTE HEMOPURE EFFECTIVELY
Our success depends, in part, on our ability to market and distribute Hemopure
effectively. We have no experience in the sale or marketing of medical products
for humans. In the past, we entered into agreements with two established
pharmaceutical companies to market our products upon successful completion of
clinical development. These arrangements ended in 1996 and 1997. In the event
that we obtain FDA approval of Hemopure, we may require the assistance of one or
more experienced pharmaceutical companies to market and distribute Hemopure
effectively.

If we seek an alliance with an experienced pharmaceutical company:

- - we may be unable to find a collaborative partner, enter into an alliance on
favorable terms or enter into an alliance that will be successful;

- - any partner to an alliance might, at its discretion, limit the amount and
timing of resources it devotes to marketing Hemopure; and

- - any marketing partner or licensee may terminate its agreement with us and
abandon our products at any time for any reason without significant payments.

If we do not enter into an alliance with a pharmaceutical company to market and
distribute our products, we may not be successful in entering into alternative
arrangements, whether engaging independent distributors or recruiting, training
and retaining a marketing staff and sales force of our own.

FAILURE TO INCREASE MANUFACTURING CAPACITY MAY IMPAIR HEMOPURE'S MARKET
ACCEPTANCE
We will need to construct additional manufacturing facilities to meet annual
demand in excess of 120,000 units of Hemopure. If Hemopure receives rapid market
acceptance, we may experience difficulty manufacturing enough of the product to
meet demand. If we cannot fill orders for Hemopure, customers might turn to
alternative products and choose not to use Hemopure even after we have addressed
our capacity shortage.

FAILURE TO RAISE ADDITIONAL FUNDS IN THE FUTURE MAY AFFECT THE DEVELOPMENT,
MANUFACTURE AND SALE OF OUR PRODUCTS
We require substantial working capital to properly develop, manufacture and sell
our products. We expect to use a significant portion of the net proceeds of this
offering to fund our working capital requirements. Additional manufacturing
facilities will require additional financing. If such financing is not available
when needed or is not available on acceptable terms, we may experience a delay
in developing products, building manufacturing capacity or fulfilling other
important goals.

OUR LACK OF OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
Licensing fees, payments to us from investors and payments to fund our research
and development activities comprise almost all of our funding to date. We have
no operating history upon which to base an evaluation of our business and our
prospects. We must successfully develop our products and product enhancements,
achieve market acceptance of our products and respond to competition. We cannot
guarantee that we will be successful in doing so, that we will ever be
profitable or, if we are, that we will remain profitable on a quarterly or
annual basis.

WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES
We have had annual losses from operations since our inception in 1984. We expect
to continue to incur losses from operations until we are able to develop
Hemopure commercially and generate a profit. As of May 1, 1999, we had
accumulated a deficit of $212.1 million. Our 1998 auditors' report stated that
our recurring losses from operations raise substantial doubt about our ability
to continue as a going concern.

IF WE ARE NOT ABLE TO PROTECT OUR INTELLECTUAL PROPERTY, COMPETITION COULD FORCE
US TO LOWER OUR PRICES, WHICH MIGHT REDUCE PROFITABILITY
We believe that our patents, trademarks and other intellectual property rights,
including our proprietary know-how, will be important to our success. Our
business position will depend, in part, upon our ability to defend our existing
patents and engage in our business free of claims of infringement by third
parties. We will need to obtain additional patents for our products, the
processes utilized to make our products and our product uses. We cannot
guarantee that additional products or

9
<PAGE> 9

processes will achieve patent protection. In addition, third parties may
successfully challenge our patents. Oppositions to one of our European patents
have already led to a narrowing of this patent in Europe and, since some
oppositions are still pending, may lead to further narrowing or even a loss of
this European patent.

We have not filed patent applications in every country of the world. In certain
countries, obtaining patents for our products, processes and uses may be
difficult or impossible. Patents issued in countries other than the United
States and in regions other than Europe may be harder to enforce than, and may
not provide the same protection as, patents obtained in the United States and
Europe.

OUR PROFITABILITY WILL BE AFFECTED IF WE INCUR PRODUCT LIABILITY CLAIMS IN
EXCESS OF OUR INSURANCE COVERAGE
The testing and marketing of medical products, even after FDA approval, have an
inherent risk of product liability. We maintain limited product liability
insurance coverage in the total amount of $10.0 million. Our profitability will
be affected by a successful product liability claim in excess of our insurance
coverage. We cannot guarantee that product liability insurance will be available
in the future or be available on reasonable terms.

REPLACING OUR SOLE SOURCE SUPPLIERS FOR KEY MATERIALS COULD RESULT IN UNEXPECTED
DELAYS AND EXPENSES

We obtain some key materials, including membranes and chemicals, from sole
source suppliers. If such materials were no longer available at a reasonable
cost from our existing suppliers, we would need to obtain supply contracts with
new suppliers for substitute materials. If we need to locate a new supplier, the
substitute or replacement materials will most likely be tested for equivalency.
Such evaluations could delay development of a product, limit commercial sales of
an FDA-approved product and cause us to incur significant additional expense. In
addition, the time expended for such tests could delay the marketing of an
FDA-approved product.

CONCENTRATION OF STOCK OWNERSHIP AND PROVISIONS OF OUR RESTATED CERTIFICATE OF
INCORPORATION COULD DISCOURAGE TAKEOVER TRANSACTIONS THAT A STOCKHOLDER MIGHT
CONSIDER TO BE IN ITS BEST INTEREST.
Upon completion of this offering, Carl W. Rausch, one of our co-founders and our
current Chairman, Chief Executive Officer and President, will beneficially own
24.7% of our outstanding class A common stock. As a result, Mr. Rausch will have
significant influence over the outcome of all matters requiring stockholder
approval, including the election and removal of directors and a merger or
consolidation of Biopure or sale of all or substantially all of our assets. Mr.
Rausch's influence could discourage others from initiating a potential merger,
takeover or other change of control transaction, including a potential
transaction at a premium over market price that a stockholder might consider to
be in its best interest. In addition, certain provisions of our Restated
Certificate of Incorporation and by-laws, as well as the adoption of a proposed
stockholders' rights plan, could discourage these transactions. For more
information, see "Description of Capital Stock -- Anti-Takeover Effects of
Various Provisions of Delaware Law, Biopure's Restated Certificate of
Incorporation and By-laws and a Proposed Stockholders' Rights Plan".

INDUSTRY RISKS

INTENSE COMPETITION COULD HARM OUR FINANCIAL PERFORMANCE
The biotechnology and pharmaceutical industries are highly competitive. There
are a number of companies, universities and research organizations actively
engaged in research and development of products that may be similar to Hemopure.
Increased competition could diminish our ability to become profitable or affect
our profitability in the future. Our existing and potential competitors:

- - are also conducting clinical trials of their products;

- - may have substantially greater resources than we do and may be better equipped
to develop, manufacture and market their products;

- - may have their products approved for marketing prior to Hemopure; and

- - may develop superior technologies or products rendering our technology and
products non-competitive or obsolete.

STRINGENT, ONGOING GOVERNMENT REGULATION AND INSPECTION OF OUR PRODUCTS COULD
LEAD TO DELAYS IN THE MANUFACTURE, MARKETING AND SALE OF OUR PRODUCTS
The FDA continues to review products even after they receive FDA approval. If
and when the FDA approves Hemopure, its manufacture and marketing will be
subject to ongoing regulation, including compliance with current Good
Manufacturing Practices, adverse event reporting requirements and the FDA's
general prohibitions against promoting products for unapproved

10
<PAGE> 10

or "off-label" uses. We are also subject to inspection and market surveillance
by the FDA for compliance with these and other requirements. Any enforcement
action resulting from failure to comply with these requirements could affect the
manufacture and marketing of Hemopure. In addition, the FDA could withdraw a
previously approved product from the market upon receipt of newly discovered
information.

We will be subject to a variety of regulations governing clinical trials and
sales of our products outside the United States. Whether or not FDA approval has
been obtained, we must secure approval of a product by the comparable non-U.S.
regulatory authorities prior to the commencement of marketing of the product in
a country. The approval process varies from country to country and the time
needed to secure additional approvals may be longer than that required for FDA
approval. These applications may require the completion of preclinical and
clinical studies and disclosure of information relating to manufacturing and
controls. Unanticipated changes in existing regulations or the adoption of new
regulations could affect the manufacture and marketing of our products.

HEALTH CARE REFORM AND CONTROLS ON HEALTH CARE SPENDING MAY LIMIT THE PRICE WE
CHARGE FOR HEMOPURE AND THE AMOUNT WE CAN SELL
The federal government and private insurers have considered ways to change, and
have changed, the manner in which health care services are provided in the
United States. Potential approaches and changes in recent years include controls
on health care spending and the creation of large purchasing groups. In the
future, it is possible that the government may institute price controls and
limits on Medicare and Medicaid spending. These controls and limits might affect
the payments we collect from sales of our products. Assuming we succeed in
bringing Hemopure to market, uncertainties regarding future health care reform
and private market practices could impact our ability to sell Hemopure in large
quantities at profitable pricing.

UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT COULD AFFECT OUR PROFITABILITY
Sales of medical products largely depend on the reimbursement of patients'
medical expenses by governmental health care programs and private health
insurers. There is no guarantee that governmental health care programs or
private health insurers will reimburse our sales of Hemopure, or permit us to
sell our products at high enough prices to generate a profit.

OFFERING RISKS

FUTURE SALES OF CLASS A COMMON STOCK COULD DEPRESS THE PRICE OF OUR CLASS A
COMMON STOCK
After this offering, our existing stockholders will hold 85% of the outstanding
shares of class A common stock. A decision by one or more of our stockholders to
sell their class A common stock could depress the market price of our class A
common stock.

PURCHASERS OF SHARES OF CLASS A COMMON STOCK IN THIS OFFERING WILL EXPERIENCE
SUBSTANTIAL DILUTION
Purchasers of shares of class A common stock in this offering will experience
immediate and substantial dilution of $8.83 in pro forma net tangible book value
per share, or approximately 74% of the offering price.

------------------------

This prospectus also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
the risks faced by us described above and elsewhere in this prospectus. We
assume no obligation to update any forward-looking statements or reason why
actual results might differ.

11
<PAGE> 11

USE OF PROCEEDS

The net proceeds we will receive from the sale of the 3,500,000 shares of class
A common stock offered by us are estimated to be $37,887,500, or $43,746,500 if
the underwriters' over-allotment option is exercised in full, after deducting
the underwriting discounts and estimated offering expenses payable by us.

We currently intend to use the net proceeds of this offering as follows:

- - $4.5 million to repay the principal amount of our loan from Pharmacia &
Upjohn, Inc., which bears interest at the prime rate, 8.0% per annum at July
15, 1999, and is payable in quarterly installments ending October 1, 2001;

- - $4.0 million to repurchase 1,694,273 shares of our class A common stock from a
stockholder; and

- - the balance of $29.4 million for general corporate purposes, including
approximately $22.0 million for clinical trials for Hemopure, $15.0 million of
which is for the completion of our pivotal Phase III trial, and $1.0 million
for capital expenditures.

Pending such uses, we intend to invest the proceeds in short-term,
investment-grade securities. Although we do not contemplate any changes in the
use of proceeds, we may adjust the amounts shown among the uses indicated above
or use portions of the net proceeds for other purposes.

DIVIDEND POLICY

We do not intend to pay any cash dividends on our class A common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
fund the development and growth of our business. Our board of directors will
determine whether we will pay dividends in the future.

12
<PAGE> 12

CAPITALIZATION

The following table summarizes, as of May 1, 1999, our capitalization on an
actual basis and on a pro forma as adjusted basis. The pro forma as adjusted
data reflect the sale of 3,500,000 shares of class A common stock in this
offering, after deducting the underwriting discounts and offering expenses
payable by us, and the use of a portion of the net proceeds of this offering and
$500,000 from existing cash to repurchase 1,694,273 shares of class A common
stock at $2.95 per share and to repay outstanding long-term debt, the sale of
series D convertible preferred stock in May 1999 and its conversion into 322,241
shares of class A common stock upon completion of this offering and the
conversion of all shares of our convertible preferred stock upon completion of
this offering. You should read this information in conjunction with our
Consolidated Financial Statements and the related Notes appearing elsewhere in
this prospectus.

This table does not include 1,248,295 shares of class A common stock issuable
upon the exercise of outstanding options and warrants as of May 1, 1999 or
1,492,020 shares of class A common stock issuable on the exercise of stock
options to be granted to employees and directors upon completion of this
offering. In addition, this table does not include between 646,667 and 1,272,119
shares of class A common stock issuable upon conversion of our class B common
stock following FDA approval of Hemopure.

<TABLE>
<CAPTION>
------------------------
MAY 1, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
In thousands, except par value and share data
Long-term debt (including current portion).................. $ 5,000 $ --
Common stock to be repurchased (1,694,273 shares of Class A
common stock actual; none pro forma as adjusted).......... 5,300 --
Stockholders' equity:
Preferred stock (9,000,000 shares authorized actual;
30,000,000 shares authorized pro forma as adjusted):
Series A convertible preferred stock, $0.01 par value
(346,663 shares outstanding actual; none pro forma as
adjusted)............................................. 3 --
Series B convertible preferred stock, $0.01 par value
(2,127,251 shares outstanding actual; none pro forma
as adjusted).......................................... 22 --
Series C convertible preferred stock, $0.01 par value
(2,830,188 shares outstanding actual; none pro forma
as adjusted).......................................... 28 --
Series D convertible preferred stock, $0.01 par value
(2,213,014 shares outstanding actual; none pro forma
as adjusted).......................................... 22 --
Common stock (40,000,179 shares authorized actual;
100,000,179 shares authorized pro forma as adjusted):
Class A common stock, $0.01 par value (10,556,342
shares outstanding actual; 22,280,877 shares
outstanding pro forma as adjusted).................... 106 223
Class B common stock, $1.00 par value (117.7 shares
outstanding actual and pro forma as adjusted)......... -- --
Capital in excess of par value.............................. 221,573 264,391
Contributed capital......................................... 24,574 24,574
Notes receivable............................................ (2,382) (2,382)
Accumulated deficit......................................... (212,128) (212,128)
--------- ---------
Total stockholders' equity............................. 31,818 74,678
--------- ---------
Total capitalization.............................. $ 42,118 $ 74,678
========= =========
</TABLE>

13
<PAGE> 13

DILUTION

Our pro forma net tangible book value as of May 1, 1999 was $36,790,000, or
approximately $1.83 per share of class A common stock. Pro forma net tangible
book value per share is equal to the amount of our total net tangible assets, or
total assets less intangible assets and total liabilities, plus the proceeds
from the sale of series D convertible preferred stock in May 1999, divided by
the pro forma shares of class A common stock as of May 1, 1999. Pro forma shares
of class A common stock reflect, as of May 1, 1999, the conversion of our
convertible preferred stock, including shares of series D convertible preferred
stock sold in May 1999, into 8,224,535 shares of class A common stock upon
completion of this offering, the repurchase of 1,694,273 shares of class A
common stock at $2.95 per share and the conversion of our class B common stock.
If we receive FDA approval of Hemopure, shares of our class B common stock will
be converted into shares of our class A common stock. We assumed the conversion
of our class B common stock into 1,272,119 shares of class A common stock, the
maximum number of shares that could be issued on conversion. Assuming the sale
by us of 3,500,000 shares of class A common stock in this offering, after
deducting the underwriting discounts and offering expenses payable by us, and
the application of $4.0 million of the proceeds from this offering to repurchase
1,694,273 shares of our class A common stock, our pro forma net tangible book
value as of May 1, 1999 would be $74,678,000, or $3.17 per share of class A
common stock. This represents an immediate increase in pro forma net tangible
book value of $1.34 per share to our existing stockholders and an immediate
dilution in pro forma net tangible book value of $8.83 per share to new
investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
------------------
Initial public offering price per share..................... $ 12.00
Pro forma net tangible book value per share as of May 1,
1999................................................... $ 1.83
Increase to present stockholders attributable to this
offering............................................... 1.34
-------
Pro forma net tangible book value per share after the
offering.................................................. 3.17
-------
Dilution per share to new investors......................... $ 8.83
=======
</TABLE>

The following table summarizes, on the pro forma basis described above, the
total number of shares of class A common stock issued, the total consideration
provided, the average price per share paid by existing stockholders and the
price paid by new investors. Existing stockholders include holders of our class
B common stock and convertible preferred stock and assumes that they purchased,
for the investment made for their class B common stock or their convertible
preferred stock, the number of shares of class A common stock into which their
class B common stock or their convertible preferred stock is convertible.

<TABLE>
<CAPTION>
---------------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................... 20,052,996 85.1% $256,978,000 86.0% $12.81
Purchasers of class A common stock in the
offering...................................... 3,500,000 14.9% 42,000,000 14.0% $12.00
---------- ----- ------------ -----
Total................................. 23,552,996 100.0% $298,978,000 100.0%
========== ===== ============ =====
</TABLE>

The foregoing tables and calculations assume no exercise of outstanding options
and warrants.

14
<PAGE> 14

SELECTED CONSOLIDATED FINANCIAL DATA

The following table summarizes our consolidated statements of operations data
for the fiscal years ended October 31, 1994, 1995, 1996, 1997 and 1998 and the
six months ended May 2, 1998 and May 1, 1999. Also included in this table are
our consolidated balance sheet data at October 31, 1994, 1995, 1996, 1997 and
1998 and at May 1, 1999, on an actual and on a pro forma as adjusted basis. The
following consolidated financial data with respect to our statements of
operations for the years ended October 31, 1996, 1997 and 1998 and with respect
to our balance sheets as of October 31, 1997 and 1998 are derived from our
consolidated financial statements that appear elsewhere in this prospectus and
that have been audited by Ernst & Young LLP, independent auditors. The following
consolidated financial data with respect to our statements of operations for the
years ended October 31, 1994 and 1995 and with respect to our balance sheets as
of October 31, 1994, 1995 and 1996 are derived from our audited consolidated
financial statements that are not included herein. The consolidated financial
data for the six months ended May 2, 1998 and May 1, 1999 are derived from our
unaudited consolidated financial statements that appear elsewhere in this
prospectus, which include all adjustments that we consider necessary for a fair
presentation of the financial position and results of operations for such
periods. You should read the consolidated financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the related Notes
included elsewhere in this prospectus. Diluted earnings per share are not
presented in the consolidated statement of operations data because we had losses
in all periods.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
SIX MONTHS ENDED
FISCAL YEAR ENDED OCTOBER 31, ------------------------
---------------------------------------------------------- MAY 2, MAY 1,
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands, except per share data
STATEMENTS OF OPERATIONS DATA:
Total revenues......................... $ -- $ 46 $ 71 $ -- $ 1,131 $ 214 $ 1,545
Cost of revenues....................... -- -- -- -- 1,543 -- 3,229
-------- -------- -------- -------- ---------- ---------- ----------
Gross profit (loss).................... -- 46 71 -- (412) 214 (1,684)
Operating expenses:
Research and development............. 17,896 16,498 18,924 23,494 22,950 12,085 9,871
Sales and marketing.................. -- -- -- 694 2,444 1,069 1,512
General and administrative........... 3,811 3,945 3,506 2,920 4,660 2,019 2,414
-------- -------- -------- -------- ---------- ---------- ----------
Total operating expenses............... 21,707 20,443 22,430 27,108 30,054 15,173 13,797
-------- -------- -------- -------- ---------- ---------- ----------
Income (loss) from operations.......... (21,707) (20,397) (22,359) (27,108) (30,466) (14,959) (15,481)
Total other income (expense)........... (1,161) (623) 765 (310) 419 465 259
-------- -------- -------- -------- ---------- ---------- ----------
Net income (loss)...................... $(22,868) $(21,020) $(21,594) $(27,418) $ (30,047) $ (14,494) $ (15,222)
======== ======== ======== ======== ========== ========== ==========
Historical basic net income (loss) per
common share......................... $ (1.85) $ (1.73) $ (1.77) $ (2.23) $ (2.41) $ (1.17) $ (1.23)
Historical weighted-average common
shares outstanding................... 12,335 12,171 12,215 12,300 12,460 12,425 12,333
Pro forma basic net income (loss) per
common share......................... $ (1.65) $ (0.80) $ (0.79)
Pro forma weighted-average common
shares outstanding................... 18,237 18,036 19,250
</TABLE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
AT MAY 1, 1999
AT OCTOBER 31, ----------------------
-------------------------------------------------------- PRO FORMA
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED
-------- -------- -------- -------- -------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 4,503 $ 7,924 $ 12,772 $ 13,527 $ 6,063 $13,541 $ 47,101
Total current assets....................... 10,047 10,453 13,636 15,221 13,175 22,455 56,015
Working capital............................ 1,848 3,406 8,111 5,368 1,986 11,014 46,574
Net property and equipment................. 12,723 28,272 29,438 27,408 29,606 29,029 29,029
Total assets............................... 24,237 40,218 43,462 44,054 44,848 53,471 86,031
Long-term debt (including current
portion)................................. -- -- 9,000 8,000 6,000 5,000 --
Common stock to be repurchased............. -- -- -- 6,300 6,300 5,300 --
Total stockholders' equity................. 14,911 31,875 26,417 20,222 21,449 31,818 74,678
</TABLE>

15
<PAGE> 15

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations
should be read in conjunction with the Consolidated Financial Statements and the
related Notes included elsewhere in this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors" and elsewhere in this prospectus.

OVERVIEW

We are a leading developer, manufacturer and marketer of oxygen therapeutics.
Our oxygen therapeutics are pharmaceuticals that one administers intravenously
into the circulatory system to increase oxygen delivery to the body's tissues.
We have developed and manufacture, using a proprietary process and patented
technology, two hemoglobin-based oxygen carriers. Hemopure, for human use, is
currently in a pivotal Phase III clinical trial in the United States. Oxyglobin,
for veterinary use, is the only hemoglobin-based oxygen carrier approved by the
FDA.

Since inception, we have devoted substantially all of our resources to our
research and development programs and manufacturing. We have been dependent upon
funding from debt and equity financings, strategic corporate alliances,
licensing agreements and interest income. We have not been profitable since
inception and had an accumulated deficit of $212.1 million as of May 1, 1999. We
expect to incur additional operating losses over the next several years in
connection with clinical trials, pre-marketing expenditures for Hemopure,
expanded marketing of Oxyglobin and increases in production. We began generating
revenue from the sale of Oxyglobin in fiscal 1998.

We agreed to issue an additional 1,480,000 shares of class A common stock to
holders of our series B and series C convertible preferred stock to obtain their
consent to convert their preferred stock in connection with this offering. The
value of such additional shares will, for accounting purposes, be treated as a
dividend on such convertible preferred stock in the quarter in which the
offering and conversion occur and, consequently, will increase net loss
applicable to common stockholders. Upon conversion of the series B and series C
convertible preferred stock, we will record a dividend of approximately $17.8
million.

RESULTS OF OPERATIONS

Six Months Ended May 1, 1999 and May 2, 1998
Total revenues increased to $1.5 million in the first half of fiscal 1999 from
$214,000 in the first half of fiscal 1998. Revenues in the first half of fiscal
1999 include $1.5 million of Oxyglobin sales reflecting the national launch of
Oxyglobin in October 1998. Total revenues also reflect fees from license and
development activities unrelated to our oxygen therapeutic products of $64,000
in the first half of fiscal 1999 and $90,000 in the first half of fiscal 1998.

Cost of revenues was $3.2 million in the first half of fiscal 1999. We did not
recognize any cost of revenues in the first six months of fiscal 1998. All such
costs during the first half of 1998 were allocated to research and development
expenses prior to FDA approval of Oxyglobin in March 1998 and while we expanded
manufacturing capacity following FDA approval.

Research and development expenses decreased 18.3% to $9.9 million in the first
half of fiscal 1999 from $12.1 million in the first half of fiscal 1998. This
decrease was primarily attributable to the allocation of that portion of
manufacturing expenses associated with the production of Oxyglobin to cost of
revenues.

Sales and marketing expenses increased 41.4% to $1.5 million in the first half
of fiscal 1999 from $1.1 million in the first half of fiscal 1998. This increase
was primarily attributable to increased sales and marketing personnel and
product launch, selling, marketing and distribution expenses related to
Oxyglobin.

General and administrative expenses increased 19.6% to $2.4 million in the first
half of fiscal 1999 from $2.0 million in the first half of fiscal 1998. This
increase was primarily attributable to an average increase of seven people in
our general and administrative department.

Total other income (expense) decreased 44.3% to $259,000 in the first half of
fiscal 1999 from $465,000 in the first half of fiscal 1998. This decrease was
primarily associated with a $552,000 decrease in interest income associated with
a decrease in average cash balances. Average cash balances were approximately
$10.9 million in the first half of fiscal 1999 compared to $29.2 million in the
first half of fiscal 1998. The decrease in interest income was partially offset
by the receipt of $200,000 under a settlement agreement associated with a
discontinued development project unrelated to oxygen therapeutics.

16
<PAGE> 16

Fiscal Years Ended October 31, 1998 and 1997
Total revenues were $1.1 million in fiscal 1998. We did not realize any revenues
in fiscal 1997. Revenues in fiscal 1998 included $942,000 of Oxyglobin sales.
Oxyglobin sales commenced in mid-March of fiscal 1998 to a discrete number of
emergency and specialty practices in the United States. We launched Oxyglobin
nationally in October 1998. Total revenues in fiscal 1998 also reflect $189,000
from license and development activities and product sales unrelated to our
oxygen therapeutic products.

Cost of revenues was $1.5 million in fiscal 1998. We did not realize any cost of
revenues in fiscal 1997. Cost of revenues in fiscal 1998 reflects the allocation
of a portion of the manufacturing costs after FDA approval for Oxyglobin and
completion of a process expansion project in August 1998. These costs were
entirely allocated to research and development expenses prior to August 1998.

Research and development expenses decreased 2.3% to $23.0 million in fiscal 1998
from $23.5 million in fiscal 1997. This decrease was attributable to the $1.5
million allocation of manufacturing expenses associated with the production of
Oxyglobin to cost of revenues from research and development expenses. This
decrease was partially offset by an increase in preclinical activities during
fiscal 1998 as compared to fiscal 1997.

Sales and marketing expenses increased 252.2% to $2.4 million in fiscal 1998
from $694,000 in fiscal 1997. This increase was primarily attributable to
increased sales and marketing personnel and product launch, selling, marketing
and distribution expenses related to Oxyglobin.

General and administrative expenses increased 59.6% to $4.7 million in fiscal
1998 from $2.9 million in fiscal 1997. This increase was primarily attributable
to the addition of five people in the general and administrative department and
expenses related to Hemopure market research and public relations activities.

Total other income (expense) was income of $419,000 in fiscal 1998 compared to
an expense of $310,000 in fiscal 1997. This change of $729,000 was primarily
associated with increased interest income from higher average cash balances
which were approximately $21.6 million in fiscal 1998 compared to $10.6 million
in fiscal 1997.

Fiscal Years Ended October 31, 1997 and 1996
We did not realize any revenues in fiscal 1997 as compared to $71,000 in fiscal
1996. Fiscal 1996 revenues were primarily attributable to license and
development revenues and were not associated with oxygen therapeutics.

Research and development expenses increased 24.1% to $23.5 million in fiscal
1997 from $18.9 million in fiscal 1996. This increase in research and
development expenses was primarily attributable to the completion of plant
construction projects, resulting in increased validation and depreciation
expenses, and increased preclinical and clinical trial activity.

Sales and marketing expenses were $694,000 in fiscal 1997. We did not have any
sales and marketing expenses in fiscal 1996 because our products were awaiting
FDA approval. The increase in sales and marketing expenses was primarily
attributable to pre-launch sales activities for Oxyglobin, which commenced in
1997.

General and administrative expenses decreased 16.7% to $2.9 million in fiscal
1997 from $3.5 million in fiscal 1996. This decrease was primarily attributable
to expenses recorded in 1996 as bonuses related to our agreement with Pharmacia
& Upjohn, Inc.

Total other income (expense) was an expense of $310,000 in fiscal 1997 compared
to income of $765,000 in fiscal 1996. This change of $1.1 million was primarily
due to a gain of $1.0 million in 1996 as a result of a merger between an
affiliate in an unrelated business into another company. As a result of the
merger, we were relieved of loan guarantee obligations and were paid for
accounts receivable for enzymes previously shipped to the affiliate, both of
which had been fully reserved prior to 1996.

LIQUIDITY AND CAPITAL RESOURCES

At May 1, 1999, we had current assets of $22.5 million, which consisted
primarily of $13.5 million in cash and cash equivalents, $4.6 million in net
inventory and $3.5 million held in an escrow account by Biopure as a settlement
payment by which we reacquired shares of class A common stock and license
rights. At May 1, 1999, current liabilities were $11.4 million.

We have financed operations from inception primarily through sales of equity
securities, development and license agreement payments, interest income and
debt. In January 1997, we sold an additional 3.2 shares of class B common stock
with net proceeds of $3.2 million. In June, July and August 1997, we sold class
A common stock with net proceeds of $2.4 million. In

17
<PAGE> 17

separate transactions between June and November 1997, we sold series B and
series C convertible preferred stock with aggregate net proceeds of $49.9
million. In May and October 1998, we sold class A common stock with net proceeds
of $2.5 million. In December 1998 and April 1999, we sold series D convertible
preferred stock with aggregate net proceeds of $25.6 million. Subsequent to May
1, 1999, we sold an additional 397,250 shares of series D convertible preferred
stock with aggregate net proceeds of $4.7 million. In accordance with the
provisions of EITF 98-5, for those units sold after May 20, 1999, we will treat
any shares of class A common stock issued upon conversion in excess of
two-thirds of one share of class A common stock for each share of series D
convertible preferred stock as a dividend for accounting purposes. Upon
conversion of the series D convertible preferred stock, we will record a
dividend of approximately $160,000. Our primary investment objective is
preservation of principal and currently we invest in high grade commercial
paper.

In October 1996, we incurred $9.0 million in long-term debt to Pharmacia &
Upjohn, Inc. in connection with the mutual termination of a strategic alliance.
As of May 1, 1999, we have repaid $4.0 million of the principal amount of this
debt. At May 1, 1999, the $2.0 million current portion of this debt was
reflected in current liabilities and the balance of $3.0 million was classified
as long-term debt. The loan is payable quarterly in equal installments of
$500,000 principal amount through October 1, 2001. The outstanding principal
balance is subject to mandatory prepayment upon certain financing events,
including a financing in excess of $50.0 million or this initial public
offering.

We plan to spend $8.7 million on capital projects for our existing facilities
over the next two years. We will also need to construct additional manufacturing
facilities to attain annual capacity in excess of 120,000 units of Hemopure. We
may incur additional costs in fiscal 2000 to begin engineering and design work
of these facilities. We will need additional financing to expand our
manufacturing capacity. We have not been profitable since inception and had an
accumulated deficit of $212.1 million as of May 1, 1999. We will continue to
generate losses from operations for the foreseeable future. We will explore
opportunities to raise capital through sales of equity and debt securities, bank
borrowings or leasing arrangements.

We believe our current cash, cash equivalents and short-term investments,
together with the net proceeds of this offering, should be sufficient to meet
our projected requirements for the next twelve months including the anticipated
completion of our pivotal Phase III trial. Our cash requirements may vary
significantly from current projections.

As of October 31, 1998, we had net operating loss carryforwards of approximately
$140.0 million to offset future federal and state taxable income through 2013.
Due to the degree of uncertainty related to the ultimate realization of such
prior losses, no benefit has been recognized in our financial statements as of
October 31, 1998. Utilization of such losses in future years may be limited
under the change of stock ownership rules of the Internal Revenue Service.

YEAR 2000 COMPLIANCE

Some currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.

State of Readiness
We have made an assessment of the ability of our critical information and
non-critical information systems to function properly with respect to dates in
the year 2000 and thereafter. We have based this assessment upon communications
with equipment and software vendors, literature supplied with software and in
connection with maintenance contracts and test evaluations of our systems. Our
critical systems are defined as: transactional systems affecting product
manufacturing, delivery and quantity; systems which play an infrastructure role
in supporting our business and scientific operations; and systems which use
forward-looking or date-based forecasting such as sample or batch expiration
dates.

We have identified potential problems in some of our critical systems and began
repairing, upgrading or replacing such systems in the second quarter of fiscal
1999. We expect to complete this process by the end of the fourth quarter of
fiscal 1999. We expect to repair, replace or upgrade non-critical systems by the
end of calendar year 1999. We will continue to monitor and remediate our
critical and non-critical systems.

Costs
To date, we have incurred, or are committed to incur, approximately $70,000 in
costs in connection with identifying and evaluating Year 2000 compliance issues.
Most of our expenses relate to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the assessment
process, the repair, upgrade or replacement process and Year 2000 compliance
matters generally. We estimate that the total cost of our Year 2000 project will
be $300,000 and

18
<PAGE> 18

intend to expense such costs as they are incurred. We expect to fund all of
these expenses from working capital. In the event that we incur expenses higher
than anticipated, such additional expenses could harm our business.

Risks
We have also commenced an assessment of the Year 2000 risks of our key
suppliers, including contract research organizations working on our clinical
trials, vendors and veterinary distributors of Oxyglobin. Our assessment is
based upon questionnaires submitted to these third parties. We believe that any
Year 2000 risks associated with these third parties will not have a material
effect on our business. We base our beliefs on the following facts: our key
suppliers, vendors and veterinary distributors are in the process of upgrading
to Year 2000-compliant systems, and our clinical trial information that might be
sensitive to the change from 1999 to 2000 is minimal.

Contingency Plan
In the event that we do not complete our Year 2000 conversion, we will manually
perform those tasks which would otherwise be performed by our non-Year
2000-compliant systems until such systems are repaired, upgraded or replaced. In
this event, we anticipate that we will experience delays in our production runs.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
Disclosures About Segments of an Enterprise and Related Information, or
Statement 131, which establishes standards for public companies to report
information about operating segments in financial statements. Statement 131
supersedes Statement No. 14, Financial Reporting for Segments of a Business
Enterprise; however, Statement 131 retains the requirements to report
information about major customers. We adopted Statement 131 effective November
1, 1998. We do not expect disclosures required in future periods under Statement
131 to be significant.

In March 1998, the Accounting Standards Executive Committee, or AcSEC, issued
Statement of Position No. 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, or SOP No. 98-1. SOP No. 98-1 provides
guidance for the capitalization of certain costs incurred for the development or
acquisition of internal-use software. SOP No. 98-1 is effective for fiscal 2000.
We do not expect the adoption of this standard to have a material effect on our
financial position or operating results.

19
<PAGE> 19

BUSINESS

The following section contains forward-looking statements which involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth in "Risk Factors" and elsewhere in this prospectus.

Biopure develops, manufactures and markets oxygen therapeutics. Its products are
Hemopure, for human use, and Oxyglobin, for veterinary use. Biopure is
developing Hemopure as an alternative to red blood cell transfusions as well as
for use in the treatment of other critical care conditions. Hemopure is
currently in a pivotal Phase III clinical trial in the United States. In 1998,
following FDA approval, Biopure began selling Oxyglobin in the United States.

SCIENTIFIC OVERVIEW

Oxygen is indispensable to the life of all human tissues. Hemoglobin, a protein
normally contained within red blood cells, is the molecule responsible for
carrying and releasing oxygen to the body's tissues. Hemoglobin's protein
structure is similar in many different animal species, including humans. Under
normal conditions, hemoglobin contained within red blood cells carries
approximately 98% of the body's oxygen and the remaining two percent is
dissolved in the plasma, or fluid part of the blood.

As the heart pumps blood, hemoglobin within the red blood cells takes up oxygen
in the lungs and carries it to various parts of the body. Blood travels through
progressively smaller blood vessels to the capillaries, some of which are so
narrow that red blood cells can only pass through them in single file. Most of
the oxygen release occurs in the capillaries. Blood then returns to the lungs to
reload the red blood cells with oxygen. Adequate blood pressure and red blood
cell counts are crucial to this process. Oxygen deprivation, even for several
minutes, can result in cell damage, organ dysfunction and, if prolonged, death.

The causes of inadequate tissue oxygenation generally can be classified into
three categories:

- - anemia -- insufficient hemoglobin. Blood loss from injury or surgery or
disorders that affect red blood cell production or maintenance, such as bone
marrow disease, can cause anemia;

- - ischemia -- inadequate red blood cell flow for tissue oxygenation. Obstructed
or constricted blood vessels can result in ischemia. Ischemia can lead to
stroke, heart attack or other organ or tissue dysfunction; and

- - cardiopulmonary failure -- impaired function of the heart or lungs. The
heart's inability to pump sufficient quantities of blood to meet the needs of
the tissues or the failure of the lungs to oxygenate blood adequately can
cause cardiopulmonary failure.

A red blood cell transfusion is the standard therapy for anemia resulting from
blood loss. Sources of red blood cells for transfusions include stored supplies
of donated blood or of the recipient's own pre-donated blood. Health care
professionals also may use medications that stimulate red blood cell production
if anemia is anticipated, for example, as a result of planned surgery.

Red blood cell transfusions have certain risks and limitations. As HIV,
hepatitis and other diseases have infected the world's blood supply, the need
for a sterile blood product has become increasingly apparent. There is currently
no 100% effective method for detecting blood-borne diseases or for sterilizing
donated blood. As a result, the risk of disease transmission from donated blood
is an ongoing concern to physicians and patients, although less so than in the
past. Handling errors in typing and cross-matching blood, as well as the
inadvertent introduction of pathogens, can also result in significant medical
problems. Blood typing and handling requirements, particularly refrigeration,
limit the feasibility of red blood cell transfusions in pre-hospital emergency
treatment situations. Shortages of certain types of blood can occur due to
seasonal factors or disasters. Donated red blood cells are available for use in
transfusions for only 42 days after collection and this limitation affects the
ability to stockpile red blood cell supplies. Although freezing can extend the
life of red blood cells, the freezing and thawing processes require chemical
treatment of the red blood cells and reduce the efficacy of those red blood
cells. Finally, the longer red blood cells are stored, the longer it takes them
to reach their maximum oxygen-releasing capacity and the more they break down,
limiting their effectiveness in delivering oxygen. Red blood cells lose
approximately 75% of their oxygen-releasing ability after eight days of storage.
Blood banks generally release the oldest stored blood first to prevent outdating
after 42 days.

Red blood cell transfusions generally are not effective for ischemic conditions.
In such situations, an obstructed or constricted blood vessel that is too narrow
to permit the normal passage of red blood cells can prevent oxygen from reaching
the body's tissues. Similarly, red blood cell transfusions are generally not
effective in overcoming poor oxygenation due to impaired heart or lung function.

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<PAGE> 20

Existing alternatives to red blood cell transfusions are limited. In trauma
situations, victims may experience massive bleeding resulting in rapid loss of
blood volume and oxygen-carrying capacity. In an effort to stabilize trauma
patients, emergency caregivers typically administer commonly used intravenous
fluids, such as Ringer's lactate or saline. Ringer's lactate consists of water
and electrolytes and is generally administered to patients who have lost
substantial amounts of bodily fluids as a result of bleeding, vomiting or
diarrhea. Both Ringer's lactate and saline restore blood volume, but do not
carry oxygen.

For anemia in non-acute situations, there are currently two biological products
on the market. Both of these products are formulations of a protein called
erythropoietin. Erythropoietin stimulates the body's ability to produce its own
red blood cells. This stimulation is called an erythropoietic effect. In a
surgical setting, these products are administered in anticipation of blood loss
during surgery, thereby potentially reducing the need for red blood cell
transfusions. However, erythropoietin does not deliver oxygen to the body's
tissues and does not act as a blood volume expander. As a result, these products
are not effective in treating acute blood loss and are generally not used in
cases of unplanned surgeries or emergency need. In addition, the labels on these
products caution against their use in cardiac surgery patients.

BIOPURE'S OXYGENATION TECHNOLOGY

Biopure has two proprietary oxygen therapeutic products that are identical
except for their molecular size distributions. Biopure defines its products as
therapeutics because they remediate oxygen deprived tissues. One administers
these products intravenously. Biopure's products consist of bovine hemoglobin
that has been purified, chemically modified and cross-linked for stability. The
resulting hemoglobin solutions do not contain red blood cells and are formulated
in a balanced salt solution similar to Ringer's lactate.

The average Hemopure molecule is less than 1/1000th the size of a red blood
cell. Once infused into a patient, the Hemopure molecules disperse throughout
the entire plasma space, including the area between and around red blood cells,
and are in continuous contact with the blood vessel wall where oxygen transport
to tissues takes place. The following schematic illustrates the movement of red
blood cells and Hemopure in blood vessels.
[Schematic of Blood Vessel]

In the above schematic, the large circles represent red blood cells, which are
surrounded by plasma. The small particles shown in the plasma solution represent
Hemopure molecules. Hemopure, by filling plasma with hemoglobin molecules,
immediately turns the plasma into an oxygen-delivering substance. Plasma
containing Hemopure flows everywhere that blood ordinarily flows and can also
bypass partial blockages or pass through constricted vessels that impede the
normal passage of red blood cells. Furthermore, introducing Hemopure into the
bloodstream enables red blood cells to release more oxygen to the tissues than
they otherwise would. In addition to delivering oxygen to tissues, Hemopure also
acts as a blood volume expander and may have an erythropoietic effect,
stimulating the body's ability to produce red blood cells.

Hemopure molecules hold the same amount of oxygen as the hemoglobin molecules in
red blood cells on a gram-for-gram basis. Hemopure molecules, however, are
chemically modified to have less affinity for oxygen than red blood cells,
enabling Hemopure to release oxygen to tissues more efficiently than red blood
cells. Human hemoglobin, unlike bovine hemoglobin,

21
<PAGE> 21

depends on the action of 2,3 diphosphoglycerate, or 2,3 DPG, a substance found
in high concentrations only within the red blood cell, for optimal offloading,
or release, of oxygen to tissues. The 2,3 DPG breaks down rapidly in stored
blood causing red blood cells to lose approximately 75% of their ability to
release oxygen after eight days of storage. The 2,3 DPG breakdown reduces the
oxygen offloading efficiency of transfused red blood cells until its levels are
restored. Transfused red blood cells can require hours to regain their oxygen
offloading capability. Biopure's bovine hemoglobin permits the efficient
offloading of oxygen in the absence of 2,3 DPG, thereby allowing Hemopure to be
at its optimal oxygen offloading effectiveness immediately upon infusion.

Hemoglobin molecules in different species have demonstrated low antigenicity,
which means that they do not readily elicit an immune or allergic response.
Biopure has confirmed Hemopure's low antigenicity, as indicated by the absence
of certain effects, through in vitro and in vivo studies. No clinically
significant levels of antibodies were observed in Biopure's trials, including
one human study lasting more than a year with multiple doses.

The following chart lists Hemopure's characteristics in comparison to transfused
red blood cells:
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CHARACTERISTIC HEMOPURE TRANSFUSED RED BLOOD CELLS
-------------- -------- --------------------------
<S> <C> <C>
Onset of action Immediate -- not 2,3 DPG-dependent Initially limited -- 2,3
DPG-dependent
Oxygen affinity More efficient oxygen release to Less efficient oxygen release to
tissues tissues
Oxygen transport Red blood cells and plasma Red blood cells only
Risk of disease transmission Product purity maintained through Risk minimized by testing, donor
a reproducible and controllable selection and administration
manufacturing process that protocols, and ongoing
complies with current Good surveillance for emerging
Manufacturing Practices; no pathogens; leukocyte exposure
leukocyte, or white blood cell,
exposure
Storage Room temperature; no loss of Refrigeration required; loss of
efficacy efficacy
Shelf life 2 years 42 days
Compatibility Universal Type-specific
Preparation Ready-to-use Requires typing and cross-matching
Viscosity Low High
Raw material source Controlled Not controlled
Duration of action Maximum of 3 days Maximum of 120 days
</TABLE>

In addition to Hemopure's use as an alternative to red blood cell transfusions
in surgery, human clinical testing and preclinical studies suggest that Hemopure
also could be a readily available therapeutic with a broad range of potential
applications. These applications include the treatment of trauma, ischemic
conditions, including stroke and heart attack, and malignant hypoxic tumors.

Hemopure has a two-year shelf life at room temperature, is universally
compatible and can be stocked well in advance of anticipated use. Consequently,
when blood is not available, Hemopure could be used to maintain a patient until
the needed type and quantity of red blood cells arrive, until the patient can be
transported to a hospital or until a patient's body produces its own red blood
cells. Hemopure thus could be an effective "oxygen bridge" to a red blood cell
transfusion or the body's ability to regenerate its own fresh red blood cells.
Hemopure may be particularly well-suited for this "oxygen bridge" function
because the duration of action of a single infusion is about two to three days
with 50% of the Hemopure molecules retained in the circulatory system for 24 to
36 hours following administration. In clinical trial data, Biopure has observed
that the redosing of Hemopure over several days can prolong Hemopure's "oxygen
bridge" effect.

Transfused red blood cells, however, have some advantages when compared to
Hemopure. Transfused red blood cells have a longer duration of action and can
persist in the body for up to 120 days. Hemopure, on the other hand, depending
on the amount infused, can last between one and three days and may require
repeat administration. Biopure has also observed slight increases in blood
pressure and abdominal discomfort in Hemopure-infused patients. Fluctuations in
a patient's blood pressure can affect the manner in which health care
professionals, who are accustomed to transfusing red blood cells, manage a
patient's care. Furthermore, Biopure cannot be certain that Hemopure will not
elicit an immune response in some individuals as do some other proteins. In
addition, it is anticipated that the cost of Hemopure will be significantly
greater to the patient than the cost of transfused red blood cells.

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<PAGE> 22

STRATEGY

Biopure intends to expand its leadership position in the development,
manufacture and marketing of oxygen therapeutics through the following strategy:

- - Develop and Commercialize Hemopure as an Alternative to Red Blood Cell
Transfusions. Biopure's advanced clinical trials have demonstrated Hemopure's
efficacy as an alternative to red blood cell transfusions in certain surgical
procedures. While Biopure does not anticipate that Hemopure will replace all
red blood cell transfusions, Biopure expects that Hemopure's use in surgery
will demonstrate Hemopure to be a safe and effective oxygen therapeutic in a
wide range of patients. Biopure has filed for marketing approval of Hemopure
in South Africa in July 1999 and expects to complete its U.S. pivotal Phase
III clinical trial and file for approval in the United States and the European
Union in 2000.

- - Pursue Approvals of Hemopure for Additional Therapeutic Applications. Biopure
will seek regulatory approvals for the use of Hemopure as an adjunct to red
blood cell transfusions. In addition, because of its special oxygen
therapeutic characteristics, Biopure will seek to develop Hemopure as a
therapy for indications such as trauma, ischemic conditions, including stroke
and heart attack, and as an adjunct to therapy for malignant hypoxic tumors.
Observations from Biopure's clinical trials and the results of preclinical
studies and field reports support the use of Hemopure for these conditions.

- - Increase Market Awareness for Hemopure. Biopure intends to increase market
awareness for Hemopure by identifying the issues and promoting standards
necessary for widespread acceptance of oxygen therapeutics by the medical
community. Biopure has contracted with a medical education firm to work with
physician thought leaders to advocate the clinical benefits of Hemopure and
expects to expand this effort.

- - Expand Market for Oxyglobin. Biopure will seek to broaden Oxyglobin's use to
other canine indications, other animal species and selected international
markets. In 1998, Biopure filed for marketing approval in the European Union
for canine anemia. Biopure will continue advertising and educational
initiatives to further penetrate U.S. veterinary practices. Biopure may also
seek one or more marketing alliances in the United States or other geographic
areas.

BIOPURE'S PRODUCTS

Biopure's two products are oxygen therapeutics. Hemopure, for human use, is
currently in a U.S. pivotal Phase III clinical trial. Biopure expects that this
trial, together with the results of prior clinical trials, will form the basis
for an FDA marketing application in the year 2000 for the use of Hemopure as an
alternative to red blood cell transfusions before, during or after elective
orthopedic surgery. The FDA has approved the use of Oxyglobin, Biopure's
veterinary product, for the treatment of anemia in dogs, regardless of cause.
Oxyglobin is marketed and sold to veterinary hospitals and to small animal
veterinary practices. Biopure has tested Hemopure and Oxyglobin in approximately
19 completed clinical trials and 150 completed preclinical studies involving
more than 400 humans and 1,500 animals from 10 species.

HEMOPURE

Biopure is pursuing the development and approval of Hemopure both as an
alternative to red blood cell transfusions and as a therapeutic for indications
such as trauma, ischemic conditions, including stroke and heart attack, and
malignant hypoxic tumors.

Red Blood Cell Transfusion Alternative
Biopure plans to file for human approval in South Africa in 1999 for Hemopure's
use as an alternative to red blood cell transfusions for elective surgery.
Hemopure would serve as an alternative to a red blood cell transfusion or as an
"oxygen bridge" pending the acquisition or production of suitable red blood
cells. Biopure does not expect Hemopure to replace all red blood cell
transfusions. However, Hemopure's oxygen-carrying properties, storage and
infusion advantages address many of the limitations associated with red blood
cell transfusions. The National Blood Data Resource Center, a subsidiary of the
American Association of Blood Banks, estimated that approximately 11.5 million
units of red blood cells and whole blood, including the patient's own previously
donated blood, were transfused in the United States in 1997.

Biopure's clinical trials have demonstrated Hemopure's efficacy as an
alternative to red blood cell transfusions in surgery patients as measured by
the elimination of red blood cell transfusions. In all of Biopure's advanced
clinical trials, Biopure evaluated Hemopure's efficacy as an oxygen therapeutic
by determining, within the context of a written set of guidelines known as a
protocol, the percentage of patients given Hemopure who did not require a
subsequent transfusion of red blood cells. In these trials, Hemopure was
administered only to patients who needed a red blood cell transfusion. Trial
design limited the amount of Hemopure that could be infused and the number of
post-operative days during which it could be infused. Elimination was deemed to
occur if the patient did not require a subsequent red blood cell transfusion.
Elimination was
23
<PAGE> 23

deemed not to occur if the patient was administered the maximum number of
Hemopure units permitted by the particular trial design and subsequently needed
a red blood cell transfusion. Despite these trial limitations, Hemopure's
clinical trials demonstrate statistically significant elimination of red blood
cell transfusions.

In 1998, the FDA agreed to a protocol with a primary endpoint of 35% elimination
for Biopure's ongoing U.S. pivotal Phase III clinical trial in orthopedic
surgery patients. The most recently completed trial, a Phase III clinical trial
conducted in Europe and South Africa with non-cardiac surgery patients, showed
elimination of 43%.

The following chart summarizes Biopure's advanced clinical trials that Biopure
will use for the initial applications for marketing approval of Hemopure as an
alternative to red blood cell transfusions.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NO. OF TOTAL
DOSING: GRAMS PATIENTS/NO. OF
HEMOGLOBIN (UNITS PATIENTS TREATED
TYPE OF SURGERY DEVELOPMENT STATUS HEMOPURE) WITH HEMOPURE RESULTS
- --------------- ------------------ ----------------- ---------------- -------
<S> <C> <C> <C> <C>
Elective orthopedic U.S. pivotal Phase III Up to 300 grams 640/320 Trial ongoing
surgery (ongoing) trial ongoing (10 units) over 6
days

Non-cardiac elective Phase III trial Up to 210 grams 160/83 43% elimination of red
surgery (1998) completed in Europe and (7 units) over 6 blood cell
South Africa; the basis days transfusions
for filing in South
Africa in 1999

Post cardiopulmonary Phase II trial Up to 120 grams 98/50 34% elimination of red
bypass surgery (1996) completed in the U.S.; (4 units) over 3 blood cell
supportive trial for days; first dose transfusions
the South African 1999 administered
filing post-surgery

Aortic aneurysm Intraoperative Phase II Up to 150 grams 72/48 27% elimination of red
reconstruction surgery trial completed in the (5 units) over 4 blood cell
(1996) U.S.; supportive trial days; first dose transfusions
for the South African administered
1999 filing during surgery,
if required
</TABLE>

U.S. Pivotal Phase III Orthopedic Surgery Trial. Biopure, with FDA agreement,
began a pivotal Phase III trial in the United States in March 1999 in elective
orthopedic surgery. Elective orthopedic surgery includes non-emergency surgery
involving bones and joints as well as artificial limbs. The primary objective of
this trial is the avoidance of red blood cell transfusions for six weeks after
orthopedic surgery. Biopure designed this randomized, red blood cell controlled,
multi-center study to enroll a total of 640 patients in the United States,
Europe, Canada and South Africa, of whom approximately one-half will be in the
Hemopure treatment group and the other half will receive red blood cells. Up to
300 grams of hemoglobin, or ten units of Hemopure, may be infused before, during
or after surgery for a total of up to six treatment days. The primary endpoint
of this trial is the elimination of red blood cell transfusions in 35% of the
patients who receive Hemopure.

Non-U.S. Phase III Non-cardiac Surgery Trial. Biopure completed a Phase III
trial in Europe and South Africa in 1998 in non-cardiac surgery. Non-cardiac
surgery refers to surgery that does not involve the heart and can include
surgery of the digestive or urinary tract as well as orthopedic surgery. The
primary objective of this trial was the avoidance of red blood cell transfusions
for 28 days after non-cardiac surgery. This randomized, red blood cell
controlled, multi-center study enrolled 160 patients, 83 of whom were infused
with Hemopure. Up to 210 grams of hemoglobin, or seven units of Hemopure, were
permitted during a six-day treatment period. The trial resulted in the
statistically significant elimination of red blood cell transfusions in 43% of
the patients who received Hemopure.

U.S. Phase II Post Cardiopulmonary Bypass Surgery Trial. Human testing was
completed in 1997 in a double-blind, randomized, red blood cell controlled,
multi-center study in post cardiopulmonary bypass surgery patients. During
cardiopulmonary bypass surgery, patients are connected to a heart and lung
machine that replaces functions of the heart and lungs during surgery. The
primary objective of this trial was the avoidance of red blood cell transfusions
for 28 days after surgery. The study treated 98 patients, 50 of whom were
infused with Hemopure. Up to 120 grams of hemoglobin, or four units of Hemopure,
were administered over a three-day treatment period following surgery. The trial
resulted in the statistically significant elimination of red blood cell
transfusions in 34% of the patients that received Hemopure. In this study, 100%
of the patients who received Hemopure did not require any red blood cells during
the day of surgery.

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<PAGE> 24

Additionally, Biopure observed that the hematocrit, or packed red blood cell
volume as a percentage of total blood volume, of the patients treated with
Hemopure recovered to a degree that was indistinguishable from the red blood
cell treated patients at both six and 28 days post-surgery. This observation
supports the potential use of Hemopure as an erythropoietic agent.

U.S. Phase II Aortic Aneurysm Reconstruction Surgery Trial. In 1998, Biopure
completed a randomized, red blood cell controlled, multi-center trial in
abdominal aortic aneurysm reconstruction surgery. Aortic aneurysm reconstruction
surgery involves repairing a damaged segment of the aorta, the body's principal
artery. This study treated 72 patients, 48 of whom were infused with Hemopure.
The maximum dosage was 150 grams of hemoglobin, 30 grams more than the post
cardiopulmonary bypass trial. Usually aortic aneurysm reconstruction surgery
involves much more blood loss than post cardiopulmonary bypass surgery. In this
trial, Hemopure was used during the surgery in contrast to the post
cardiopulmonary bypass trial, where use began after surgery. The trial resulted
in the statistically significant elimination of red blood cell transfusions in
27% of the patients that received Hemopure.

Trauma
Biopure has observed a 100% elimination of red blood cell transfusions on the
day of surgery in patients infused with Hemopure. As a result, Biopure believes
that Hemopure could be infused immediately at the site of an accident,
potentially extending the time that a trauma patient could be supported awaiting
definitive hospital care. Hemopure also acts as an expander of blood volume, a
common therapy used to stabilize trauma patients. Biopure has initiated a Phase
II trial in non-cardiac surgery patients, including stabilized trauma patients.
This trial includes both military and civilian hospitals. In this Phase II
trial, Biopure may administer Hemopure to a maximum dose of 10 units or 300
grams of hemoglobin. Biopure expects this trial to provide information useful in
designing a clinical development plan for trauma.

In addition, preclinical animal model studies performed in academic and military
research laboratories have shown the benefit of using Hemopure in situations
involving severe trauma, hemorrhagic shock, hemorrhagic shock with tissue injury
and resuscitation from cardiac arrest resulting from severe hemorrhage.

Ischemia
The ability of Hemopure molecules to circumvent partial occlusions could
potentially benefit patients suffering from ischemic conditions by supplying
oxygen to tissues that are receiving inadequate numbers of red blood cells.
Inadequate tissue oxygenation due to partial vessel blockage or constriction can
cause heart attack, angina and transient ischemic attack, which is a precursor
to stroke. In these situations, treatment with red blood cell transfusions would
not be effective because red blood cells are too large to navigate around
blockages. Biopure has completed preclinical studies with results supporting
these potential indications. One preclinical study demonstrated that infusing
Hemopure before there is a blockage in a coronary artery leading to a heart
attack can limit potential damage to the heart. Although Hemopure would not
attack the root cause of the ischemia, such as a clot or plaque in the arteries,
it could maintain oxygenation under certain circumstances and thereby sustain
tissue pending a correction of the blockage or could lessen the damage from
ischemia if infused in time. In 1996, the American Heart Association reported
that approximately 900,000 people in the United States each year experience
heart attacks, of which approximately one quarter are fatal. In its 1999 Heart
and Stroke Statistical Update, the American Heart Association reported that
approximately 600,000 people suffer a new or recurrent stroke each year.

Cancer Therapy Adjunct
Radiation therapy and many types of chemotherapy depend on the adequate
oxygenation of tumors to kill cancer cells. Malignant cancer tumors, such as
breast, prostate and other solid tumors, are dense tumors which often outgrow
their blood supply, leaving much of the tumor without oxygen. Consequently, they
resist chemotherapy and radiation treatment. Biopure, in collaboration with the
Dana-Farber Cancer Institute in Boston, has developed a patented method for
oxygenating hypoxic, or oxygen deficient, tumor cells that could potentially
increase the tumor-killing effects of radiation and chemotherapy. Preclinical
studies have shown the feasibility of this application. In 1999, Biopure
initiated clinical development of this indication through preliminary human
trials at two cancer treatment institutions.

Plasma-Expanding Agent
After blood loss, health care professionals typically administer human serum
albumin, or HSA, or other volume expanding fluids to restore blood volume.
Adequate blood volume is necessary to maintain effective blood pressure and
heart rate. HSA is a naturally occurring protein that is part of the plasma.
Hemopure molecules are also proteins. Hemopure maintains the volume of blood in
a manner similar to HSA. In patients suffering from severe blood loss, Biopure
believes that Hemopure would be preferable to currently available plasma
expanding agents, which do not carry or offload oxygen.

25
<PAGE> 25

Hemodilution Agent
Acute normovolemic hemodilution, or ANH, is a technique that reduces the need
for donated blood. ANH refers to a practice where the patient donates one to
three units of blood immediately before surgery and is infused with a non-oxygen
plasma expander such as Ringer's lactate. The patient is then transfused with
his or her own blood during or after surgery. Biopure has administered Hemopure
in three clinical safety trials involving humans undergoing ANH. As an oxygen
carrier and a plasma-expanding agent, Hemopure could potentially temporarily
replace the oxygen-carrying support and volume lost from donating blood. Used in
this manner, Hemopure may enhance the safety of ANH or allow more units to be
safely withdrawn prior to surgery. Additionally, use of Hemopure in ANH
procedures would also allow for greater blood conservation, which could be
particularly valuable in times of shortages. At present, ANH is not widely used
in the United States but is more commonly used in Europe.

Erythropoietic Agent
In Biopure's Phase II post cardiopulmonary bypass clinical trial, which compared
the post-operative use of Hemopure to donated red blood cells in cardiac
surgery, the hematocrit, or packed red blood cell volume as a percentage of
total blood volume, was similar for both the Hemopure-infused and the control
patients on the sixth day following surgery. Both groups maintained this
similarity when measured again at a follow-up visit 28 days after surgery,
suggesting that Hemopure may promote the regeneration of red blood cells. In
addition, in one "compassionate use" case, a patient with a critically low
hematocrit, who received Hemopure but not red blood cells, was stabilized for
several days and then was able to restore her hematocrit. As such, Hemopure
could potentially be used in conjunction with, or as an alternative to,
erythropoietin, a hormone that enhances the production of red blood cells. A
preclinical study supports the use of Hemopure as an erythropoietic agent. This
study involved eight conscious sheep, all of whom underwent an exchange
transfusion involving the replacement of at least 95% of their blood with an
early formulation of Hemopure. Even with critically low hematocrits, these
animals achieved stable hemodynamics, demonstrated no clinical signs of distress
and survived long term with a rapid resynthesis of their red blood cells.

OXYGLOBIN

Oxyglobin is identical to Hemopure except for its molecular size distribution,
and has the same advantages over red blood cells as Hemopure. The FDA Center for
Veterinary Medicine approved Oxyglobin in January 1998 for the treatment of
canine anemia, regardless of cause. Oxyglobin's characteristics are well suited
for use by small animal practitioners for treatment of anemia and other critical
care situations involving acute blood loss. Acute blood loss often results from
surgery, trauma, hemolysis, gastrointestinal blood loss, which is most
frequently a result of parasitism or intestinal infection, urinary tract blood
loss, iron deficiency and rodenticide toxicity. Biopure estimates that there are
at least 15,000 small animal veterinary practices in the United States and
another 4,000 mixed animal practices treating small and large animals. Biopure
believes that the average veterinary practice treats only a small percentage of
canine anemia cases with a red blood cell transfusion. The remainder receive
either cage rest or a minimally effective treatment such as fluid
administration, iron supplements, nutritional supplements or inspired oxygen.

Biopure's strategy to increase the market for Oxyglobin includes expanding the
Oxyglobin label as follows:

- - add European, Japanese and other foreign approvals -- filed for European Union
approval in 1998;

- - change to flexible dosing -- this application has been filed with the FDA;

- - add the opportunity for repeat dosing -- expected FDA filing in 1999;

- - add other applications;

- - offer a smaller package size; and

- - add other species.

MANUFACTURING

Biopure uses proprietary and patented purification and polymerization processes
in the manufacture of its oxygen therapeutic products. Biopure believes its
processes comply with current Good Manufacturing Practices established by the
FDA and comparable standards required in the European Union for
biopharmaceutical and chemical manufacturing and permit large-scale production
of the products for commercial use. Biopure's scientific and engineering team
has designed and built much of its large-scale critical equipment. A proprietary
computer software system operates and monitors most aspects of this process.
Biopure has produced consistent product, both Hemopure and Oxyglobin, since 1991
and its facilities currently have

26
<PAGE> 26

the capacity to produce 40,000 units of Hemopure or 140,000 units of Oxyglobin
per year. Through the installation of additional water supply and the completion
of its automated filling line, Biopure can attain capacity to produce 120,000
units of Hemopure or 360,000 units of Oxyglobin per year in its current
facilities. This capacity can be used for any combination of Oxyglobin and
Hemopure units.

Raw Material Source
Biopure's products consist of bovine hemoglobin that has been purified,
chemically modified and cross-linked for stability. Controlled herds of U.S.
cattle destined for meat processing provide the raw material used in Biopure's
products. Biopure monitors the source, health, location, feed consumption and
quality of the cattle to be used as a raw material source, a safety standard
that is not and cannot be established for donated human blood. Suppliers to
Biopure contract to maintain traceable records on animal origin, health, feed
and care to assure the use of known, healthy animals.

Raw Material Collection
At a high volume slaughterhouse, Biopure collects bovine whole blood into
individual presanitized containers and transports them to a separation facility.
Following blood collection, the animals pass U.S. Department of Agriculture, or
USDA, inspection for use as beef for human consumption. If an animal is not
approved for human consumption, Biopure also rejects the corresponding container
of whole blood. The USDA considers the United States to be free of pathogens
associated with "mad cow disease".

Safety
In addition to safety from bacterial and viral pathogens, such as those leading
to AIDS and hepatitis, Biopure's sourcing and manufacturing processes safeguard
humans from potential risks associated with diseases including transmissible
spongiform encephalopathies, more commonly known as the cause of diseases such
as "mad cow disease". Health and regulatory authorities have given guidance
directed at three factors to control these diseases: source of animals, nature
of tissue used and manufacturing process. Biopure complies with, and believes it
exceeds, all current guidelines regarding such risks for human pharmaceutical
products. Bovine red blood cells are considered to be safe, and blood generally
has been found to have little or no potential for transmitting transmissible
spongiform encephalopathies. Furthermore, Biopure's patented purification and
manufacturing process has been tested to demonstrate that the potential risk of
infectious disease transmission is insignificant.

Manufacturing Processes
At Biopure's separation facility, a filtration process removes plasma proteins
in the bovine blood. Washed cells are next placed in a centrifuge that separates
the red blood cells from the rest of the blood. The hemoglobin is extracted from
the red blood cells and is then diafiltered to remove red blood cell wall debris
and other contaminants. The resulting material is a cell-free hemoglobin
intermediate. A semi-continuous purification process involving a high
performance liquid chromatography process purifies the hemoglobin intermediate.
Next, the purified hemoglobin is polymerized, or linked, by the addition of a
cross-linking agent. Polymerized and stabilized material is then fractionated
and concentrated. The final product is filtered into sterilized batch holding
tanks until it is sterile filled into bags.

MARKETING

Hemopure
Upon receipt of FDA approval, if granted, Biopure expects to market Hemopure to
physician practices and hospitals. It also believes that military customers will
be significant. Biopure recognizes that it is crucial to establish a core belief
among opinion leaders that Hemopure fills an important medical need and that
systematic development of opinion leader advocacy is necessary for capturing and
maintaining a leadership position. Consequently, Biopure has contracted with a
medical education agency to build product awareness and to position the company
in a leadership role through the development of advocates at the national and
regional levels. As part of this process, Biopure engaged a medical advisory
board consisting of 13 leading physicians who participated in an educational
program and forum with Biopure. Biopure expects to reach anesthesiologists,
surgeons, oncologists, critical care and other physician-specialists through
publications and educational forums, such as seminars and presentations at
meetings of specialists.

Biopure will explore various means of selling Hemopure. Among other options,
Biopure may seek to enter into licensing or co-marketing agreements for parts or
all of the world in order to avail itself of the marketing expertise of one or
more seasoned pharmaceutical companies. Alternatively, it could engage
"contract" sales organizations from vendors, contract pharmaceutical companies
that supply sales services or recruit and train its own marketing and sales
force.

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Oxyglobin
Biopure began selling Oxyglobin in March 1998 to a discrete number of emergency
and specialty practices in the United States. Biopure began selling Oxyglobin
nationally in October 1998. Since October 1, 1998, Biopure has sold more than
21,000 units of Oxyglobin. Veterinarians report successful use of Oxyglobin in
critical care situations involving blood loss, destruction of red blood cells
and ineffective production of red blood cells. In 1998, Biopure filed for
veterinary approval to market Oxyglobin to treat canine anemia in the European
Union.

Biopure sells Oxyglobin directly to veterinarians in the United States through
veterinary product distributors -- one national and eight regional. Biopure
coordinates marketing and distribution activities through five full-time sales
employees.

Marketing programs have included advertising, direct mail, educational seminars,
conference calls and attendance at trade shows. Biopure has established a core
group of veterinary practices that use the product regularly. These
veterinarians are effective advocates of the product when interacting with other
veterinarians. Biopure sponsors evening seminars featuring these veterinarians.
Most veterinarians who buy the product reserve its use for the most severe
clinical situations. In May 1999, veterinarians paid an average of $124 per
15-gram hemoglobin unit. Biopure may seek one or more marketing alliances for
marketing and distribution of Oxyglobin in selected geographic areas.

COMPETITION

Hemopure will compete with traditional therapies and with other oxygen
therapeutics. Comparisons with traditional therapies, including red blood cell
transfusions, are described under "-- Scientific Overview", "-- Biopure's
Oxygenating Technology" and "-- Biopure's Products". Oxygen therapeutics under
development fall into two categories:

- - hemoglobin-based oxygen carriers, including Hemopure and Oxyglobin, consist of
natural hemoglobin from a mammal or genetically engineered source that has
been modified to improve stability, efficacy and safety; and

- - perfluorocarbon emulsions are chemicals administered intravenously.
Perfluorocarbon emulsions are effective principally under conditions of high
oxygen partial pressure to assist in oxygen delivery by forcing dissolved
oxygen into the plasma space.

Biopure believes that the competitive factors for its oxygen therapeutics will
be efficacy, safety, ease of use and cost. Biopure believes that it has
significant advantages as compared to its competitors including:

- - patents covering its processes, its products and their uses;

- - large molecule size resulting in longer duration of action than most other
oxygen therapeutics under development;

- - long-term room temperature stability;

- - completed and operational large-scale manufacturing facility compliant with
current Good Manufacturing Practices;

- - safe, ample, inexpensive source of raw material; and

- - FDA approval of Oxyglobin in 1998.

Many of Biopure's competitors and potential competitors in the development of
oxygen therapeutic products have significantly greater financial and other
resources to develop, manufacture and market their products. Existing
competitors in the development of hemoglobin-based investigational products use
outdated human red blood cells or bovine hemoglobin as their raw material.
Biopure is aware of one first generation, genetically engineered investigational
product that advanced to human clinical trials, but its development was
discontinued. Biopure believes that its use of bovine red blood cells is an
advantage over products made from outdated donated human red blood cells because
of the availability, abundance, cost and relative safety of bovine red blood
cells. However, the use of bovine derived blood products may encounter
resistance from physicians and patients. Among other things, public perceptions
about the risk of "mad cow disease" may affect market acceptance of Hemopure.
Biopure also believes that competitors may find it difficult to make or offer a
hemoglobin-based oxygen carrier product having the product characteristics of
Hemopure without infringing on one or more Biopure patents. In addition, the
relatively low viscosity of Hemopure is a potential advantage, particularly in
large doses, in permitting perfusion at low blood pressure.

Biopure is aware of one perfluorocarbon oxygen carrier in advanced clinical
trials. This product is a chemical fluid infused into the body. This chemical
attracts oxygen and takes it into the plasma. The patient needs an oxygen mask
for this process because perfluorocarbons require high oxygen environments in
order to be effective. The perfluorocarbon solution does not persist in the
body, so repeat dosing is necessary. These limitations may reduce the number of
potential applications for the

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product. As far as Biopure is aware, applications pursued for this product do
not include any of the applications Biopure might pursue other than acute
normovolemic hemodilution.

Biopure knows of no companies developing oxygen therapeutics intended to compete
with Oxyglobin in the veterinary market.

INTELLECTUAL PROPERTY

Patents, trademarks, trade secrets, technological know-how and other proprietary
rights are important to Biopure's business. Biopure actively seeks patent
protection both in the United States and abroad. Biopure filed its initial
patent in 1986 in the United States. Three U.S. patents have issued from this
filing. These patents describe and claim ultra-pure semi-synthetic blood
substitutes and methods for their preparation.

In total, Biopure has 14 U.S. patents granted and six applications pending,
three of which are allowed, relating to oxygen therapeutics. Biopure's granted
U.S. patents relating to oxygen therapeutics include:

- - two patents covering an ultra-purification process for hemoglobin solutions,
regardless of the source of hemoglobin, which expire in 2011 and 2012, and two
patents covering the ultra-pure oxygen therapeutic solutions produced by this
process expiring in 2009 and 2014;

- - three patents regarding compositions having improved stability, of which two
expire in 2015 and the third expires in 2016;

- - one patent, which expires in 2015, covering improvements in preservation of
such hemoglobin solutions;

- - one patent, which expires in 2015, covering improved methods for separating
polymerized from unpolymerized hemoglobin;

- - one patent, which expires in 2015, covering methods of oxygenating tissue
affected by inadequate red blood cell flow;

- - one patent, which expires in 2016, covering the removal of pathogens, if
present, from Biopure's source material; and

- - three patents, which expire in 2011, 2014 and 2015, covering methods for
treating tumors.

Biopure also filed its original patent in Europe. Although granted, third
parties subsequently opposed Biopure's European patent. As a result of the
opposition proceeding, the patent was revoked. However, Biopure filed an appeal
that reinstated the patent during the appeal and is awaiting a decision on the
appeal. In the opposition process, Biopure narrowed its claims. Despite the
narrowing, Biopure believes that these claims provide protection for Biopure's
existing process and products. Biopure further believes that a narrowed European
patent should be sustained. During the opposition proceeding, some pre-existing
patents and articles not presented to the United States Patent Office during the
prosecution of patents already issued in the United States were presented to the
European Patent Office by the opponents. These preexisting patents and articles
are not expected to affect claims of Biopure patents in the rest of the world.
Biopure also has other foreign patents and patent applications.

Biopure believes that it is not economically practicable to determine in advance
whether its products, product components, manufacturing processes or the uses
infringe the patent rights of others. It is likely that, from time to time,
Biopure will receive notices from others of claims or potential claims of
intellectual property infringement or Biopure may be called upon to defend a
customer, vendee or licensee against such third-party claims. Responding to
these kinds of claims, regardless of merit, could consume valuable time, result
in costly litigation or cause delays, all of which could harm Biopure's
business. Responding to these claims could also require Biopure to enter into
royalty or licensing agreements with the third parties claiming infringement.
Such royalty or licensing agreements, if available, may not be available on
terms acceptable to Biopure.

FACILITIES

Biopure has manufacturing facilities in Pennsylvania for the collection and
separation of blood and in Cambridge, Massachusetts where processing is
completed. The FDA has inspected these facilities and determined that they
comply with current Good Manufacturing Practices. The Medicines Control Agency,
on behalf of the European Medicines Evaluation Agency, has also inspected
Biopure's facilities.

Biopure manufactures separation materials in a 10,000 square foot plant in New
Hampshire. The current annual lease payment for this facility is $38,000. The
lease expires on March 31, 2000. Biopure has an option to extend this lease for
an additional five years.

Biopure leases two facilities for office and research space in Massachusetts.
One lease covers 24,000 square feet, and its current annual lease payment is
$239,000. This lease expires on December 31, 2007. Biopure has an option to
extend this lease for ten five-year periods, or an additional 50 years. The
other lease covers 13,000 square feet, and its current annual

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<PAGE> 29

lease payment is $378,000. This lease expires on August 31, 2001. Biopure does
not have an option to extend this lease. It leases 18,000 square feet of
warehouse space in Massachusetts. The current annual lease payment for this
facility is $95,000. The lease expires on September 30, 2001. Biopure has an
option to extend this lease for two five-year periods, or an additional ten
years.

Biopure leases 32,000 square feet of manufacturing space under three leases in
Massachusetts. The current annual lease payments for these facilities is
$236,000. The leases expire on November 30, 2000. Biopure has an option to
extend these leases for five five-year periods, or an additional 25 years, with
an exclusive right to negotiate for an additional 25 years. Biopure also leases
18,000 square feet of manufacturing space in Pennsylvania. The current annual
payment for a ground lease for this facility is $21,000. The lease expires on
October 20, 2014. Biopure has an option to extend this lease for nine years.

Biopure's current process is designed to be scalable, such that additional
capacity can be obtained by adding duplicate equipment and additional raw
material including power and water. However, Biopure is space constrained at its
existing facility in Cambridge, Massachusetts, so it anticipates that it will
need to add a new facility at a new location prior to large-scale
commercialization of Hemopure.

EMPLOYEES

As of May 1, 1999, Biopure employed 177 persons. Of its total work force, 101
employees are engaged in manufacturing and related manufacturing support
services, 38 are engaged in research and development activities, nine are
engaged in sales and marketing, primarily veterinary, and 29 are engaged in
support and administrative activities. None of Biopure's employees are covered
by a collective bargaining agreement. Biopure believes its relations with its
employees are good.

PAST COLLABORATIONS

In December 1990, Biopure and The Upjohn Company entered into an alliance to
develop and market Biopure's human and veterinary products. From that time until
1996, Biopure benefitted from equity investment and development expenditures of
approximately $140.0 million and from the experience, personnel and facilities
of The Upjohn Company. From 1987 until 1996, Biopure had a license agreement
with B. Braun Melsungen AG, a German hospital supply company. This license
agreement and certain related agreements contemplated the product testing,
approval, manufacture and marketing of Biopure's products by B. Braun Melsungen
AG in Europe. See "Certain Relationships and Related Transactions" for
additional information concerning these collaborations.

GOVERNMENT REGULATION

New Drug or Biologic Approval for Human Use
Governmental authorities in the United States and other countries extensively
regulate the testing, manufacturing, labeling, advertising, promotion, export
and marketing, among other things, of Biopure's oxygen therapeutic products. Any
oxygen therapeutic product administered to human patients is regulated as a drug
or a biologic drug and requires regulatory approval before it may be
commercialized.

In the United States, Hemopure is regulated as a human biologic. The FDA will
require Biopure to file and obtain approval of a Biologics License Application
covering both Hemopure and the facility in which it is manufactured.

The steps required before approval of a biologic for marketing in the United
States generally include:

- - preclinical laboratory tests and animal tests;

- - the submission to the FDA of an Investigational New Drug, or IND, application
for human clinical testing, which must become effective before human clinical
trials may lawfully commence;

- - adequate and well-controlled human clinical trials to establish the safety and
efficacy of the product;

- - the submission to the FDA of a Biologics License Application;

- - FDA review of the Biologics License Application; and

- - satisfactory completion of an FDA inspection of the manufacturing facilities
at which the product is made to assess compliance with current Good
Manufacturing Practices which includes elaborate testing, control,
documentation and other quality assurance procedures.

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<PAGE> 30

The testing and approval process requires substantial time, effort and financial
resources. After approval is obtained, a supplemental approval is generally
required for each proposed new indication, often accompanied by data similar to
that submitted with the original Biologics License Application.

Preclinical studies include laboratory evaluation of the product and animal
studies to assess the safety and potential efficacy of the product. The results
of the preclinical studies, together with manufacturing information and
analytical data, are submitted to the FDA as part of the IND. The IND
automatically will become effective in 30 days unless the FDA, before that time,
raises concerns or questions and imposes a "clinical hold". In such case, the
IND sponsor and the FDA must resolve any outstanding concerns before the trial
can proceed. Once trials have commenced, the FDA may stop the trials, or
particular types of trials, by imposing a clinical hold because of concerns
about, for example, the safety of the product being tested or the adequacy of
the trial design.

Clinical trials involve the administration of investigational products to
healthy volunteers or patients under the supervision of a qualified principal
investigator consistent with an informed consent. An independent Institutional
Review Board, or IRB, must review and approve each clinical trial at each
institution at which the study will be conducted. The IRB will consider, among
other things, ethical factors, the safety of human subjects and the possible
liability of the institution.

Clinical trials typically are conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into human
subjects, the drug is usually tested for safety or adverse effects, dosage
tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics.
Phase II clinical trials usually involve studies in a limited patient population
to evaluate the efficacy of the drug for specific, targeted indications,
determine dosage tolerance and optimal dosage and identify possible adverse
effects and safety risks. Phase III clinical trials generally further evaluate
clinical efficacy and test further for safety within an expanded patient
population and at multiple clinical sites. Phase IV clinical trials are
conducted after approval to gain additional experience from the treatment of
patients in the intended therapeutic indication. If the FDA approves a product,
additional clinical trials may be necessary. A company may be able to use the
data from these clinical trials to meet all or part of any Phase IV clinical
trial requirement. These clinical trials are often referred to as Phase III/IV
post-approval clinical trials.

Biopure believes that its ongoing U.S. pivotal Phase III clinical trial is
consistent with the FDA's most recent guidance on the design and efficacy and
safety endpoints required for approval of products such as Hemopure. However,
the FDA could change its view or require a change in study design, additional
data or even further clinical trials prior to approval of Hemopure.

The results of the preclinical studies and clinical trials, together with
detailed information on the manufacture and composition of the product, are
submitted to the FDA in the application requesting approval to market the
product. Before approving a Biologics License Application, the FDA will inspect
the facilities at which the product is manufactured and will not approve the
product unless the manufacturing facility is in compliance with current Good
Manufacturing Practices. The FDA may delay approval of a Biologics License
Application if applicable regulatory criteria are not satisfied, require
additional testing or information, and/or require postmarketing testing and
surveillance to monitor safety, purity or potency of a product. It may also
limit the indicated uses for which an approval is given.

New Drug Approval for Veterinary Use
New drugs for companion animals must receive New Animal Drug Application, or
NADA, approval prior to marketing in the U.S. The requirements for approval are
similar to those for new human drugs. Obtaining NADA approval often requires
clinical field trials and the submission of an Investigational New Animal Drug
Application, which for non-food animals becomes effective upon acceptance for
filing.

Pervasive and Continuing Regulation
Any product approvals that are granted remain subject to continual FDA review,
and newly discovered or developed safety or efficacy data may result in
withdrawal of products from marketing. Moreover, if and when such approval is
obtained, the manufacture and marketing of Biopure's products remain subject to
extensive regulatory requirements administered by the FDA and other regulatory
bodies, including compliance with current Good Manufacturing Practices, adverse
event reporting requirements and the FDA's general prohibitions against
promoting products for unapproved or "off-label" uses. Biopure is subject to
inspection and market surveillance by the FDA for compliance with these
regulatory requirements. Failure to comply with the requirements can, among
other things, result in warning letters, product seizures, recalls, fines,
injunctions, suspensions or withdrawals of regulatory approvals, operating
restrictions and criminal prosecutions. Any such enforcement action could have a
material adverse effect on Biopure. Unanticipated changes in existing regulatory
requirements or the adoption of new requirements could also have a material
adverse effect on Biopure.

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Biopure 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 hazardous substance disposal.

Foreign Regulation
Biopure will be subject to a variety of regulations governing clinical trials
and sales of its products outside the United States. Biopure must obtain
approval of its products by the comparable non-U.S. regulatory authorities prior
to the commencement of product marketing in the country whether or not Biopure
has obtained FDA approval. The approval process varies from country to country
and the time needed to secure approval may be longer or shorter than that
required for FDA approval. The European Union requires approval of a Marketing
Authorization Application by the European Medicines Evaluation Agency. These
applications require the completion of extensive preclinical and clinical
studies and manufacturing and controls information.

Reimbursement
Biopure's ability to successfully commercialize its human product will depend in
significant part on the extent to which reimbursement of the cost of such
product and related treatment will be available from government health
administration authorities, private health insurers and other organizations.
Third-party payors are increasingly challenging the price of medical products
and services. Significant uncertainty exists as to the reimbursement status of
newly approved health care products, and there can be no assurance that adequate
third-party coverage will be available to enable Biopure to maintain price
levels sufficient for realization of an appropriate return on its investment in
product development. The public and the federal government have recently focused
significant attention on reforming the health care system in the United States.
A number of health care reform measures have been suggested, including price
controls on therapeutics. Public discussion of such measures is likely to
continue, and concerns about the potential effects of different possible
proposals have been reflected in the volatility of the stock prices of companies
in the health care and related industries.

LITIGATION

Biopure is a party to an action filed on July 18, 1990 in the United States
District Court for the District of Massachusetts under the caption Peter Fisher,
et al. v. William P. Trainor, et al. In this litigation, the plaintiffs alleged
breach of agreements by Biopure and against one another. Biopure is also a party
to a related action filed on November 8, 1990 in the United States District
Court for the District of Massachusetts under the caption Bio-Vita Ltd., et al.
v. Carl W. Rausch, et al.

Summary judgments were entered against the plaintiffs in both of these actions
in 1994. The plaintiffs appealed. One appeal filed in Bio-Vita Ltd., et al. v.
Carl W. Rausch, et al. was voluntarily dismissed and the other was remanded to
the trial court. The other appeal was remanded to the trial court for further
findings based on lack of jurisdiction. This jurisdictional issue has been
briefed following additional discovery and is before the trial court. The
remaining plaintiff is seeking $250.0 million in damages. Biopure believes that
the ultimate resolution of this matter will not have a material adverse effect
on its financial position or results of operations.

In addition, proceedings in Europe are ongoing with regard to Biopure's European
patent. Biopure was granted a patent on April 1, 1992 by the European Patent
Office. Within the nine-month period from the grant date for the filing of
oppositions, six parties filed oppositions requesting that all of the claims of
this patent be revoked. Of these, three opposing parties remain: Baxter
International, Enzon, Inc. and Northfield Laboratories, Inc. Following oral
proceedings conducted by the Opposition Division at the European Patent Office
in November 1995, the Opposition Division revoked the patent.

Biopure has appealed this decision of the Opposition Division and is currently
awaiting a decision on its appeal. The appeal has the technical result of
reinstating the patent during the appeal process. Prior to filing its appeal
papers, Biopure narrowed its claims further to increase the probability of
winning at the appeal level. Biopure further believes that a narrowed patent
should be sustained.

Future claims against Biopure may arise and, if they do, there can be no
assurance that they will be successfully defended.

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MANAGEMENT

The following table lists members of our board of directors and our executive
officers, with the position held by each and their ages as of July 1, 1999.
Directors may hold office until removed by a resolution of our stockholders,
removal by all members of the board of directors, resignation, death or the
expiration of the term of their appointment.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
NAME AGE POSITION
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carl W. Rausch.................................. 50 Chairman and Chief Executive Officer
David N. Judelson............................... 70 Vice Chairman
Paul A. Looney.................................. 59 President
Stephen A. Kaplan............................... 40 Director
C. Everett Koop, M.D............................ 82 Director
Charles A. Sanders, M.D......................... 67 Director
Daniel R. Davis................................. 33 Senior Vice President and Chief Financial
Officer
Maria S. Gawryl, Ph.D........................... 45 Senior Vice President, Research and Development
Edward E. Jacobs, Jr., M.D...................... 59 Senior Vice President
Jane Kober...................................... 56 Senior Vice President, General Counsel and
Secretary
Bing L. Wong, Ph.D.............................. 52 Senior Vice President, International
Bernadette L. Alford, Ph.D...................... 50 Vice President, Regulatory Affairs
Geoffrey J. Filbey.............................. 56 Vice President, Engineering
Carolyn R. Fuchs................................ 47 Vice President, Human Resources
William D. Hoffman, M.D......................... 45 Chief Medical Officer
Brian A. Lajoie................................. 52 Vice President, Controller
Andrew W. Wright................................ 39 Vice President, Veterinary Products
</TABLE>

CARL W. RAUSCH is a co-founder and has served as Chairman and Chief Executive
Officer of Biopure since 1984. From 1984 until July 1, 1999, Mr. Rausch was also
President of Biopure. Prior to Biopure's founding, Mr. Rausch was Vice
President, Preparative and Process, at Millipore Corporation. He holds an M.S.
degree in chemical engineering from Tufts University, an M.S. degree in chemical
engineering from the Massachusetts Institute of Technology and a B.S. degree in
chemical engineering from Tufts University.

DAVID N. JUDELSON is a co-founder and serves as Vice Chairman of Biopure. Mr.
Judelson is also a co-founder of Gulf and Western Industries, Inc., currently
known as Paramount Communications, Inc., where he served as President and Chief
Operating Officer from 1967 to 1983. Since 1985, he has been Vice Chairman of
Horsehead Industries, Inc., a privately owned industrial company. Mr. Judelson
holds a bachelor of mechanical engineering degree from New York University
College of Engineering.

PAUL A. LOONEY became President of Biopure on July 1, 1999. Since May 1995, Mr.
Looney has been a consultant to various biotechnology companies. Between
September 1993 and May 1995, Mr. Looney was the Chief Executive Officer, Chief
Operating Officer and President of Corning Costar Inc. Between 1987 and
September 1993, Mr. Looney was President of Costar Inc.

STEPHEN A. KAPLAN has served as a director of Biopure since November 1997. Since
June 1995, Mr. Kaplan has been a principal in Oaktree Capital Management LLC.
From November 1993 to May 1995, he was Managing Director of Trust Company of the
West. Since November 1993, Mr. Kaplan has also served as portfolio manager of
The Principal Fund. He holds a J.D. degree from New York University School of
Law and a B.S. degree in political science from the State University of New York
at Stony Brook. Mr. Kaplan serves on the boards of directors of Acorn Products,
Inc., Cherokee International LLC, CollaGenex Pharmaceuticals, Inc., Geologistics
Corporation, KinderCare Learning Centers Inc. and Roller Bearing Holding
Company, Inc.

C. EVERETT KOOP, M.D. has served as a director of Biopure since December 1990.
From September 1994 to November 1997, Dr. Koop was the Chairman of the Board of
Patient Education Media, Inc. Dr. Koop served as the Surgeon General of the
United States from 1981 until 1989 and continues to educate the public about
health issues through his writings and the electronic media, as Senior Scholar
of the C. Everett Koop Institute at Dartmouth College. Dr. Koop received an
Sc.D. degree from the Graduate School of the University of Pennsylvania, an M.D.
degree from the Cornell University Medical College and an A.B. degree from
Dartmouth College.

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CHARLES A. SANDERS, M.D. has served as a director of Biopure since October 1997.
From July 1989 until his retirement in May 1995, Dr. Sanders was the Chairman
and Chief Executive Officer of Glaxo Inc. Dr. Sanders serves on the boards of
Magainin Pharmaceuticals Inc., Vertex Pharmaceuticals, Inc., StaffMark, Inc.,
Scios Inc., Trimens, Inc., Kendle International Inc. and Pharmacopeia, Inc. and
is a member of the President's Committee of Advisors on Science and Technology.
He was previously General Director of Massachusetts General Hospital and
Professor of Medicine at Harvard Medical School. He received his M.D. degree
from the Southwestern Medical College of the University of Texas.

DANIEL R. DAVIS joined Biopure in December 1998 as Senior Vice President and
Chief Financial Officer. From 1995 to November 1998, Mr. Davis was at Knowledge
Universe. Mr. Davis holds an M.B.A. degree in finance from The Wharton School at
the University of Pennsylvania and a B.A. degree in political science from Brown
University.

MARIA S. GAWRYL, PH.D. has been Senior Vice President, Research and Development
of Biopure since April 1999. From September 1990 to April 1999, she was Vice
President, Research and Development. Dr. Gawryl holds a Ph.D. in immunology from
the University of Connecticut. She did post-doctoral work at the University of
Connecticut Health Center and Rush Presbyterian, St. Luke's Medical Center. She
holds a B.S. degree in math and chemistry from Antioch College.

EDWARD E. JACOBS, JR., M.D. has been a Senior Vice President of Biopure since
August 1997. From April 1995 to August 1997, he was Senior Medical Advisor of
Biopure. Since 1988, he has been an Assistant Clinical Professor at Harvard
Medical School. He holds an M.D. degree from Harvard Medical School and a B.A.
degree in philosophy from Princeton University.

JANE KOBER has been Senior Vice President, General Counsel and Secretary of
Biopure since May 1998. From June 1989 to April 1998, she was a partner in
LeBoeuf, Lamb, Greene & MacRae, L.L.P. Ms. Kober holds a J.D. degree from Case
Western Reserve University, an M.A. degree from the University of Chicago and a
B.A. in English from the Pennsylvania State University. She serves as a director
of HTV Industries, Inc.

BING L. WONG, PH.D. has been a Senior Vice President, International of Biopure
since May 1999. From June 1992 to May 1999, Dr. Wong was a Senior Vice
President, Development of Strategic Business Ventures. Dr. Wong taught in the
Chemical Engineering Department at Tufts University as Assistant Professor and
Adjunct Associate Professor while he served as Associate and Acting Director of
the New England Enzyme Center. He holds M.S. and Ph.D. degrees from the
Department of Chemical Engineering, Tufts University and a B.S. degree from the
Department of Chemical Engineering, National Taiwan University.

BERNADETTE L. ALFORD, PH.D. has been Vice President, Regulatory Affairs of
Biopure since September 1998. From September 1994 to September 1998, she was
Senior Vice President, Product Development for Alexion Pharmaceuticals Inc. She
holds a Ph.D. degree in molecular biology and an M.S. degree in biochemistry
from Texas University and a B.S. degree in biology from Marywood University.

GEOFFREY J. FILBEY joined Biopure in 1985 and has served as Vice President,
Engineering since 1995. Mr. Filbey holds a B.Sc. degree in engineering from the
City University in London, England.

CAROLYN R. FUCHS has served as Vice President, Human Resources since June 1998.
From October 1996 to June 1998, she was an independent consultant. From May 1991
to October 1996, she worked at National Medical Care. Ms. Fuchs holds an M.Ed.
degree in counseling and a B.S. degree in psychology from the University of
Massachusetts at Amherst.

WILLIAM D. HOFFMAN, M.D. joined Biopure in January 1998 as Director of Medical
Affairs and was named Chief Medical Officer in March 1999. From 1994 until
January 1998, Dr. Hoffman was Director of Surgical Intensive Care at The
Cleveland Clinic Foundation. He holds an M.D. degree from the University of
Massachusetts Medical School and a B.S. degree in physics from Carnegie-Mellon
University.

BRIAN A. LAJOIE has served as Vice President, Controller of Biopure since May
1999. From August 1989 to May 1999, he served as Vice President, Finance. He
holds a B.A. degree in economics from the University of Massachusetts at
Amherst.

ANDREW W. WRIGHT has been Vice President, Veterinary Products of Biopure since
August 1996. From March 1992 to August 1996, Mr. Wright worked with IDEXX
Laboratories, Inc. where he held several management positions, including
Director of Corporate Development, Director of Marketing and Senior Product
Manager. He holds an M.B.A. degree from the University of Chicago and a B.A.
degree in economics from Carleton College.

ADDITIONAL DIRECTORS

On June 24, 1999, our board elected Paul A. Looney and Daniel P. Harrington as
directors with terms beginning upon the completion of this offering. Daniel P.
Harrington, 43, has been the President of HTV Industries, Inc. since May 1991.
Mr. Harrington is a director of Churchill Downs, Inc.
34
<PAGE> 34

In addition, on June 9, 1999, we entered into an employment agreement with Paul
A. Looney. Beginning July 1, 1999, Mr. Looney will serve as President of Biopure
with all the duties and responsibilities of Chief Operating Officer. The
employment agreement has a three-year term and may be extended. Under the terms
of his employment agreement, Mr. Looney is entitled to an annual base salary of
not less than $295,000, subject to annual adjustment, and is eligible to
participate in all incentive, savings and retirement plans and welfare benefit
plans and programs that we maintain or implement. In addition, at the earlier of
the completion of this offering or January 1, 2000, Mr. Looney will receive
stock options to purchase 233,340 shares of our class A common stock at an
exercise price equal to the price to the public in this offering. These options
will have terms of 10 years and will be immediately exercisable in the event of
a change of control or in the event of Mr. Looney's death, disability,
retirement, termination of employment for reasons other than cause or voluntary
termination under certain circumstances. Otherwise, the options shall become
exercisable in 25% increments on July 1, 2000, 2001, 2002 and 2003.

This employment agreement also includes non-solicitation and non-competition
provisions, restricting Mr. Looney's ability to engage in any activities that
would compete with our business during his employment and for one year
thereafter.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The compensation committee of the board of directors will consist of Mr. Kaplan,
Dr. Sanders and Mr. Judelson. Mr. Rausch will serve as a non-voting member of
this committee. Of the four, only Mr. Rausch has been an officer or employee of
Biopure at any time since our inception. No executive officer of Biopure serves
as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving as a member of our board of
directors or compensation committee. Certain members of our board of directors
are or have been parties to consulting agreements with Biopure. These agreements
are described under "Certain Relationships and Related Transactions".

Our audit committee will consist of Mr. Harrington and Dr. Sanders. Mr. Looney
will serve as a non-voting member of this committee.

DIRECTOR COMPENSATION

For each board of directors' meeting attended, our non-employee directors
receive a fee of $500 plus expenses.

35
<PAGE> 35

EXECUTIVE COMPENSATION

Summary Compensation Table
The following summary compensation table summarizes information regarding the
compensation of our Chief Executive Officer and our other four most highly
compensated executive officers for the fiscal years ended October 31, 1996, 1997
and 1998. The non-recurring bonus Mr. Rausch received in 1996 was related to our
agreement with Pharmacia & Upjohn, Inc. The other annual compensation Dr. Jacobs
received in fiscal 1997 and fiscal 1996 represents the difference between the
fair market value and the exercise price of non-qualified stock options at the
date of exercise. Dr. Esseltine resigned in April 1999.

<TABLE>
<CAPTION>
--------------------------------------------------
ANNUAL
COMPENSATION
--------------------------------------------------
FISCAL OTHER ANNUAL
YEAR SALARY($) BONUS($) COMPENSATION($)
NAME AND PRINCIPAL POSITION ------ --------- -------- ---------------
<S> <C> <C> <C> <C>
Carl W. Rausch.............................................. 1998 307,008 75,000 --
Chairman and Chief Executive 1997 252,866 30,000 --
Officer 1996 243,208 22,000 182,692
Edward E. Jacobs, Jr., M.D.................................. 1998 205,010 25,000 --
Senior Vice President 1997 169,698 -- 228,000
1996 160,004 8,000 388,800
Maria S. Gawryl, Ph.D....................................... 1998 195,000 40,000 --
Senior Vice President -- 1997 162,040 20,000 --
Research and Development 1996 153,037 15,225 --
Dixie L. Esseltine, M.D..................................... 1998 185,016 10,000 --
Vice President -- Clinical 1997 24,194 5,000 --
Research 1996 -- -- --
Brian A. Lajoie............................................. 1998 169,000 18,000 --
Vice President -- Controller 1997 156,529 17,000 --
1996 148,070 14,810 --
</TABLE>

Summary Long-Term Compensation
The following table sets forth information regarding the long-term compensation
of our Chief Executive Officer and our other four most highly compensated
executive officers for the fiscal years ended October 31, 1996, 1997 and 1998.
Dr. Esseltine resigned in April 1999.

<TABLE>
<CAPTION>
----------------------------------------------------
AWARDS PAYOUTS
---------- ----------------------------
SECURITIES EARNINGS ON
FISCAL UNDERLYING DEFERRED
YEAR OPTIONS(#) COMPENSATION($) 401(K)($)
NAME AND PRINCIPAL POSITION ------ ---------- --------------- ---------
<S> <C> <C> <C> <C>
Carl W. Rausch............................................. 1998 83,333 104,408 4,370
Chairman and Chief Executive Officer 1997 -- 94,353 4,725
1996 -- 90,393 4,372
Edward E. Jacobs, Jr., M.D. ............................... 1998 10,000 -- 4,565
Senior Vice President 1997 -- -- 4,852
1996 -- -- 4,410
Maria S. Gawryl, Ph.D. .................................... 1998 53,334 -- 4,653
Senior Vice President -- Research and 1997 -- -- 4,839
Development 1996 2,333 -- 4,591
Dixie L. Esseltine, M.D.................................... 1998 6,667 -- --
Vice President -- Clinical Research 1997 -- -- --
1996 -- -- --
Brian A. Lajoie............................................ 1998 10,000 -- 4,607
Vice President -- Controller 1997 -- -- 4,795
1996 1,667 -- 4,374
</TABLE>

36
<PAGE> 36

Option Grants in Last Fiscal Year
The following table summarizes information regarding options granted to our
Chief Executive Officer and our other four most highly compensated executive
officers during the fiscal year ended October 31, 1998. Dr. Esseltine resigned
in April 1999.

Amounts in the following table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
The 5% and 10% assumed annual rates of compounded stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent an estimate or projection of our future class A common stock prices.
These amounts represent certain assumed rates of appreciation in the value of
our class A common stock from the fair market value on the date of grant. Actual
gains, if any, on stock option exercises are dependent on the future performance
of the class A common stock and overall stock market conditions. The amounts
reflected in the following table may not necessarily be achieved.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM($)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
GRANTED(#) 1998(%) SHARE($) DATE 5% 10%
NAME AND PRINCIPAL POSITION ----------- ------------ --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Carl W. Rausch..................... 64,400 20.32 19.20 01/19/08 777,616 1,970,631
Chairman and Chief Executive 18,933 5.98 21.12 01/19/03 110,477 244,126
Officer
Edward E. Jacobs, Jr., M.D. ....... 10,000 3.16 19.20 01/19/08 120,748 305,999
Senior Vice President
Maria S. Gawryl, Ph.D. ............ 53,334 16.83 19.20 01/19/08 643,988 1,631,992
Senior Vice President -- Research
and Development
Dixie L. Esseltine, M.D............ 6,667 2.10 19.20 11/19/07 80,499 203,999
Vice President -- Clinical
Research
Brian A. Lajoie.................... 10,000 3.16 19.20 01/19/08 120,748 305,999
Vice President -- Controller
</TABLE>

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table summarizes information concerning options to purchase our
class A common stock exercised by our Chief Executive Officer and our other four
most highly compensated executive officers during the fiscal year ended October
31, 1998 and the number and value of unexercised options held by each of them at
October 31, 1998.

There was no public market for our class A common stock on October 31, 1998. The
fair market value on October 31, 1998 was determined by the board of directors
to be $19.20 per share. Dr. Esseltine resigned in April 1999.

<TABLE>
<CAPTION>
------------------------------------------------------------
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END(#) Fiscal Year End($)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME AND PRINCIPAL POSITION ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Carl W. Rausch....................................... -- 83,333 -- --
Chairman and Chief Executive Officer
Edward E. Jacobs, Jr., M.D. ......................... -- 10,000 -- --
Senior Vice President
Maria S. Gawryl, Ph.D. .............................. 7,167 56,500 -- --
Senior Vice President -- Research and Development
Dixie L. Esseltine, M.D.............................. -- 6,667 -- --
Vice President -- Clinical Research
Brian A. Lajoie...................................... 3,333 11,667 -- --
Vice President -- Controller
</TABLE>

37
<PAGE> 37

NON-COMPETITION AGREEMENTS

All of our executive officers, except Daniel R. Davis, our Senior Vice President
and Chief Financial Officer, have agreed not to engage in any activities that
would compete with our current business or any potential business during their
employment terms and for five years thereafter.

DEFERRED COMPENSATION AGREEMENT

On August 8, 1990, we entered into a deferred compensation agreement with Carl
Rausch, our Chairman, Chief Executive Officer and President, which provided that
we would pay him a lump sum of $700,000 plus interest accrued from August 8,
1990 to the date of payment. The total payment will be due July 31, 2003. The
amount of the payment with interest, calculated at the prime interest rate
through June 24, 1999 and thereafter at 4.71%, will be $1,679,000. The deferred
compensation agreement was entered into as part of Mr. Rausch's overall
long-term compensation agreement. Mr. Rausch borrowed money from us in 1990 to
purchase class A common stock. See "Certain Relationships and Related
Transactions" for more information about this loan.

1990 INCENTIVE COMPENSATION AND COMPANY STOCK PURCHASE PLAN

Under an Incentive Compensation and Company Stock Purchase Plan, we sold
approximately 1,606,000 "non-lapse" restricted shares of class A common stock in
August 1990 to certain of our key employees, consultants and directors at a
purchase price of $1.35 per share. At the time of purchase, these shares had an
estimated fair market value of $5.40 per share. The price paid for these shares
represented a discount of $4.05 per share. All of these shares were contributed
to Biopure Associates Limited Partnership II.

Under the terms of separate stock purchase agreements entered into with each
purchaser, the resale price of these shares, whether sold to us or to a third
party, would be equal to the price of our class A common stock less the discount
with accrued interest. Any purchaser of such shares would be subject to the same
restrictions. At May 1, 1999, the discount plus accrued interest per share was
$7.92. These shares are subject to certain transfer and resale restrictions,
including a right of first refusal granted to us.

Our board has agreed to modify these resale restrictions. In particular, the
discount plus accrued interest per share has been fixed at $7.92, and holders
may sell their shares or eliminate the restrictions at any time by the payment
to us of $7.92 per share. In addition, we will have the right, exercisable at
any time during the 12 months beginning August 1, 2004, to exchange these
restricted shares for a number of shares of class A common stock having
equivalent value after taking in account the discount of $7.92 per share.

THE 1998 STOCK OPTION PLAN

In March 1998, our board of directors adopted the 1998 Stock Option Plan as a
replacement for the 1988 Stock Option Plan which expired in March 1998. Awards
under this plan were in the form of incentive options, which are defined in the
Internal Revenue Code of 1986, or non-statutory options. Options granted under
this plan vest in such installments, cumulative or non-cumulative, as the board
may determine. Attendant to the adoption of the 1999 Omnibus Securities and
Incentive Plan described below, no further grants will be made under this plan.

1999 OMNIBUS SECURITIES AND INCENTIVE PLAN

On June 24, 1999, our board adopted the 1999 Omnibus Securities and Incentive
Plan, which has the terms described below. This plan is intended to promote our
long-term financial interests and growth by providing incentives to employees
and directors and to align their interests with those of our stockholders by
acquiring a proprietary interest in our long-term success.

General
The 1999 Omnibus Securities and Incentive Plan provides for the granting of
stock options, restricted stock awards, unrestricted stock awards, performance
unit awards, performance share awards, distribution equivalent rights, or any
combination of the foregoing to employees and directors of Biopure or our
affiliates. Our Compensation Committee will administer this plan.

The maximum number of shares of class A common stock reserved for issuance under
this plan is 1,866,666. Our board has resolved to grant options to purchase a
maximum of 1,492,020 shares of class A common stock to directors and employees.
These options will be exercisable at a price per share equal to the price to the
public in this offering and are conditioned upon the completion of this
offering. Mr. Rausch will receive options to purchase 166,680 shares of class A
common stock; Dr. Jacobs will receive options to purchase 16,680 shares of class
A common stock; Dr. Gawryl will receive options to purchase 100,000 shares of
class A common stock; and Mr. Lajoie will receive options to purchase 13,360
shares of class A common stock.

38
<PAGE> 38

Stock Options
Under the plan, the committee may award stock options, the term and vesting
rules of which are to be specified in the respective stock option award
agreements. The committee will determine whether to award incentive stock
options or nonqualified stock options, as described in the applicable stock
option award agreement. The granting of incentive stock options, as defined in
the Internal Revenue Code of 1986, is subject to certain limitations as
described in the plan, including the requirement that incentive stock options
cannot be granted to non-employee directors. The committee will determine the
option price, but, in the case of an incentive stock option, the option price
will not be less than the fair market value of a share of class A common stock
on the date of the grant of the option.

Restricted Stock Awards
The committee may grant restricted stock awards to key management employees and
directors pursuant to a restricted stock award agreement. The restricted stock
award agreements will describe the rights of the recipient of the restricted
stock award, which rights may include or exclude voting rights. During the
restriction period, the recipient of a restricted stock award will not receive
the certificate representing shares of class A common stock, will not receive
dividends and will not be entitled to sell, transfer, pledge or otherwise
dispose of the shares. At the end of the restriction period, assuming the
recipient has not breached the terms and conditions contained in the restricted
stock award agreement, the recipient will receive the certificate representing
shares of class A common stock.

Unrestricted Stock Awards
The committee may, in its discretion, award, or sell at a discount, as
compensation for past services rendered to us, unrestricted shares of class A
common stock. Unrestricted stock is not subject to restrictions on transfer.

Performance Unit Awards
The committee has discretion to set performance goals for an employee or
director and related performance units with their dollar value. If the goals are
met, we will make payment of a cash award equal to the number of bookkeeping
units awarded at the dollar value assigned to each such unit.

Performance Share Awards
The committee has discretion to set performance goals for an employee or
director which, if met, will result in the receipt of shares of class A common
stock. The holder of a performance share award will have no rights as a
stockholder until such time, if any, as the holder actually receives shares of
class A common stock pursuant to the performance share award.

Distribution Equivalent Rights
The committee has discretion to grant an award entitling the holder to receive
bookkeeping credits, cash payments and/or class A common stock distributions
equal in an amount to the distributions that would have been made to the holder
had the holder held a specified number of shares of class A common stock during
the period that the holder held the distribution equivalent right.

Other Features of the 1999 Omnibus Securities and Incentive Plan
Unless otherwise provided in an award agreement, the plan provides that in the
event of a change of control, as defined in the plan, and the termination of
employment or removal, in the case of a director, under specified circumstances,
the holder's outstanding awards will become fully vested and immediately
exercisable, all transfer restrictions will lapse and all performance goals will
be deemed to have been fully satisfied. The committee, however, can determine
that upon a change of control, all outstanding awards will terminate and be
cashed out within a specified time period.

Our board of directors may terminate, alter or amend the 1999 Omnibus Securities
and Incentive Plan; provided, however, that no such action may, without the
consent of a holder, materially and adversely impair the rights under any
outstanding award.

INCENTIVE COMPENSATION PLAN

We have an incentive compensation plan in place for employees selected at the
beginning of each fiscal year by a committee of the board of directors. At the
end of each fiscal year, the committee determines the total amount of funds to
be made available for incentive compensation for the previous fiscal year. The
allotment of the incentive compensation funds among the participants is at the
sole discretion of the committee. Awards are not paid out until the April
following the third anniversary of the date on which the award was credited to
the participant's account. Biopure's general funds are the sole source of
payment under this plan.

39
<PAGE> 39

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In December 1990, we entered into an alliance with The Upjohn Company, or
Upjohn, to develop and market our human and veterinary products. From that time
until the alliance ended in July 1996, we received equity investment and funding
for development of approximately $140.0 million from Upjohn and benefitted from
its experience, personnel and facilities. When our company and Upjohn mutually
agreed to end the alliance in July 1996, Upjohn loaned us $9.0 million, at an
interest rate based on the prime rate. This loan is due on October 1, 2001. As
of May 1, 1999, the remaining principal balance of the loan was $5.0 million
with a principal installment of $500,000 due July 1, 1999. Biopure intends to
repay the remaining balance of this loan with proceeds from this offering.
Upjohn retained no license or other rights to our technology or products. Upjohn
maintains an equity stake in Biopure, holding class B common stock convertible,
according to a formula, into a maximum of 1,272,119 shares of our class A common
stock after FDA approval of Hemopure.

In 1987, we entered into a license agreement with B. Braun Melsungen AG, also
known as Braun, a German hospital supply company. The license and related
agreements contemplated product testing, approval, manufacture and marketing of
Hemopure by Braun in Europe. In 1997, our company and Braun mutually agreed to
end this collaboration. Our termination agreement with Braun provides for both
the repurchase by us of all of the shares of our class A common stock then owned
by Braun and the reacquisition of the exclusive rights to manufacture and market
Hemopure in Europe for the approximate amount previously paid by Braun for these
shares and rights.

We agreed to pay Braun a total of $6.3 million by 2002 in order to reacquire the
2,013,956 shares of class A common stock owned by Braun. Our termination
agreement with Braun requires us to place in escrow installment payments of the
purchase price equal to an annual amount of $1.0 million plus five percent of
our revenues from human product sales and license fees in a certain European
region. We paid one installment of $1.0 million in 1998 and completed the
repurchase of 319,683 shares. We paid a second installment of $1.0 million in
February 1999. We have the right to prepay the balance of the purchase price and
reacquire the remaining 1,694,273 shares at any time. As part of the termination
agreement, we will also pay a royalty at the rate of two percent of our revenues
from human product sales and license fees received in the European region
covered by the terminated license up to an aggregate of $7.5 million.

We have agreed with Braun to accelerate the repurchase of the remaining
1,694,273 shares of class A common stock for $5.0 million, $1.0 million of which
we placed in escrow in February 1999, after the completion of this offering.

We have consulting arrangements with two of our directors: C. Everett Koop, M.D.
and David N. Judelson. For the fiscal years ended October 31, 1997 and 1998, we
paid Dr. Koop $92,941 and $123,780, respectively. We paid $75,500 to Mr.
Judelson in each of fiscal 1997 and fiscal 1998.

In August 1990, we made loans to some of our directors and officers and they
used the proceeds from such loans to purchase our class A common stock. The
principal and interest on each loan is due to be paid in full on July 31, 2000.
The interest rate of each loan is set with reference to the "base rate"
announced by Fleet Bank of Massachusetts, N.A. At July 15, 1999, the interest
rate was 8.0% and the amount of indebtedness due under the remaining loans with
a principal balance of $60,000 or more was:

Carl W. Rausch, Chairman and Chief Executive Officer, owes us approximately $1.7
million;

Edward E. Jacobs, Jr., Senior Vice President, owes us $356,632;

Bing L. Wong, Senior Vice President, International, owes us $96,212; and

Geoffrey J. Filbey, Vice President, Engineering, owes us $64,909.

40
<PAGE> 40

PRINCIPAL STOCKHOLDERS

The following table summarizes certain information as of July 15, 1999, with
respect to the beneficial ownership of shares of our class A common stock,
series A convertible preferred stock, series B convertible preferred stock,
series C convertible preferred stock and series D convertible preferred stock.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Beneficial ownership generally includes
voting or investment power with respect to securities. A person is deemed to be
the beneficial owner of shares that he or she can acquire within 60 days of July
15, 1999 upon the exercise of options or warrants. Biopure has determined each
beneficial owner's percentage ownership by assuming that options or warrants
held by such person which are exercisable within 60 days from July 15, 1999 have
been exercised. Except as indicated by the footnotes to the table below, we
believe, based on information furnished to us, that the persons and entities
named in the table below have sole voting and investment power with respect to
all shares of class A common stock and convertible preferred stock shown as
beneficially owned by them and the shares of class A common stock that will be
issued to them when their convertible preferred stock is converted upon
consummation of this prospectus. Percent of pro forma class A common stock
includes shares of class A common stock issuable upon conversion of our
convertible preferred stock outstanding, but does not include shares of class A
common stock sold in this offering or shares of class A common stock issuable
upon conversion of our class B common stock, which is non-voting stock.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------

PREFERRED STOCK
CLASS A -------------------------------------------------------------
COMMON STOCK SERIES A SERIES B SERIES C
------------------- ------------------- ----------------- -------------------
SHARES PERCENT SHARES PERCENT SHARES PERCENT SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNERS --------- ------- --------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carl W. Rausch(1).................. 5,505,255 42.1% -- --% -- --% -- --%
11 Hurley Street
Cambridge, MA 02141
Biopure Associates Limited
Partnership(2)................... 2,704,195 20.7 -- -- -- -- -- --
c/o Biopure Corporation
11 Hurley Street
Cambridge, MA 02141
Biopure Associates Limited
Partnership II(2)................ 2,226,667 17.0 -- -- -- -- -- --
c/o Biopure Corporation
11 Hurley Street
Cambridge, MA 02141
OCM Principal Opportunities
Fund, L.P.(3) ................... 180,140 1.4 -- -- -- -- 2,618,773 92.5
c/o Oaktree Capital Management
333 S. Grand Avenue
Los Angeles, CA 90071
B. Braun Melsungen AG(4)........... 1,694,273 13.0 -- -- -- -- -- --
Carl Braun Strasse 1
D-34212 Melsungen, Germany
HTV Industries, Inc.(5)............ 1,251,252 9.6 -- -- -- -- -- --
Pavilion Office Building
24100 Chagrin Boulevard
Suite 340
Beachwood, OH 44122
TVI Corp.(5)....................... 11,111 0.1 -- -- -- -- -- --
300 Delaware Avenue
Suite 1704
Wilmington, DE 19801
Aspen Venture Partners, L.P.(6).... 812,687 6.2 26,666 7.7 283,020 13.3 -- --
222 Berkeley Street
Boston, MA 02116
Allan Ferguson(7).................. 837,298 6.4 26,666 7.7 313,020 14.7 10,000 0.4
222 Berkeley Street
Boston, MA 02116
New Enterprise Associates, L.P..... 129,630 1.0 213,333 61.5 -- -- -- --
1119 St. Paul Street
Baltimore, MD 21202

--------------------------------
PREFERRED STOCK
----------------- PERCENT OF
SERIES D PRO FORMA
----------------- CLASS A
SHARES PERCENT COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNERS ------- ------- ------------
<S> <C> <C> <C>
Carl W. Rausch(1).................. -- --% 25.8%
11 Hurley Street
Cambridge, MA 02141
Biopure Associates Limited
Partnership(2)................... -- -- 12.7
c/o Biopure Corporation
11 Hurley Street
Cambridge, MA 02141
Biopure Associates Limited
Partnership II(2)................ -- -- 10.5
c/o Biopure Corporation
11 Hurley Street
Cambridge, MA 02141
OCM Principal Opportunities
Fund, L.P.(3) ................... 83,333 3.2 14.6
c/o Oaktree Capital Management
333 S. Grand Avenue
Los Angeles, CA 90071
B. Braun Melsungen AG(4)........... -- -- 8.0
Carl Braun Strasse 1
D-34212 Melsungen, Germany
HTV Industries, Inc.(5)............ -- -- 5.9
Pavilion Office Building
24100 Chagrin Boulevard
Suite 340
Beachwood, OH 44122
TVI Corp.(5)....................... 166,667 6.4 0.7
300 Delaware Avenue
Suite 1704
Wilmington, DE 19801
Aspen Venture Partners, L.P.(6).... 166,666 6.4 6.0
222 Berkeley Street
Boston, MA 02116
Allan Ferguson(7).................. 170,833 6.5 6.3
222 Berkeley Street
Boston, MA 02116
New Enterprise Associates, L.P..... -- -- 3.9
1119 St. Paul Street
Baltimore, MD 21202
</TABLE>

41
<PAGE> 41
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------

PREFERRED STOCK
CLASS A -------------------------------------------------------------
COMMON STOCK SERIES A SERIES B SERIES C
------------------- ------------------- ----------------- -------------------
SHARES PERCENT SHARES PERCENT SHARES PERCENT SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNERS --------- ------- --------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Henry W. Kendall Revocable
Trust(8)......................... 71,237 0.5% -- --% 801,889 37.7% -- --%
c/o Faneuil Hall Associates
176 Federal Street, 2nd Floor
Boston, MA 02110
Zesiger Capital Group LLC(9)....... 45,913 0.4 -- -- 688,700 32.4 -- --
320 Park Avenue, 30th Floor
New York, NY 10022
Providence Partnership II.......... 37,500 0.3 60,000 17.3 -- -- -- --
c/o Kinship Capital Corporation
400 Skokie Blvd. Suite 675
Northbrook, IL 60062
NEGF II, L.P.(10).................. 18,134 0.1 -- -- -- -- 188,679 6.7
c/o New England Partners
One Boston Place, Suite 2100
Boston, MA 02108
Schooner Capital LLC(11)........... 17,180 0.1 -- -- 66,038 3.1 -- --
745 Atlantic Avenue
Boston, MA 02111
KBC Insurance N.V.(12)............. 16,667 0.1 -- -- -- -- -- --
Wasistraat 6
B-3000 Leuven, Belgium
H & Q Capital Management Inc.(13)... 13,889 0.1 -- -- -- -- -- --
50 Rowes Wharf
Boston, MA 02110
J.B. Partners...................... -- -- 26,666 7.7 -- -- -- --
645 Madison Avenue
New York, NY 10022
David N. Judelson(14).............. 1,694,748 13.0 -- -- -- -- -- --
375 Park Avenue, #2507
New York, NY 10152
Stephen A. Kaplan(15).............. 182,640 1.4 -- -- -- -- 2,618,773 92.5
c/o Oaktree Capital Management
333 S. Grand Avenue
Los Angeles, CA 90071
C. Everett Koop, M.D.(16).......... 2,500 0.0 -- -- -- -- -- --
Charles A. Sanders, M.D.(17)....... 3,167 0.0 -- -- 10,000 0.5 -- --
Edward E. Jacobs, Jr., M.D.(18).... 20,500 0.2 -- -- -- -- -- --
Maria S. Gawryl, Ph.D.(19)......... 23,083 0.2 -- -- -- -- -- --
Dixie L. Esseltine, M.D.(20)....... 1,667 0.0 -- -- -- -- -- --
Brian A. Lajoie(21)................ 7,083.... 0.1 -- -- -- -- -- --
All Officers and Directors as a
Group(22)........................ 7,501,600 57.4 -- -- 10,000 0.5 2,618,773 92.5

<CAPTION>
--------------------------------
PREFERRED STOCK
----------------- PERCENT OF
SERIES D PRO FORMA
----------------- CLASS A
SHARES PERCENT COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNERS ------- ------- ------------
<S> <C> <C> <C>
Henry W. Kendall Revocable
Trust(8)......................... 166,666 6.4% 4.1%
c/o Faneuil Hall Associates
176 Federal Street, 2nd Floor
Boston, MA 02110
Zesiger Capital Group LLC(9)....... -- -- 2.8
320 Park Avenue, 30th Floor
New York, NY 10022
Providence Partnership II.......... -- -- 1.1
c/o Kinship Capital Corporation
400 Skokie Blvd. Suite 675
Northbrook, IL 60062
NEGF II, L.P.(10).................. 83,333 3.2 1.4
c/o New England Partners
One Boston Place, Suite 2100
Boston, MA 02108
Schooner Capital LLC(11)........... 191,666 7.3 1.2
745 Atlantic Avenue
Boston, MA 02111
KBC Insurance N.V.(12)............. 250,000 9.6 1.2
Wasistraat 6
B-3000 Leuven, Belgium
H & Q Capital Management Inc.(13)... 208,333 8.0 0.9
50 Rowes Wharf
Boston, MA 02110
J.B. Partners...................... -- -- 0.4
645 Madison Avenue
New York, NY 10022
David N. Judelson(14).............. -- -- 8.0
375 Park Avenue, #2507
New York, NY 10152
Stephen A. Kaplan(15).............. 83,333 3.2 14.6
c/o Oaktree Capital Management
333 S. Grand Avenue
Los Angeles, CA 90071
C. Everett Koop, M.D.(16).......... -- -- --
Charles A. Sanders, M.D.(17)....... -- -- 0.1
Edward E. Jacobs, Jr., M.D.(18).... -- -- 0.1
Maria S. Gawryl, Ph.D.(19)......... -- -- 0.1
Dixie L. Esseltine, M.D.(20)....... -- -- --
Brian A. Lajoie(21)................ -- -- --
All Officers and Directors as a
Group(22)........................ 113,433 4.3 49.1
</TABLE>

- ---------------
(1) Mr. Rausch's shares of class A common stock consist of: sole power to vote
and dispose of 2,704,195 shares owned by Biopure Associates Limited Partnership;
sole power to vote and dispose of 2,226,667 shares owned by Biopure Associates
Limited Partnership II; sole power to vote 171,833 shares held in a voting trust
of which he is the voting trustee; sole power to vote and dispose of 381,727
shares owned directly by Mr. Rausch, his family and family trusts; and options
exercisable 60 days from July 15, 1999 to purchase 20,833 shares.

(2) Biopure Associates Limited Partnership is a Massachusetts limited
partnership originally formed to hold shares owned primarily by our officers,
employees and consultants. Mr. Rausch, as the Managing General Partner, has sole
power to vote and dispose of these shares. Biopure Associates Limited
Partnership II was formed for a similar purpose. Mr. Rausch, as the sole General
Partner, has sole power to vote and dispose of these shares. The underlying
shares of class A common stock in the two partnerships owned indirectly by
directors and persons named in the compensation table are as follows: Mr. Rausch
1,396,597 shares; Mr. Judelson 333,333 shares; Dr. Koop 40,000 shares; Dr.
Jacobs 515,727 shares; Dr. Gawryl 36,667 shares; and Mr. Lajoie 90,000 shares.

(3) Includes warrants exercisable upon completion of this offering to purchase
180,140 shares.

(4) The ownership of B. Braun Melsungen AG consists solely of voting power.
Biopure will reacquire these shares after completion of this offering, as
described under "Certain Relationships and Related Transactions".

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<PAGE> 42

(5) HTV Industries, Inc. may be deemed indirectly to have the sole power to
vote and dispose of the series D convertible preferred stock owned of record by
TVI Corp., a wholly owned subsidiary of HTV Industries, Inc. TVI's shares
include warrants exercisable upon completion of this offering to purchase 11,111
shares.

(6) Includes warrants exercisable upon completion of this offering to purchase
29,979 shares.

(7) Includes all of the shares owned by Aspen Venture Partners, L.P. of which
Mr. Ferguson serves as Managing Partner, and all of the shares owned by Aspen
Investment Associates, L.P. of which Mr. Ferguson is a General Partner. Mr.
Ferguson has shared voting and investment power with respect to the shares owned
by these partnerships. Mr. Ferguson has sole voting and investment powers with
respect to 30,000 shares of series B convertible preferred stock, 10,000 shares
of series C convertible preferred stock and 4,167 shares of series D convertible
preferred stock owned by him. Mr. Ferguson disclaims beneficial ownership of the
shares held by Aspen Venture Partners, L.P. and Aspen Investment Associates,
L.P., except to the extent of his proportionate pecuniary interest in Aspen
Venture Partners, L.P. and Aspen Investment Associates, L.P. Aspen Venture
Partners, L.P.'s shares include warrants exercisable upon completion of this
offering to purchase 29,979 shares. Mr. Ferguson's shares also include warrants
exercisable upon completion of this offering to purchase 2,944 shares.

(8) Includes warrants exercisable upon completion of this offering to purchase
64,570 shares.

(9) Includes warrants exercisable upon completion of this offering to purchase
45,913 shares.

(10) Includes warrants exercisable upon completion of this offering to purchase
18,134 shares.

(11) Includes warrants exercisable upon completion of this offering to purchase
17,180 shares.

(12) Includes warrants exercisable upon completion of this offering to purchase
16,667 shares.

(13) Includes warrants exercisable upon completion of this offering to purchase
13,889 shares.

(14) Mr. Judelson's shares consist of sole power to vote and dispose of
1,673,915 shares, include options exercisable 60 days from July 15, 1999 to
purchase 20,833 shares and do not include his 333,333 shares referenced above in
note 2.

(15) Mr. Kaplan's shares consist of shares and warrants exercisable upon
completion of this offering to purchase 180,140 shares owned of record by OCM
Principal Opportunities Fund, L.P., for which Mr. Kaplan has sole power to vote
and dispose, and options exercisable 60 days from July 15, 1999 to purchase
2,500 shares.

(16) Dr. Koop's shares include options exercisable from July 15, 1999 to
purchase 2,500 shares and do not include his 40,000 shares referenced above in
note 2.

(17) Dr. Sanders' shares include warrants exercisable upon completion of this
offering to purchase 667 shares.

(18) Dr. Jacobs' ownership consists of sole power to vote and dispose of 18,000
shares and options exercisable 60 days from July 15, 1999 to purchase 2,500
shares and do not include his 515,727 shares referenced above in note 2.

(19) Dr. Gawryl's shares include options exercisable 60 days from July 15, 1999
to purchase 23,083 shares and do not include her 36,667 shares referenced above
in note 2.

(20) Dr. Esseltine's shares consist of options exercisable 60 days from July 15,
1999 to purchase 1,667 shares.

(21) Mr. Lajoie's shares include options exercisable 60 days from July 15, 1999
to purchase 7,083 shares and do not include his 90,000 shares referenced above
in note 2.

(22) Includes options exercisable 60 days from July 15, 1999 to purchase 140,183
shares and warrants exercisable upon completion of this offering to purchase
182,813 shares.

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<PAGE> 43

DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, our authorized capital stock will consist of
100,000,179 shares of common stock, consisting of 100,000,000 shares of class A
common stock, par value $.01 per share, 179 shares of class B common stock, par
value $1.00 per share, and 30,000,000 shares of preferred stock, par value $.01
per share.

CLASS A COMMON STOCK

The holders of our class A common stock are entitled to one vote per share on
all matters submitted to our stockholders. The holders of our class A common
stock are entitled to receive dividends as and when declared by our board of
directors.

Upon any liquidation, dissolution or winding up of Biopure, holders of class A
common stock are entitled to ratable distribution, with the holders of the class
B common stock, of the assets available for distribution to our stockholders,
after payment of the liquidation preferences due to the holders of our
convertible preferred stock.

Holders of class A common stock do not have preemptive rights or cumulative
voting rights.

CLASS B COMMON STOCK

Except as required by law, the holders of class B common stock have no voting
rights and have no right to receive dividends on their class B common stock.

The shares of class B common stock are convertible into class A common stock
after the receipt of FDA approval for the commercial sale of Hemopure for use as
an oxygen transport material in humans. The conversion ratio is based on a
valuation of Biopure at the time of conversion which cannot exceed $3.0 billion.
The maximum number of shares of class A common stock issuable upon conversion of
the class B common stock is 1,272,119 and the minimum is 646,667. We will not
issue any additional shares of class B common stock.

In the event of a liquidation, dissolution or winding up of Biopure, holders of
class B common stock are entitled to ratable distribution, with the holders of
the class A common stock, of the assets available for distribution to our
stockholders, after payment of the liquidation preferences due to the holders of
our convertible preferred stock.

SERIES A CONVERTIBLE PREFERRED STOCK

The holders of series A convertible preferred stock are entitled to receive
dividends and other distributions only as and when declared on our class A
common stock. These dividends and distributions are paid based on the number of
shares of class A common stock into which the series A convertible preferred
stock could be converted on the record date for the dividend or distribution.

Holders of series A convertible preferred stock are entitled to vote on all
matters submitted to the stockholders. The number of votes the holders can cast
is equal to the largest number of whole shares of class A common stock into
which the holders' shares of series A convertible preferred stock could be
converted on the record date for determining which stockholders can vote on the
matters. In addition, the affirmative vote of 66 2/3% of the outstanding shares
of series A convertible preferred stock is required to permit us to engage in
certain transactions, including:

- - redeeming or repurchasing shares of series A convertible preferred stock;

- - authorizing new issuances of stock;

- - the merger, consolidation or disposition of substantially all our assets, or
the assignment of our accounts receivable at a discount or with recourse;

- - amending our restated certificate of incorporation to change the relative
seniority rights of the series A convertible preferred stock, reduce the
amounts payable to holders of series A convertible preferred stock or change
the priority of the series A convertible preferred stock upon a liquidation,
dissolution or winding up;

- - authorizing any equity securities senior to or on a parity with the series A
convertible preferred stock;

- - cancelling or modifying the conversion rights of the series A convertible
preferred stock; and

- - otherwise adversely changing any of the rights, preferences, privileges or
limitations which are provided for the benefit of the holders of the series A
convertible preferred stock.

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<PAGE> 44

Upon a liquidation, dissolution or winding up of Biopure, the holders of series
A convertible preferred stock will be entitled to receive the greater of:

- - a preferential liquidation payment of $3.75 per share, approximately
$1,300,000 in the aggregate, plus all declared but unpaid dividends thereon;
or

- - the amount the holders would have received had their shares of series A
convertible preferred stock been converted into class A common stock
immediately prior to the event of liquidation, dissolution or winding up.

Each share of series A convertible preferred stock may be converted into three
and one-third shares of class A common stock at the option of the holder and
will automatically be converted upon the completion of an initial public
offering of shares of class A common stock at a minimum public offering price of
$3.60 per share and gross proceeds to us of at least $5.0 million.

SERIES B CONVERTIBLE PREFERRED STOCK

The holders of series B convertible preferred stock are entitled to receive
dividends and other distributions only as and when declared on our class A
common stock or series A convertible preferred stock. These dividends and
distributions are paid based on the number of shares of class A common stock
into which such series B convertible preferred stock could be converted on the
record date for the dividend or distribution. The series B convertible preferred
stock dividends shall be paid prior to any payment of dividends on the class A
common stock.

Holders of series B convertible preferred stock are entitled to vote on all
matters submitted to the stockholders. The number of votes the holders can cast
is equal to the number of shares of class A common stock into which the shares
of series B convertible preferred stock could then be converted. In addition,
the affirmative vote of 75% of the outstanding shares of series B convertible
preferred stock is required to permit us to engage in certain transactions,
including:

- - reclassifying any class A common stock into shares having any preference or
priority as to dividends or assets superior to any such preference or priority
of the series B convertible preferred stock;

- - creating or issuing any other class or classes of stock or series of stock or
debt securities having any preference or priority as to dividends or assets
superior to any such preference or priority of the series B convertible
preferred stock;

- - creating or issuing any other class or classes of stock ranking on a parity as
to any preference or priority as to dividends or assets other than preferred
stock with an aggregate liquidation preference not to exceed $30.0 million and
having terms no more favorable to an investor than the terms of the series B
convertible preferred stock; and

- - amending or repealing any provisions of our restated certificate of
incorporation or by-laws to change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, the series B
convertible preferred stock generally or to increase the number of authorized
shares of the series B convertible preferred stock.

Holders of series B convertible preferred stock, voting as a class, are entitled
to elect one representative to our board of directors, which representative
shall be reasonably acceptable to us.

Each investor that owns five percent or more of the class A common stock
issuable upon conversion of the series B convertible preferred stock has a
"participation right" to purchase securities that Biopure sells in the future.
The participation right gives the existing shareholder of series B convertible
preferred stock the right to purchase a pro rata share of the securities being
sold. The participation right does not give shareholders of series B convertible
preferred stock the right to purchase, among other types of securities, any
security offered to the public under a registration statement filed with the
Securities and Exchange Commission.

Upon a liquidation, dissolution or winding up of Biopure, the holders of series
B convertible preferred stock will be entitled to receive a preferential
liquidation payment, subject to adjustment of stock splits, combinations,
reclassifications and similar events, equal to all declared but unpaid dividends
thereon, plus an amount per share equal to the greater of:

- - if such liquidation, dissolution or winding up occurs prior to the third
anniversary of the original issue date of the series B convertible preferred
stock, the series B return amount per share;

- - if such liquidation, dissolution or winding up occurs on or after the third
anniversary of the original issue date of the series B convertible preferred
stock, $21.73 per share; or

- - such amount per share of series B convertible preferred stock as would have
been payable had the shares of series B convertible preferred stock been
converted into class A common stock immediately prior to the liquidation,
dissolution or winding up, so long as the amount distributable per share of
class A common stock exceeds $47.70.

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<PAGE> 45

The term "series B return amount" as of any date, means an amount equal to
$10.60 plus a 35% annualized rate of return on $10.60 from the original issue
date of the series B convertible preferred stock to such date.

Each share of series B convertible preferred stock may be converted into
two-thirds of one share of class A common stock at the option of the holder and
automatically converts upon:

- - the closing of an initial public offering of shares of class A common stock at
a minimum public offering price of $22.50 per share and net proceeds to us in
excess of $40.0 million; or

- - the written consent of the holders of 80% or more of the series B convertible
preferred stock then outstanding.

Holders of shares of series B convertible preferred stock have consented to the
conversion of all shares of series B convertible preferred stock upon completion
of this offering at a conversion ratio of 0.798 shares of class A common stock
for each share of series B convertible preferred stock.

SERIES C CONVERTIBLE PREFERRED STOCK

The holders of series C convertible preferred stock are entitled to receive
dividends and other distributions only as and when declared on our class A
common stock, series A convertible preferred stock, series B convertible
preferred stock or series D convertible preferred stock. These dividends and
distributions are based on the number of shares of class A common stock into
which the series C convertible preferred stock could be converted on the record
date for the dividend or distribution. The series C convertible preferred stock
dividends shall be paid prior to any payment of any dividends on any class A
common stock or series D convertible preferred stock.

Holders of series C convertible preferred stock are entitled to vote on all
matters submitted to the stockholders. The number of votes that the holders can
cast is equal to the number of shares of class A common stock into which the
shares of series C convertible preferred stock could then be converted. In
addition, the affirmative vote of two-thirds of the outstanding series C
convertible preferred stock is required to permit us to engage in certain
transactions, including:

- - creating, by reclassification or otherwise, any new class or series of stock
having rights, preferences or privileges senior to or on a parity with the
series C convertible preferred stock;

- - amending or repealing any provisions of our restated certificate of
incorporation or by-laws to change the rights, preferences or privileges of
the series C convertible preferred stock;

- - increasing or decreasing the number of authorized shares of the series C
convertible preferred stock;

- - engaging in a transaction that results in the redemption of any shares of
common stock (other than pursuant to employee agreements or in connection with
redemption of shares held by Braun); and

- - amending, restating or waiving any provision of our restated certificate of
incorporation or by-laws relative to the series C convertible preferred stock.

Holders of the series C convertible preferred stock, voting as a class, are
entitled to elect one representative to our board of directors, which
representative shall be reasonably acceptable to us.

Each shareholder of series C convertible preferred stock has a "participation
right" to purchase a pro rata share of securities that Biopure sells in the
future. The participation right gives each existing shareholder the right to
purchase a pro rata share of the securities being sold. The participation right
does not give shareholders of series C convertible preferred stock the right to
purchase, among other types of securities, any security offered to the public
under a registration statement filed with the Securities and Exchange
Commission.

Upon a liquidation, dissolution or winding up of Biopure, the holders of series
C convertible preferred stock will be entitled to receive a preferential
liquidation payment, subject to equitable adjustment for stock splits,
reclassifications, plus all declared but unpaid dividends thereon, an amount per
share equal to the greater of:

- - if such liquidation, dissolution or winding up occurs prior to the third
anniversary of the original issue date of the series C convertible preferred
stock, the series C return amount per share;

- - if such liquidation, dissolution or winding up occurs on or after the third
anniversary of the original issue date of the series C convertible preferred
stock, $21.73 per share; or

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<PAGE> 46

- - such amount per share of series C convertible preferred stock as would have
been payable had the shares of series C convertible preferred stock been
converted into class A common stock immediately prior to such liquidation,
dissolution or winding up, so long as the amount distributable per share of
class A common stock exceeds $47.70.

The term "series C return amount" as of any date, means an amount equal to
$10.60 plus a 35% annualized rate of return on $10.60 from the original issue
date of the series C convertible preferred stock to such date.

Each share of series C convertible preferred stock may be converted into
two-thirds of one share of class A common stock at the option of the holder and
automatically converts upon:

- - the vote of the holders of at least two-thirds of the series C convertible
preferred stock; or

- - the closing of an initial public offering of shares of class A common stock at
a minimum public offering price of $34.50 as of the date of this prospectus
and minimum net proceeds to us of $40.0 million.

Holders of shares of series C convertible preferred stock have agreed to consent
to the conversion of all shares of series C convertible preferred stock upon
completion of this offering at a conversion ratio of 1.091 shares of class A
common stock for each share of series C convertible preferred stock.

SERIES D CONVERTIBLE PREFERRED STOCK

The holders of series D convertible preferred stock are entitled to receive
dividends and other distributions only as and when declared on our class A
common stock, series A convertible preferred stock, series B convertible
preferred stock or series C convertible preferred stock. These dividends and
distributions are based on the number of shares of class A common stock into
which the series D convertible preferred stock could be converted on the record
date for the dividend or distribution. Series D convertible preferred stock
dividends shall be paid prior to any payment of any dividends on any class A
common stock, series A convertible preferred stock, series B convertible
preferred stock or series C convertible preferred stock.

Holders of series D convertible preferred stock are entitled to vote on all
matters submitted to the stockholders. The number of votes that the holders can
cast is equal to the largest number of full shares of class A common stock into
which the series D convertible preferred stock held by them could then be
converted. In addition, the affirmative vote or written consent of two-thirds of
the outstanding series D convertible preferred stock is required to take any
action that:

- - alters, restates or changes the rights, preferences or privileges of the
series D convertible preferred stock;

- - increases or decreases the authorized number of shares of series D convertible
preferred stock;

- - creates (by reclassification or otherwise) any new class or series of shares
having rights, preferences or privileges senior to or on a parity with the
series D convertible preferred stock;

- - results in the redemption of any shares of class A common stock (other than
pursuant to employee agreements or in connection with redemption of certain
shares held by Braun); or

- - amends, restates or waives any provision of the restated certificate of
incorporation or by-laws relative to the series D convertible preferred stock.

Each shareholder of series D convertible preferred stock has a "participation
right" to purchase a pro rata share of securities that Biopure sells in the
future. The participation right does not give shareholders of series D
convertible preferred stock the right to purchase, among other types of
securities, any security offered to the public under a registration statement
filed with the Securities and Exchange Commission.

Upon a liquidation, dissolution or winding up of Biopure, each holder of series
D convertible preferred stock shall be entitled to receive, prior and in
preference to any distribution of any of our assets or surplus funds to the
holders of class A common stock or class B common stock by reason of their
ownership thereof, an amount equal to any declared but unpaid dividends on such
share of series D convertible preferred stock to and including the date full
payment is so tendered to the holders of the series D convertible preferred
stock with respect to such liquidation, dissolution or winding up, plus an
amount equal to the greater of:

- - if such liquidation, dissolution or winding up occurs prior to the third
anniversary of the series D original issue date, the series D return amount
per share;

- - if such liquidation, dissolution or winding up occurs on or after the third
anniversary of the series D convertible preferred stock original issue date,
$24.60 per share; or

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<PAGE> 47

- - such amount per share of series D convertible preferred stock as would have
been payable had each share of series D convertible preferred stock been
converted to class A common stock immediately prior to such liquidation,
dissolution or winding up, so long as the amount distributable per share of
class A common stock exceeds $54.00.

The term "series D return amount" as of any date, means an amount equal to
$12.00 plus a 35% annualized rate of return on $12.00 from the issue date of the
series D convertible preferred stock to such date.

Each share of series D convertible preferred stock may be converted into
two-thirds of one share of class A common stock at the option of the holder and
will be automatically converted into class A common stock upon:

- - the vote of the holders of at least two-thirds of the series D convertible
preferred stock; or

- - the closing of this offering; provided that, if the initial price to the
public in this offering is less than $24.00 per share, such conversion ratio
will, if more favorable to the holders of the series D convertible preferred
stock, be adjusted proportionately so that the holders of the series D
convertible preferred stock will receive additional shares of class A common
stock which, valued at the price of this offering, will represent a 35%
annualized return from the date of original issue on the original issue price
of the series D convertible preferred stock and if the price of this offering
is less than $15.90, the adjustment shall be made as if the price were $15.90,
and no further adjustment will be made. If the price per share in this
offering is equal to or greater than $24.00, there will be no adjustment.

ANTI-TAKEOVER EFFECTS OF VARIOUS PROVISIONS OF DELAWARE LAW, BIOPURE'S RESTATED
CERTIFICATE OF INCORPORATION AND BY-LAWS AND A PROPOSED STOCKHOLDERS' RIGHTS
PLAN

We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to various exceptions, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
interested stockholder attained that status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
various exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, fifteen percent
or more of the corporation's voting stock. This statute could prohibit or delay
the success of mergers or other takeover or change in control attempts with
respect to Biopure and, accordingly, may discourage attempts to acquire us.

In addition, various provisions of our restated certificate of incorporation and
our by-laws, which provisions will be in effect upon the completion of this
offering and are summarized in the following paragraphs, may be deemed to have
an anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.

Classified Board of Directors
Following the completion of this offering, our board of directors will be
divided into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the board of directors will be elected each
year. These provisions, when coupled with the provision of the by-laws
authorizing the board of directors to fill vacant directorships or increase the
size of the board of directors, may deter a stockholder from voting to remove
incumbent directors and simultaneously gaining control of the board of directors
by filling the vacancies created by that removal with its own nominees.

Dr. Koop and Mr. Looney will be Class I directors, whose terms expire in 2000;
Mr. Harrington and Mr. Kaplan will be Class II directors, whose terms expire in
2001; and Mr. Rausch, Mr. Judelson and Dr. Sanders will be Class III directors,
whose terms expire in 2002.

Supermajority Voting Requirement for Mergers and Business Combinations
Upon completion of this offering, our restated certificate of incorporation will
require that two-thirds, rather than a majority, of the voting power of Biopure
approve any merger, consolidation or sale of "all or substantially all" of our
assets. This two-thirds vote will be necessary until July 31, 2003, after which
a majority of the voting power of Biopure will be able to approve these
transactions. By requiring a two-thirds rather than a majority vote, it will be
more difficult for an outside entity to successfully acquire our company.

Advance Notice Requirements for Stockholder Proposals and Director Nominations
The by-laws provide that stockholders who wish to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual meeting of stockholders, must provide timely notice in
writing to the secretary of Biopure. To be timely, a stockholder's notice must
be delivered at our principal executive offices, not less than 90 days prior to
the

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<PAGE> 48

first anniversary of the date of our previous year's annual meeting of
stockholders. However, if no annual meeting of stockholders was held in the
previous year or the date of the annual meeting of stockholders has been changed
to be more than 30 calendar days earlier than or 60 calendar days after the
anniversary, notice by the stockholder, to be timely, must be received by us not
later than the close of business on the later of the 90th day prior to such
annual meeting or the 10th day following the day on which the public
announcement of the date of such meeting is first made. The by-laws also provide
specific notice requirements applicable where the number of directors has been
increased. The by-laws specify various requirements as to the form and content
of a stockholder's notice. These provisions may preclude stockholders from
bringing matters for a vote before an annual meeting of stockholders or from
making nominations for directors at an annual meeting of stockholders.

Authorized But Unissued Shares
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without further stockholder approval. These
additional shares may be used for a variety of corporate purposes, including
future public or private offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of authorized but
unissued and unreserved common stock and preferred stock could make more
difficult or discourage an attempt to obtain control of Biopure by means of a
proxy contest, tender offer, merger or otherwise.

The Delaware General Corporation Law generally provides that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or by-laws, unless a
corporation's certificate of incorporation or by-laws, as the case may be,
requires a greater percentage, or unless the by-law provision being amended was
originally adopted by the board of directors, in which case the amendment
requires only the affirmative vote of a majority of the members of the board of
directors or unless the certificate of incorporation provides that the board of
directors may amend the by-laws, in which case the amendment requires only the
affirmative vote of a majority of the members of the board of directors.

Stockholders' Rights Plan

Biopure's board of directors has adopted a stockholders' rights plan which will
become effective following the completion of this offering. This stockholders'
rights plan will have an anti-takeover effect. Under this plan, a preferred
stock purchase right will be distributed to each holder of class A common stock.
The plan is likely to discourage any person or group that wishes to acquire more
than 20% of our class A common stock from acquiring this stock prior to
obtaining Biopure's agreement to redeem the rights. If the rights are not
redeemed, the exercise of the preferred stock purchase rights following an
acquisition will cause substantial dilution to the acquiring person or group.

49
<PAGE> 49

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our class A common
stock, and we cannot predict the effect, if any, that sales of class A common
stock or the availability of class A common stock for sale will have on the
market price of the class A common stock. Nevertheless, sales of substantial
amounts of class A common stock in the public market, or the perception that
such sales could occur, could negatively affect the market price of our class A
common stock and impair our future ability to raise capital through the sale of
our equity securities.

Upon the completion of this offering, we will have an aggregate of 22,280,877
shares of class A common stock outstanding, assuming no exercise of the
underwriters' over-allotment option and no exercise of options or warrants
outstanding at May 1, 1999. Of the outstanding shares, the 3,500,000 shares sold
in this offering will be freely tradeable, except that any shares held by our
"affiliates", as that term is defined in Rule 144 promulgated under the
Securities Act, may be sold only in compliance with the limitations described
below. The remaining 18,780,877 shares of class A common stock will be deemed
"restricted securities" as defined under Rule 144 and may not be sold publicly
unless they are registered under the Securities Act or are sold pursuant to Rule
144 or another exemption from registration. Our directors, executive officers
and other stockholders, holding 16,836,055 shares in the aggregate after
conversion of our preferred stock, have agreed that they will not sell, directly
or indirectly, any shares of class A common stock without the prior written
consent of J.P. Morgan Securities Inc. for a period of 180 days from the date of
this prospectus. Subject to these lock-up agreements, the shares of class A
common stock outstanding upon the completion of this offering will be available
for sale in the public market as follows:

<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF SHARES DESCRIPTION
<S> <C>
4,027,865 After the date of this prospectus, freely tradeable shares
sold in this offering and shares saleable under Rule 144(k)
that are not subject to the 180-day lock-up
234,437 After 90 days from the date of this prospectus, additional
shares saleable under Rule 144 that are not subject to the
180-day lock-up
726,788 After December 23, 1999, shares saleable under Rule 144 that
are not subject to the 180-day lock-up
14,697,491 After 180 days from the date of this prospectus, the 180-day
lock-up is released and these additional shares are saleable
under Rule 144, subject, in some cases, to volume
limitations, Rule 144(k), or pursuant to a registration
statement to register for resale shares of class A common
stock issued upon the exercise of stock options
2,594,296 After 180 days from the date of this prospectus, restricted
securities that are not yet saleable under Rule 144
</TABLE>

In general, under Rule 144, as currently in effect, a person, or person whose
shares are required to be aggregated, including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:

- - 1.0% of the then outstanding shares of class A common stock, approximately
222,809 shares immediately after this offering, or

- - the average weekly trading volume in the class A common stock during the four
calendar weeks preceding the date on which notice of such sale is filed,
subject to certain restrictions.

In addition, a person who is not deemed to have been an affiliate of Biopure at
any time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years would be entitled to sell such
shares under Rule 144(k) without regard to the volume restrictions described
above. To the extent that shares were acquired from an affiliate, such person's
holding period for the purpose of effecting a sale under Rule 144 commences on
the date of transfer from the affiliate.

As of May 1, 1999, options and warrants to purchase a total 1,248,295 shares of
class A common stock were outstanding, of which 210,780 were exercisable.

We have agreed not to sell or otherwise dispose of any shares of class A common
stock during the 180-day period following the date of the prospectus, except
that we may issue, and grant options to purchase, shares of class A common stock
under our 1999 Omnibus Securities and Incentive Plan. In addition, we may issue
shares of class A common stock in connection with any acquisition of another
company if the terms of such issuance provide that the class A common stock so
issued shall not be resold prior to the expiration of the 180-day lock-up
period.

50
<PAGE> 50

Following this offering, under specified circumstances and subject to customary
conditions, holders of 15,513,613 shares of class A common stock will have
demand registration rights with respect to their shares of class A common stock,
subject to the 180-day lock-up arrangement described above, to require us to
register their shares of class A common stock under the Securities Act, and they
will have rights to participate in any future registration of securities by us.

51
<PAGE> 51

UNDERWRITING

Biopure and the underwriters named below have entered into an underwriting
agreement covering the class A common stock to be offered in this offering. J.P.
Morgan Securities Inc., Adams, Harkness & Hill, Inc. and Robert W. Baird & Co.
Incorporated are acting as representatives of the underwriters. Each underwriter
has agreed to purchase the number of shares of class A common stock set forth
opposite its name in the following table.

<TABLE>
<CAPTION>
-----------
NUMBER OF
SHARES
-----------
<S> <C>
UNDERWRITERS
J.P. Morgan Securities Inc.................................. 1,618,750
Adams, Harkness & Hill, Inc................................. 809,375
Robert W. Baird & Co. Incorporated.......................... 809,375
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated............... 87,500
PaineWebber Incorporated.................................... 87,500
Salomon Smith Barney Inc. .................................. 87,500
-----------
Total............................................. 3,500,000
===========
</TABLE>

The underwriting agreement provides that if the underwriters take any of the
shares set forth in the table above, then they must take all of these shares. No
underwriter is obligated to take any shares allocated to a defaulting
underwriter except under limited circumstances.

The underwriters are offering the shares of class A common stock, subject to the
prior sale of shares, and when, as and if such shares are delivered to and
accepted by them. The underwriters will initially offer to sell shares to the
public at the initial public offering price set forth on the cover page of this
prospectus. The underwriters may sell shares to securities dealers at a discount
of up to $0.50 per share from the initial public offering price. Any such
securities dealers may resell shares to certain other brokers or dealers at a
discount of up to $0.10 per share from the initial public offering price. After
the initial public offering, the underwriters may vary the public offering price
and other selling terms.

If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have the option to buy up to an additional 525,000
shares of class A common stock from Biopure to cover such sales. They may
exercise this option during the 30-day period from the date of this prospectus.
If any shares are purchased with this option, the underwriters will purchase
shares in approximately the same proportion as set forth in the table above.

The following table shows the per share and total underwriting discounts that
Biopure will pay to the underwriters. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares.

<TABLE>
<CAPTION>
----------------------------
PAID BY BIOPURE
----------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share.............................................. $ 0.84 $ 0.84
----------- -----------
Total............................................. $ 2,940,000 $ 3,381,000
=========== ===========
</TABLE>

The underwriters may purchase and sell shares of class A common stock in the
open market in connection with this offering. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or slowing a decline in the market price of the class A common stock
while the offering is in progress. The underwriters may also impose a penalty
bid, which means that an underwriter must repay to the other underwriters a
portion of the underwriting discount received by it. An underwriter may be
subject to a penalty bid if the representatives of the underwriters, while
engaging in stabilizing or short covering transactions, repurchase shares sold
by or for the account of that underwriter. These activities may stabilize,

52
<PAGE> 52

maintain or otherwise affect the market price of the class A common stock. As a
result, the price of the class A common stock may be higher than the price that
otherwise might exist in the open market. If the underwriters commence these
activities, they may discontinue them at any time. The underwriters may carry
out these transactions on the Nasdaq National Market, in the over-the-counter
market or otherwise.

We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be $1,172,500.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.

Biopure and our directors, officers and some of our other stockholders have
agreed with the underwriters not to transfer, dispose of or hedge any of our
class A common stock, or securities convertible into or exchangeable for shares
of class A common stock, for a period of 180 days after the date of this
prospectus, except with the prior written consent of J.P. Morgan Securities Inc.
This agreement does not apply to any of our employee benefit plans existing on
the date of this prospectus.

At our request, the underwriters have reserved shares of class A common stock
for sale to directors, officers and employees of Biopure, family members of the
foregoing and other persons having business relationships with us who have
expressed an interest in participating in this offering. We expect these persons
to purchase no more than 10.0% of the class A common stock offered in the
offering. The number of shares available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares.

Our class A common stock has been approved for listing on the Nasdaq National
Market under the symbol "BPUR".

The underwriters expect to deliver the shares of class A common stock to
investors on or about August 4, 1999.

There has been no public market for the class A common stock prior to this
offering. We and the underwriters will negotiate the initial offering price. In
determining the price, we and the underwriters expect to consider a number of
factors in addition to prevailing market conditions, including:

- - the history of and prospects for the oxygen therapeutic industry;

- - an assessment of our management;

- - our present operations;

- - our historical results of operations; and

- - our earnings prospects.

We and the underwriters will consider these and other relevant factors in
relation to the price of similar securities of generally comparable companies.
Neither we nor the underwriters can assure investors that an active trading
market will develop for the class A common stock, or that the class A common
stock will trade in the public market at or above the initial offering price.

From time to time in the ordinary course of their respective businesses, certain
of the underwriters and their affiliates have in the past and may in the future
engage in commercial banking and/or investment banking transactions with Biopure
and our affiliates.

53
<PAGE> 53

LEGAL MATTERS

The validity of the class A common stock offered hereby will be passed upon for
us by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability partnership
including professional corporations, New York, New York.

Legal matters in connection with the offering will be passed upon for the
underwriters by Cahill Gordon & Reindel, a partnership including a professional
corporation, New York, New York.

Legal matters in connection with our patents and intellectual property interests
will be passed upon for us by Hamilton, Brook, Smith & Reynolds, P.C.,
Lexington, Massachusetts.

Legal matters in connection with FDA regulation will be passed upon for us by
Hogan & Hartson, L.L.P., Washington, D.C.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our Consolidated Financial
Statements at October 31, 1997 and 1998, and for each of the three years in the
period ended October 31, 1998, as set forth in their report, which contains an
explanatory paragraph describing conditions that raise substantial doubt about
our ability to continue as a going concern as described in Note 2 to the
Consolidated Financial Statements. We have included our financial statements in
the prospectus and elsewhere in the Registration Statement in reliance on Ernst
& Young LLP's report, given on their authority as experts in accounting and
auditing.

AVAILABLE INFORMATION

We have not previously been subject to the reporting requirements of the
Securities Exchange Act of 1934. We have filed with the Securities and Exchange
Commission, or the Commission, a Registration Statement, which term shall
include all amendments, exhibits, schedules and supplements thereto, on Form S-1
under the Securities Act with respect to the class A common stock offered
hereby. This prospectus, which constitutes a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to Biopure
and the class A common stock offered hereby, reference is made to the
Registration Statement, copies of which may be examined without charge at the
Commission's principal office at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and the regional offices of the Commission located at 7 World Trade
Center, New York, New York 10048 and 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its public reference facilities in New
York, New York and Chicago, Illinois at prescribed rates, or on the internet at
http://www.sec.gov. Statements contained in this 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 statement being qualified in
all respects by such reference.

54
<PAGE> 54

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Ernst & Young LLP, Independent Auditors........... F-2

Consolidated Balance Sheets at October 31, 1997, October 31,
1998 and May 1, 1999 (unaudited).......................... F-3

Consolidated Statements of Operations for the Years Ended
October 31, 1996, 1997 and 1998 and the Six Months Ended
May 2, 1998 (unaudited) and May 1, 1999 (unaudited)....... F-4

Consolidated Statements of Stockholders' Equity for the
Years Ended October 31, 1996, 1997 and 1998 and the Six
Months Ended May 1, 1999 (unaudited)...................... F-5

Consolidated Statements of Cash Flows for the Years Ended
October 31, 1996, 1997 and 1998 and the Six Months Ended
May 2, 1998 (unaudited) and May 1, 1999 (unaudited)....... F-6

Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 55

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors
Biopure Corporation

We have audited the accompanying consolidated balance sheets of Biopure
Corporation (the Company) as of October 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended October 31, 1998. 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 consolidated financial position of Biopure
Corporation at October 31, 1997 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
October 31, 1998, in conformity with generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, the Company's
recurring losses from operations raise substantial doubt about its ability to
continue as a going concern. Management's plans as to these matters are
described in Note 2. The 1998 consolidated financial statements do not include
any adjustment that might result from the outcome of this uncertainty.

ERNST & YOUNG LLP

Boston, Massachusetts
December 11, 1998, except for
Note 14, as to which the date
is January 27, 1999

F-2
<PAGE> 56

BIOPURE CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
---------------------------------------------
OCTOBER 31, PRO FORMA
--------------------- MAY 1, MAY 1,
1997 1998 1999 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
In thousands, except share and per share data
ASSETS:
Current assets:
Cash and cash equivalents................................. $ 13,527 $ 6,063 $ 13,541
Accounts receivable, less allowance of $28 and $55 at
October 31, 1998 and May 1, 1999, respectively.......... -- 346 605
Inventory, net............................................ -- 3,072 4,565
Current portion of restricted cash........................ 1,419 3,508 3,508
Other current assets...................................... 275 186 236
--------- --------- ---------
Total current assets............................... 15,221 13,175 22,455
Property and equipment:
Equipment................................................. 22,330 23,021 24,166
Leasehold improvements.................................... 13,214 13,330 13,520
Furniture and fixtures.................................... 813 1,078 1,100
Construction in progress.................................. 756 5,144 5,148
--------- --------- ---------
37,113 42,573 43,934
Accumulated depreciation and amortization................. (9,705) (12,967) (14,905)
--------- --------- ---------
Net property and equipment.................................. 27,408 29,606 29,029
Investment in affiliate..................................... 166 131 131
Other assets................................................ 1,259 1,936 1,856
--------- --------- ---------
Total assets....................................... $ 44,054 $ 44,848 $ 53,471
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable.......................................... $ 431 $ 1,523 $ 552
Accrued expenses.......................................... 7,422 7,666 8,889
Current portion of long-term debt......................... 2,000 2,000 2,000
--------- --------- ---------
Total current liabilities.......................... 9,853 11,189 11,441
Long-term debt.............................................. 6,000 4,000 3,000
Deferred compensation....................................... 1,679 1,910 1,912
Commitments and contingencies............................... -- -- --
Common stock to be repurchased (2,013,956 shares of Class A
common stock at October 31, 1997 and 1998 and 1,694,273
shares of Class A common stock at May 1, 1999)............ 6,300 6,300 5,300
Stockholders' equity:
Convertible preferred stock, $0.01 par value, 9,000,000
shares authorized, 30,000,000 pro forma
Series A, 346,663 shares designated, issued and
outstanding (aggregate liquidation value of $1,300)
none pro forma......................................... 3 3 3 $ --
Series B, 2,358,490 shares designated; 2,127,251 shares
issued and outstanding (aggregate liquidation value of
$37,142) none pro forma................................ 22 22 22 --
Series C, 2,830,188 shares designated, issued and
outstanding at October 31, 1998 and May 1, 1999
(aggregate liquidation value of $45,028) none pro
forma.................................................. -- 28 28 --
Series D, 3,333,333 shares designated; 2,213,014 shares
issued and outstanding at May 1, 1999 (aggregate
liquidation value of $28,768) none pro forma........... -- -- 22 --
Common stock:
Class A, $0.01 par value, 40,000,000 shares authorized,
100,000,000 pro forma, 10,599,295, 10,742,503,
10,556,342 and 18,458,636 shares issued, 10,396,016,
10,539,225, 10,556,342 and 18,458,636 shares
outstanding at October 31, 1997 and 1998 and May 1,
1999 actual and May 1, 1999 pro forma, respectively.... 106 107 106 185
Class B, $1.00 par value, 179 shares authorized, 117.7
shares issued and outstanding.......................... -- -- -- --
Capital in excess of par value............................ 166,069 197,495 221,573 221,569
Contributed capital....................................... 24,574 24,574 24,574 24,574
Notes receivable.......................................... (2,110) (2,291) (2,382) (2,382)
Treasury stock, at cost (203,278 shares of Class A common
stock at October 31, 1997 and 1998 and none at May 1,
1999)................................................... (1,583) (1,583) -- --
Accumulated deficit....................................... (166,859) (196,906) (212,128) (212,128)
--------- --------- --------- --------
Total stockholders' equity......................... 20,222 21,449 31,818 $ 31,818
--------- --------- --------- ========
Total liabilities and stockholders' equity......... $ 44,054 $ 44,848 $ 53,471
========= ========= =========
</TABLE>

See accompanying notes.
F-3
<PAGE> 57

BIOPURE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
-------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, -------------------------
--------------------------------------- MAY 2, MAY 1,
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
In thousands, except share and per share
data
Revenues:
Oxyglobin............................. $ -- $ -- $ 942 $ 124 $ 1,481
Other................................. 71 -- 189 90 64
----------- ----------- ----------- ----------- -----------
Total revenues.......................... 71 -- 1,131 214 1,545
Cost of revenues........................ -- -- 1,543 -- 3,229
----------- ----------- ----------- ----------- -----------
Gross profit (loss)..................... 71 -- (412) 214 (1,684)
Operating expenses:
Research and development.............. 18,924 23,494 22,950 12,085 9,871
Sales and marketing................... -- 694 2,444 1,069 1,512
General and administrative............ 3,506 2,920 4,660 2,019 2,414
----------- ----------- ----------- ----------- -----------
Total operating expenses...... 22,430 27,108 30,054 15,173 13,797
----------- ----------- ----------- ----------- -----------
Income (loss) from operations........... (22,359) (27,108) (30,466) (14,959) (15,481)
Other income (expense):
Interest income....................... 691 705 1,417 914 362
Interest expense...................... (839) (1,015) (799) (449) (303)
Other................................. 913 -- (199) -- 200
----------- ----------- ----------- ----------- -----------
Total other income
(expense)................... 765 (310) 419 465 259
----------- ----------- ----------- ----------- -----------
Net income (loss)....................... $ (21,594) $ (27,418) $ (30,047) $ (14,494) $ (15,222)
=========== =========== =========== =========== ===========
Historical:
Basic net income (loss) per common
share.............................. $ (1.77) $ (2.23) $ (2.41) $ (1.17) $ (1.23)
=========== =========== =========== =========== ===========
Weighted-average shares used in
computing basic net income (loss)
per common share................... 12,214,553 12,299,716 12,460,070 12,425,455 12,332,525
=========== =========== =========== =========== ===========
Pro forma (unaudited):
Pro forma basic net income (loss) per
common share....................... $ (1.65) $ (0.80) $ (0.79)
=========== =========== ===========
Weighted-average shares used in
computing pro forma basic net
income (loss) per common share..... 18,236,894 18,035,887 19,249,603
=========== =========== ===========
</TABLE>

See accompanying notes.

F-4
<PAGE> 58

BIOPURE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
COMMON STOCK
---------------------------------------- CAPITAL IN
PREFERRED STOCK CLASS A CLASS B EXCESS
------------------ ---------------------- --------------- OF PAR CONTRIBUTED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT VALUE CAPITAL
--------- ------ ---------- ------ ------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In thousands, except share
and per share data
Balance at October 31, 1995....... 346,663 $ 3 12,409,479 $ 124 101.5 $ -- $131,989 $ 20,655
Exercise of stock options....... 23,130 26
Stock repurchases...............
Sale of common stock............ 13.0 13,000
Services contributed by
stockholder................... 3,590
Accrued interest................
Dividends declared ($.015 per
share)........................
Net loss........................
--------- ------ ---------- ------ ----- ------ -------- -----------
Balance at October 31, 1996....... 346,663 3 12,432,609 124 114.5 -- 145,015 24,245
Exercise of stock options....... 50,434 1 45
Sale of preferred stock......... 2,127,251 22 21,715
Sale of common stock............ 130,208 1 3.2 5,574
Common stock to be
repurchased................... (2,013,956) (20) (6,280)
Services contributed by
stockholder................... 329
Accrued interest................
Net loss........................
--------- ------ ---------- ------ ----- ------ -------- -----------
Balance at October 31, 1997....... 2,473,914 25 10,599,295 106 117.7 -- 166,069 24,574
Exercise of stock options....... 27,783 68
Sale of preferred stock......... 2,830,188 28 28,181
Sale of common stock............ 92,592 1 2,463
Common stock issued in exchange
for release of debt
obligation.................... 22,833 438
Equity compensation............. 276
Accrued interest................
Net loss........................
--------- ------ ---------- ------ ----- ------ -------- -----------
Balance at October 31, 1998....... 5,304,102 53 10,742,503 107 117.7 -- 197,495 24,574
Exercise of stock options
(unaudited)................... 17,117 88
Sale of preferred stock
(unaudited)................... 2,213,014 22 25,530
Retirement of treasury stock
(unaudited)................... (203,278) (1) (1,582)
Equity compensation
(unaudited)................... 42
Accrued interest (unaudited)....
Net loss (unaudited)............
--------- ------ ---------- ------ ----- ------ -------- -----------
Balance at May 1, 1999
(unaudited)..................... 7,517,116 $ 75 10,556,342 $ 106 117.7 $ -- $221,573 $ 24,574
========= ====== ========== ====== ===== ====== ======== ===========

<CAPTION>
---------------------------------------------------

TOTAL
NOTES TREASURY ACCUMULATED STOCKHOLDERS'
RECEIVABLE STOCK DEFICIT EQUITY
---------- -------- ----------- -------------
<S> <C> <C> <C> <C>
In thousands, except share
and per share data
Balance at October 31, 1995....... $ (1,787) $(1,568) $(117,541) $ 31,875
Exercise of stock options....... 26
Stock repurchases............... (15) (15)
Sale of common stock............ 13,000
Services contributed by
stockholder................... 3,590
Accrued interest................ (159) (159)
Dividends declared ($.015 per
share)........................ (306) (306)
Net loss........................ (21,594) (21,594)
---------- ------- --------- -------------
Balance at October 31, 1996....... (1,946) (1,583) (139,441) 26,417
Exercise of stock options....... 46
Sale of preferred stock......... 21,737
Sale of common stock............ 5,575
Common stock to be
repurchased................... (6,300)
Services contributed by
stockholder................... 329
Accrued interest................ (164) (164)
Net loss........................ (27,418) (27,418)
---------- ------- --------- -------------
Balance at October 31, 1997....... (2,110) (1,583) (166,859) 20,222
Exercise of stock options....... 68
Sale of preferred stock......... 28,209
Sale of common stock............ 2,464
Common stock issued in exchange
for release of debt
obligation.................... 438
Equity compensation............. 276
Accrued interest................ (181) (181)
Net loss........................ (30,047) (30,047)
---------- ------- --------- -------------
Balance at October 31, 1998....... (2,291) (1,583) (196,906) 21,449
Exercise of stock options
(unaudited)................... 88
Sale of preferred stock
(unaudited)................... 25,552
Retirement of treasury stock
(unaudited)................... 1,583 --
Equity compensation
(unaudited)................... 42
Accrued interest (unaudited).... (91) (91)
Net loss (unaudited)............ (15,222) (15,222)
---------- ------- --------- -------------
Balance at May 1, 1999
(unaudited)..................... $ (2,382) $ -- $(212,128) $ 31,818
========== ======= ========= =============
</TABLE>

See accompanying notes.

F-5
<PAGE> 59

BIOPURE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
--------------------------------------------------------------
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
-------------------------------- --------------------------
1996 1997 1998 MAY 2, 1998 MAY 1, 1999
-------- -------- -------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
In thousands
OPERATING ACTIVITIES:
Net income (loss)............................. $(21,594) $(27,418) $(30,047) $(14,494) $(15,222)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................ 1,483 3,090 3,262 1,632 1,937
Equity compensation......................... -- -- 276 276 42
Deferred compensation....................... 191 192 231 126 2
Accrued interest on stockholders' notes
receivable............................... (159) (164) (181) (89) (91)
Equity in affiliate's operations............ 100 59 35 -- --
Services contributed by stockholder......... 3,590 329 -- -- --
Provision for bad debts..................... (309) -- -- -- --
Accrued interest on settlement.............. 698 -- -- -- --
Gain from affiliate......................... (742) -- -- -- --
Changes in assets and liabilities:
Inventories.............................. -- -- (3,072) (1,037) (1,493)
Accounts receivable...................... -- -- (346) (64) (259)
Other receivable (affiliate)............. 205 654 -- -- --
Other current assets..................... 279 (65) 89 40 (50)
Accounts payable......................... 1,326 (769) 441 67 (971)
Accrued expenses......................... (940) 2,354 682 (245) 1,223
-------- -------- -------- -------- --------
Net cash used in operating
activities.......................... (15,872) (21,738) (28,630) (13,788) (14,882)
INVESTING ACTIVITIES:
Purchase of property and equipment............ (3,175) (1,350) (4,809) (1,675) (1,361)
Sales of short-term investments............... 1,490 -- -- -- --
Other assets.................................. 341 (78) (341) (236) 81
Restricted cash............................... 664 (2,437) (2,425) (2,373) --
-------- -------- -------- -------- --------
Net cash used in investing
activities.......................... (680) (3,865) (7,575) (4,284) (1,280)
FINANCING ACTIVITIES:
Net proceeds from sale of common stock........ 13,000 5,575 2,464 -- --
Net proceeds from sale of preferred stock..... -- 21,737 28,209 28,209 25,552
Proceeds from long-term debt.................. 9,000 -- -- -- --
Payment of long-term debt..................... -- (1,000) (2,000) (1,000) (1,000)
Repurchase of common stock.................... (15) -- -- -- (1,000)
Dividends paid................................ (611) -- -- -- --
Proceeds from exercise of stock options....... 26 46 68 68 88
-------- -------- -------- -------- --------
Net cash provided by financing
activities.......................... 21,400 26,358 28,741 27,277 23,640
-------- -------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents................................. 4,848 755 (7,464) 9,205 7,478
Cash and cash equivalents at beginning of
period...................................... 7,924 12,772 13,527 13,527 6,063
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period.... $ 12,772 $ 13,527 $ 6,063 $ 22,732 $ 13,541
======== ======== ======== ======== ========
Interest paid................................. $ -- $ 1,131 $ 693 $ 405 $ 225
======== ======== ======== ======== ========
</TABLE>

See accompanying notes.

F-6
<PAGE> 60

BIOPURE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND ORGANIZATION

Biopure Corporation (the Company) develops, manufactures and markets oxygen
therapeutics. Its products are Hemopure, for human use, and Oxyglobin, for
veterinary use. The Company is developing Hemopure as an alternative to red
blood cell transfusions as well as for use in the treatment of other critical
care conditions.

During 1998, the Company began selling Oxyglobin. Initially, sales were made on
a limited basis directly to emergency and specialty veterinary practices. In
October 1998, the Company began selling Oxyglobin nationwide through several
veterinary distributors, who purchase product for immediate and direct sale to
veterinary practices.

Costs of revenues include significant depreciation of production equipment and
other fixed and variable costs associated with the production of Oxyglobin. The
manufacturing process requires certain machinery to run on 24-hour cycles even
when production runs are not occurring. These costs are anticipated to be better
rationalized if demand and production increase.

Additionally, during 1998, the Company continued human clinical trials of its
Hemopure solution in the United States, Europe and South Africa. These clinical
trials are expensive and a significant cause of the Company's operating losses.
Although there cannot be any assurance that its Hemopure solution will be
approved by a country's regulatory authority, the trials to date have produced
satisfactory results, which have allowed the Company to continue clinical
progress.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The consolidated financial statements reflect the accounts of the Company and
its wholly-owned and majority-owned subsidiaries. All intercompany accounts and
transactions have been eliminated.

On June 24, 1999, the Board of Directors approved a two for three reverse stock
split of common shares which was effected in the form of a reverse stock
dividend on July 21, 1999. All common share and per common share amounts
included in the accompanying consolidated financial statements and notes thereto
have been retroactively restated to give effect to this reverse stock split.

The consolidated financial statements of the Company have been presented on the
basis of a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Because of its
continuing losses from operations, the Company will be required to obtain
additional capital to satisfy its ongoing capital needs and to continue its
operations. Biopure secured additional funding in 1999 through a private
placement of securities. Discretionary types of operational spending and capital
expenditures will be controlled during the year so that the funding from the
private placement of securities will be adequate for operations to the closing
of a successful initial public offering of stock. The Company believes that the
private placement funds, together with the proceeds from the initial public
offering, should be adequate to sustain the Company for more than twelve months.
In the event that the Company does not complete a successful initial public
offering, it plans to secure funding through additional private placements of
securities.

Unaudited Interim Financial Statements
The condensed consolidated financial statements as of and for the six months
ended May 2, 1998 and May 1, 1999 have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations for the six months
ended May 1, 1999 are not necessarily indicative of the results that may be
expected for the full year.

Risks and Uncertainties
The preparation of the 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.

Some of the Company's key materials used in production are obtained from sole
source suppliers. Although such materials are available from other suppliers,
the Company must test materials not previously used in order to assure the
materials meet the Company's requirements.

F-7
<PAGE> 61
BIOPURE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash and Cash Equivalents
The Company considers all liquid securities with original maturities of three
months or less to be cash equivalents.

Inventories
Inventories are stated at the lower of cost (determined using the first-in,
first-out method) or market. Inventories are reviewed periodically during the
year for slow-moving, obsolete or off-grade status based on sales activity, both
projected and historical. Appropriate reserves are established for any inventory
that falls into these categories.

Property and Equipment
Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the assets using the straight-line method. The estimated useful
lives of these assets are as follows:

<TABLE>
<S> <C>
----------------
Leasehold improvements...................................... Life of the lease
Major equipment............................................. 12 years
Equipment................................................... 5-7 years
Furniture and fixtures...................................... 5 years
Computer equipment.......................................... 3 years
</TABLE>

Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment. Other
revenues consist primarily of royalties from the sale of an enzyme material
previously licensed to a pharmaceutical company. The Company recognizes revenue
from royalties when earned upon sale of the licensed products.

Stock-Based Compensation
The Company grants stock options for a fixed number of shares, generally with an
exercise price equal to the market value of the shares at the date of grant, as
determined by the board of directors. The Company has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), in accounting for its stock-based compensation plans, rather
than the alternative fair value accounting method provided for under Financial
Accounting Standards Board Statement No. 123, Accounting for Stock-Based
Compensation (Statement 123), as this alternative requires the use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, when the exercise price of options granted to employees
under these plans equals the market price of the underlying stock on the date of
grant, no compensation expense is required.

Net Income (Loss) Per Share
Historical basic net income (loss) per share is computed based on the
weighted-average number of common shares outstanding during the period. Diluted
net income (loss) per share is computed based upon the weighted-average number
of common shares outstanding during the year, adjusted for the dilutive effect
of shares issuable upon the conversion of preferred stock outstanding and the
exercise of common stock options and warrants determined based upon average
market price of common stock for the period. Diluted net income (loss) per share
are not presented in the accompanying consolidated financial statements because
the Company had losses for all periods presented.

Unaudited Pro Forma Net Income (Loss) Per Common Share
The unaudited pro forma basic net income (loss) per common share is computed
using the weighted-average number of outstanding common shares assuming
conversion of all convertible preferred shares into common shares (at date of
original issuance), which will occur upon completion of the initial public
offering, as contemplated herein.

F-8
<PAGE> 62
BIOPURE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Calculation of Net Loss Per Share

<TABLE>
<CAPTION>
-------------------------------------------- ----------------------------
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
-------------------------------------------- ----------------------------
MAY 2, MAY 1,
1996 1997 1998 1998 1999
In thousands, except share ------------ ------------ ------------ ------------ ------------
and per share data (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Historical:
Net income (loss)................ $ (21,594) $ (27,418) $ (30,047) $ (14,494) $ (15,222)
Preferred stock dividends........ (26) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) applicable
to common stockholders...... (21,620) (27,418) (30,047) (14,494) (15,222)
============ ============ ============ ============ ============
Weighted-average number of common
shares outstanding............ 12,214,553 12,299,716 12,460,070 12,425,455 12,332,525
============ ============ ============ ============ ============
Basic net income (loss) per common
share............................ $ (1.77) $ (2.23) $ (2.41) $ (1.17) $ (1.23)
============ ============ ============ ============ ============
Pro forma (unaudited):
Weighted-average number of common
shares:
Historical outstanding........ 12,460,070 12,425,455 12,332,525
Issued upon assumed conversion
of preferred stock.......... 5,776,824 5,610,432 6,917,078
------------ ------------ ------------
Total weighted-average
number of common shares
used in computing basic
pro forma net income
(loss) per common share.. 18,236,894 18,035,887 19,249,603
============ ============ ============
Basic pro forma net income (loss)
per common share.............. $ (1.65) $ (0.80) $ (0.79)
============ ============ ============
</TABLE>

Unaudited Pro Forma Balance Sheet
Upon an initial public offering of the Company's Class A Common Stock, each
outstanding share of Series A, B, C, and D Convertible Preferred Stock will be
converted into shares of Class A Common Stock as described in Notes 8 and 14.
This reclassification has been reflected in the accompanying unaudited pro forma
balance sheet as of May 1, 1999.

Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
Disclosures About Segments of an Enterprise and Related Information (Statement
131), which establishes standards for public companies to report information
about operating segments in financial statements. Statement 131 supersedes
Statement No. 14, Financial Reporting for Segments of a Business Enterprise;
however, Statement 131 retains the requirements to report information about
major customers. The Company adopted this statement effective November 1, 1998.
Disclosures required in future periods under Statement 131 are not expected to
be significant.

In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP provides guidance for
the capitalization of certain costs incurred to develop or obtain internal-use
software. SOP No. 98-1 is effective for the Company in fiscal 2000. The adoption
of this standard is not expected to have a material effect on the Company's
financial position or operating results.

3. TRANSACTIONS WITH RELATED PARTIES

At October 31, 1998, approximately 39% of the outstanding shares of Class A
Common Stock of Biopure were owned by two limited partnerships, Biopure
Associates Limited Partnership and Biopure Associates Limited Partnership II.
The primary purpose of these partnerships is to own shares of common stock of
the Company. The general partners of these partnerships

F-9
<PAGE> 63
BIOPURE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

are officers of the Company, and the limited partners include certain employees,
officers, directors and consultants to the Company.

During 1996, 1997 and 1998, the Company made payments of approximately $787,000,
$301,000 and $344,000, respectively, to directors and consultants who have
ownership interests in the Company. The Company also had a development and
license agreement with a stockholder, Pharmacia & Upjohn, Inc. (P&U), through
July 1996 (see Note 9).

In August 1990, the Company made loans to certain directors and officers to
allow them to purchase Class A Common Stock. The principal and interest, for all
loans except the loan made to Mr. Rausch, is due on July 31, 2000. The principal
and interest on Mr. Rausch's loan is due on July 31, 2003. The notes receivable
bear interest at the prime rate (8.0% at October 31, 1998) and are included in
stockholders' equity in the accompanying consolidated financial statements.

4. INVENTORIES

Inventories consisted of the following:

<TABLE>
<CAPTION>
---------------------
OCTOBER 31, MAY 1,
1998 1999
In thousands ----------- ------
<S> <C> <C>
Raw materials............................................... $ 935 $1,198
Work-in-process............................................. 542 805
Finished goods.............................................. 1,595 2,562
------ ------
$3,072 $4,565
------ ------
------ ------
</TABLE>

5. INVESTMENTS

The Company accounts for its investments in affiliated companies under the
equity method of accounting. In July 1994, the Company acquired a 50% general
partnership interest in Eleven Hurley Street Associates (EHSA), a real estate
partnership which owns the Company's principal office and research and
development facilities. The Company's lease with EHSA requires annual rental
payments of $239,000 through 2002 and $262,000 from 2003 through 2007. The
partnership's income was not significant for any of the periods presented. At
October 31, 1997 and 1998, the Company's proportionate share of EHSA's net
equity was approximately $166,000 and $131,000, respectively.

Prior to 1996, the Company had made equity investments, provided services and
guaranteed loans for its affiliate, Cephagen Corporation, a Taiwan-based
manufacturer of enzymes, in which the Company had a 33.0% ownership interest.
The Company had written off its investment, fully reserved its receivable and
recorded loan obligations it had assumed by the end of 1995 as a result of
Cephagen's recurring losses. In October 1996, Cephagen was merged with Taiwan
Biotech, whereupon the Company received a 1.6% ownership interest. As a result
of the merger, the Company received payment of its receivable, was relieved of
its loan obligations and, accordingly, recorded a gain of $1,013 in 1996.

6. LONG-TERM DEBT

Long-term debt consists of a loan from P&U in the original principal amount of
$9,000,000. Principal payments are made in equal quarterly installments of
$500,000 through October 1, 2001. Interest is paid quarterly on the unpaid
principal balance at the prime rate of interest. The prime rate at October 31,
1998 was 8.0%. The note is secured by a substantial portion of the Company's
assets and is required to be repaid on completion of a public offering of the
Company's equity securities or certain other financing events.

7. DEFERRED COMPENSATION

The Company has a deferred compensation agreement with an officer/stockholder
requiring a base payment of $700,000 plus accrued interest of $621,000 at
October 31, 1998. In June 1999 the payment date was extended to July 31, 2003,
subject to certain conditions.

F-10
<PAGE> 64
BIOPURE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has an Incentive Compensation Plan for all employees which provides
for discretionary deferred bonus awards annually. Commencing three years after
grant, awards are paid ratably over a five-year period. Plan expenses were
$114,000, $130,000 and $160,000 in 1996, 1997 and 1998, respectively.

8. STOCKHOLDERS' EQUITY

Convertible Preferred Stock
Holders of convertible preferred stock are entitled to voting rights and
dividend rights on a per-share basis, computed as the number of equivalent
shares of common stock.

The Series A Convertible Preferred Stock may be converted into Class A Common
Stock on a three and one-third for one basis, adjusted for certain events. The
Series A shares automatically convert in the event of a public offering of
shares in which gross proceeds to the Company exceed $5,000,000 and shares are
offered at a minimum of $3.60 per share. The Series A shares are entitled to
priority in liquidation at $3.75 per share.

The Series B Convertible Preferred Stock may be converted into Class A Common
Stock on a two-thirds for one basis, adjusted for certain events. The Series B
shares automatically convert in the event of a public offering of shares in
which net proceeds to the Company exceed $40,000,000 and shares are offered at a
minimum of $22.50 per share. As of October 31, 1998, the Series B shares were
entitled to priority in liquidation of $14.31 per share. The priority in
liquidation of Series B shares increases to $15.37 per share in June 1999 (see
Note 14 for subsequent event).

In November 1997, the Company sold 2,830,188 shares of Series C Convertible
Preferred Stock at $10.60 per share. The Series C Convertible Preferred Stock
may be converted into Class A Common Stock on a two-thirds for one basis,
adjusted for certain events. The Series C shares automatically convert in the
event of a public offering of shares in which net proceeds to the Company exceed
$40,000,000 and shares are offered at a price of $30.00 per share at the end of
the first year, pro-rated based upon the number of months elapsed during the
first year, increasing in monthly increments during the second and third years
following the original issue date, up to a maximum of $52.50 per share. The
Series C shares are entitled to priority in liquidation at $13.25 per share
during the first year following the original issue date, $14.31 per share during
the second year and $15.37 per share thereafter (see Note 14 for subsequent
event).

Subsequent to May 1, 1999, an additional 397,250 units of Series D Convertible
Preferred Stock were sold with aggregate net proceeds of $4.7 million. In
accordance with the provisions of EITF 98-5, for those units sold after May 20,
1999, the Company will treat any shares of Class A Common Stock issued upon
conversion in excess of two-thirds of one share of Class A Common Stock for each
share of Series D Convertible Preferred Stock as a dividend for accounting
purposes. Upon conversion of the Series D Convertible Preferred Stock, the
Company will record a dividend of approximately $160,000.

The holders of the Series B and Series C Convertible Preferred Stock have agreed
to convert their shares at the time of the Company's initial public offering on
the condition that the holders of the Series B Convertible Preferred Stock will
receive an additional 280,000 shares in the aggregate upon conversion and the
holders of the Series C Convertible Preferred Stock will receive an additional
1,200,000 shares in the aggregate upon conversion. The fair market value of such
additional shares will, for accounting purposes, be treated as a dividend on
such convertible preferred stock in the quarter in which the offering and
conversion occurs. Upon conversion of the Series B and Series C Convertible
Preferred Stock, the Company will record a dividend of approximately
$17,800,000.

Common Stock
The Company has a right of first refusal on dispositions of substantially all of
the outstanding Class A Common Stock.

The Class B Common Stock is authorized for issuance only to P&U. The holder of
Class B Common Stock is not entitled to vote or receive dividends. The Class B
Common Stock is convertible into shares of Class A Common Stock according to a
formula that is based upon a future fair market value of the Class A Common
Stock and is dependent upon the Company achieving U.S. FDA approval for its
Hemopure solution.

Consistent with the P&U agreement, the number of shares of Class A Common Stock
to be issued in exchange for the Class B Common Stock will be determined based
upon an independent valuation of the Company, after FDA approval of the
Company's

F-11
<PAGE> 65
BIOPURE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

human oxygen therapeutic product, which valuation cannot exceed $3 billion. This
valuation is then divided by 13,635,525 shares to arrive at a fair value per
share of Class A Common Stock. P&U's total investment in the Company, $142.3
million, divided by such per share fair value of Class A Common Stock, results
in the number of shares of Class A Common Stock P&U will receive, limited to a
maximum of 1,272,119 shares.

Dividends
The terms of the Company's loan described in Note 6 prohibit the payment of
dividends prior to its repayment. Additionally, at this time, the Company does
not intend to pay dividends.

Stock Accumulation Plan
In August 1990, the Company issued 1,606,000 shares of Class A Common Stock to
certain employees, officers, consultants and directors for $1.35 per share,
which was $4.05 per share less than the then fair market value, as determined by
the Company's Board of Directors, of $5.40 per share. This $4.05 per share
market value differential is associated with a permanent nonlapse restriction on
the value of the stock. Upon the repurchase by the Company or other investors,
the future value will be equal to the then-current fair market value less the
permanent discount of $4.05 per share, adjusted for an annual interest factor.

Contributed Capital
In accordance with the P&U strategic alliance discussed in Note 9 below, the
Company recorded as contributed capital $3,590,000 and $329,000 of research and
development costs incurred by P&U on behalf of the Company in 1996 and 1997,
respectively. These costs are included in research and development expenses in
the accompanying consolidated statements of operations and were either incurred
by Biopure and reimbursed by P&U, or incurred directly by P&U. All such costs
incurred were clinical development costs specifically identified and
contractually agreed to by both parties. Upon conversion of the Class B Common
Stock, the cumulative amount of contributed capital will be treated as
consideration for the Class A Common Stock issued in the conversion.

Stock Options and Warrants
The Company has one active stock option plan under which key employees,
directors and consultants may be granted options to purchase Class A Common
Stock at a price determined by the Board of Directors at the date of grant.
Under this plan and a previous plan, substantially all options become
exercisable on a pro rata basis over a four-year period and expire ten years
from date of grant.

Presented below is a summary of transactions under the stock option plans during
1996, 1997 and 1998:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------------
1996 1997 1998
------------------------ ------------------------ ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year.... 235,930 $ 7.64 243,650 $12.02 133,217 $14.94
Granted..................................... 57,933 22.50 6,667 22.50 456,133 18.68
Exercised................................... (23,130) 1.14 (50,433) 1.02 (27,783) 2.42
Expired..................................... (26,666) 5.40 (18,667) 4.43 -- --
Forfeited................................... (417) 17.10 (48,000) 19.89 (14,933) 20.58
------- ------- -------
Options outstanding at end of year.......... 243,650 $12.02 133,217 $14.94 546,634 $18.54
======= ======= =======
Options exercisable......................... 143,217 83,383 89,350
======= ======= =======
</TABLE>

During 1998, the Company granted 20,000 options with an exercise price of $5.40
to certain consultants to replace options that had expired in March 1996. The
exercise price of the new options is the same as the exercise price of the
expired options, and the new options are fully vested. The Company used an
estimated fair market value of its stock as determined by its Board of Directors
in order to determine the related expense to be recorded as a result of issuing
options to nonemployees. The Company recorded expense and increased capital in
excess of par value by $276,000.

F-12
<PAGE> 66
BIOPURE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding at
October 31, 1998:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- --------------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
REMAINING CONTRACTUAL AVERAGE EXERCISE AVERAGE EXERCISE
EXERCISE PRICE SHARES LIFE (YRS.) PRICE SHARES PRICE
- -------------- ------- --------------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$ 2.40-$ 5.40 30,167 3.0 $ 4.50 30,167 $ 4.50
$ 7.50-$13.50 19,933 3.9 13.10 19,933 13.10
$18.00-$22.50 496,533 8.8 19.61 39,250 21.50
------- -------
546,633 8.3 $18.54 89,350 $13.89
======= =======
</TABLE>

During 1998, the Company's 1988 stock option plan expired. In March 1998, the
Board of Directors approved the adoption of a 1998 stock option plan to provide
for the granting of options for up to 98,293 shares of Class A Common Stock, the
number of shares remaining in the expired 1988 plan. Options outstanding under
the Company's 1988 plan forfeited in future periods will be available for grant
under the new plan. At October 31, 1998, there were 66,293 shares available for
future grants under stock option plans.

In June 1999, the Company established the 1999 Omnibus Securities and Incentive
Plan (the 1999 Plan), which provides for the granting of incentive stock
options, non-qualified stock options, restricted stock awards, deferred stock
awards, unrestricted stock awards, performance share awards, distribution
equivalent rights, or any combination of the foregoing to key management,
employees and directors. The maximum number of shares of Class A Common Stock
reserved for issuance under the 1999 Plan is 1,866,666. Subject to the
completion of the Company's initial public offering, the Board of Directors has
approved the granting of options under the 1999 Plan to officers, directors and
employees for an aggregate of 1,492,020 shares, with an exercise price equal to
the initial price to the public in the initial public offering of the Company's
Class A Common Stock.

In December 1998 and February 1999, the Company issued to an officer options to
purchase 116,667 shares of Class A Common Stock at exercise prices of $10.00 and
$18.00 per share. With respect to the option to purchase 50,000 shares with an
exercise price of $10.00 per share and a deemed fair value of $18.00 per share
at the date of grant, the Company recorded an increase to capital in excess of
par value and a corresponding charge to deferred compensation in the amount of
$400,000 to recognize the aggregate difference between the deemed fair value for
accounting purposes of the stock options at the date of grant and the option
exercise price. The deferred compensation is being amortized over the option
vesting period of four years.

One of the Company's vendors holds an option to acquire 26,667 shares of Class A
Common Stock. The exercise price of $37.50 per share is payable by the
contribution of certain property, equipment and facilities rights. The option
expires in September 2000.

In connection with the sale of Series C Convertible Preferred Stock in November
1997, the Company issued to the placement agent warrants to purchase 66,667
shares of Common Stock at a price per share equal to the initial price to the
public in the Company's initial public offering. The warrants expire three years
from the date of the initial public offering.

Statement 123 Disclosures
The Company has adopted the disclosure provisions only of Statement 123. The
fair value of options granted was estimated at the date of grant using the
minimum value method with the following assumptions for 1996, 1997 and 1998:
risk-free interest rates ranging from 5.49% to 6.32%; dividend yield of 0% and a
seven-year expected life. If the compensation cost for options granted had been
determined based on the fair value of the options at the date of grant, the
Statement 123 pro forma net loss for 1996, 1997 and 1998 would have been
$21,665,000, $27,538,000 and $30,712,000, respectively. The Statement 123 pro
forma net loss per share for 1996, 1997 and 1998 would have been $(1.77),
$(2.24) and $(2.46), respectively. Compensation expense under Statement 123 for
1996, 1997 and 1998 is not representative of future expense, as it includes one,
two and three years of expense, respectively. In future years, the effect of
determining compensation cost using the fair value method will include
additional vesting and associated expense.

The weighted-average fair value per option of options granted during 1996, 1997
and 1998 was $7.44, $8.04 and $6.11, respectively.

F-13
<PAGE> 67
BIOPURE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reserved Shares
At October 31, 1998, there were 6,593,041 shares of Class A Common Stock
reserved for issuance under the stock option plans, a stock option agreement and
warrants and upon conversion of Class B Common Stock and Convertible Preferred
Stock.

9. CONTRACTS

The Company had a strategic alliance with P&U beginning in 1990. Under the
alliance agreement, P&U purchased $117,700,000 of Class B Common Stock in
increments based generally on the achievement of mutually agreed-upon progress
points or goals. Additionally, in exchange for the future issuance of Class A
Common Stock, as described in Note 8 above, P&U funded clinical development
undertaken by the Company and P&U for the Company's oxygen therapeutic products.
The Company's agreement with P&U was terminated in accordance with its terms in
July 1996. Final payments from P&U were realized in 1997.

10. EMPLOYEE BENEFIT PLAN

The Company has a defined contribution plan, the Biopure Corporation Capital
Accumulation Plan, qualified under the provisions of Internal Revenue Code
section 401(k). Employees are eligible for enrollment upon becoming employed and
for discretionary matching after one year of service. The Company's
discretionary contribution vests after a period of four years from the date of
employment. In 1996, 1997 and 1998, the Company contributed $144,000, $158,000
and $163,000, respectively, to the plan.

11. INCOME TAXES

At October 31, 1998, the Company had available for the reduction of future
years' federal taxable income and income taxes net operating loss carryforwards
of approximately $140,000,000, expiring from the year ended October 31, 2004
through 2013, along with research and development and investment tax credits of
approximately $3,300,000, expiring from the year ended October 31, 1999 through
2013. Since the Company has incurred only losses since inception and due to the
degree of uncertainty with respect to future profitability, the Company believes
at this time that it is more likely than not that sufficient taxable income will
not be earned to allow for realization of the tax loss and credit carryforwards
and other deferred tax assets. Accordingly, the tax benefit of these items has
been fully reserved. Additionally, the future use of these carryforwards may be
subject to limitations pursuant to sections 382 and 383 of the Internal Revenue
Code.

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 deferred tax assets and liabilities as of October 31, 1997 and
1998 were as follows:

<TABLE>
<CAPTION>
----------------------
1997 1998
--------- ---------
<S> <C> <C>
In thousands
Deferred tax assets:
Net operating loss carryforward........................... $ 42,659 $ 56,138
Capitalized research and development...................... 14,887 17,287
Accruals and reserves..................................... 3,614 2,364
Tax credit carryforwards.................................. 2,588 3,388
Depreciation.............................................. 444 --
--------- ---------
Total deferred tax assets................................... 64,192 79,177
Deferred tax liabilities:
Depreciation.............................................. -- 2,159
--------- ---------
Total deferred tax liabilities.............................. -- 2,159
--------- ---------
Net deferred tax assets..................................... 64,192 77,018
Valuation allowance for deferred tax assets................. (64,192) (77,018)
--------- ---------
Net deferred tax assets..................................... $ -- $ --
========= =========
</TABLE>

F-14
<PAGE> 68
BIOPURE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. COMMITMENTS

In 1997, the Company entered into an agreement with B. Braun Melsungen A.G.
(Braun) to repurchase 2,013,956 shares of the Company's common stock for
$6,300,000. The agreement requires the Company to place in escrow installment
payments of such purchase price equal to an annual amount of $1,000,000 plus
five percent of the Company's revenues from human product sales and license
fees, if any, in a certain European region. The Company received Braun's
agreement to delay the deposit of $1,000,000 due in August 1998 to February
1999. The aggregate repurchase amount of $6,300,000 must be funded by the year
2002. At any time, the stockholder may withdraw funds in escrow to complete the
repurchase in installments by simultaneous delivery out of escrow to the Company
of a pro rata portion of the stock (see Note 14 for subsequent event). At
October 31, 1998, the Company has $1,046,000 in escrow in connection with this
agreement and has included the restricted cash in other assets. The accompanying
consolidated balance sheet has reclassified the Class A Common Stock to be
repurchased from Braun from stockholders' equity to temporary equity and
included the unpaid purchase price and related shares in Common Stock to be
Repurchased.

The agreement also requires the Company to pay Braun a royalty of two percent of
the Company's revenues from human product sales and license fees in a certain
European region. Payments must be made on a quarterly basis until such amounts
aggregate $7,500,000. In exchange for this royalty commitment, the rights to
manufacture and market specified products in Braun's territory were reacquired
by the Company.

Future minimum lease payments under operating leases for the Company's various
office, laboratory, warehouse and processing facilities, with terms of more than
one year at October 31, 1998 are as follows:

<TABLE>
<CAPTION>
----------
<S> <C>
1999........................................................ $1,012,000
2000........................................................ 983,000
2001........................................................ 681,000
2002........................................................ 259,000
2003........................................................ 279,000
Thereafter.................................................. 1,316,000
----------
$4,530,000
==========
</TABLE>

Rent expense was approximately $599,000, $643,000 and $803,000 in 1996, 1997 and
1998, respectively.

13. LITIGATION

The Company is a party to litigation initially filed in 1990 arising from
certain joint venture agreements for development and distribution of product in
Central and South America. Summary judgments were entered against the two
plaintiffs in 1994. The plaintiffs each appealed the judgments; one of the
appeals was voluntarily dismissed. The other appeal was denied in part and
remanded to the trial court for further findings based on lack of jurisdiction.
It is anticipated that the trial court will make the requisite findings in the
calendar year 1999. In connection with the summary judgments, the Company agreed
to a settlement with a third-party intervenor with claims against one of the
plaintiffs. Final payment of the settlement is subject to the outcome of the
pending appeal; however, the Company has provided for such settlement in the
accompanying financial statements. At October 31, 1998, the Company had
$3,508,000 in escrow in connection with this settlement and included this amount
in other current assets. The settlement amount has been recorded as a current
obligation.

14. SUBSEQUENT EVENTS

In December 1998, Braun withdrew all funds from escrow to complete an
installment of the repurchase of 319,683 shares of Class A Common Stock as
described in Note 12 above. This repurchase reduces the number of outstanding
Class A Common Stock shares accordingly.

In December 1998, the Company increased its authorized capital to 40,000,000
shares of Class A Common Stock and 9,000,000 shares of preferred stock.
Concurrently, 3,333,333 shares of Series D Convertible Preferred Stock were
designated.

Each share of Series D Convertible Preferred Stock is convertible into
two-thirds of a share of Class A Common Stock. The Series D shares automatically
convert on a two-thirds-to-one basis in the event of a public offering of the
Company's Class A

F-15
<PAGE> 69
BIOPURE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Common Stock, but if the price to the public in an initial public offering is
less than $24.00 per share, the conversion ratio is increased so that the number
of shares of Class A Common Stock will provide a 35% annualized rate of return
on the Series D price per share of $12.00.

The Series D shares are entitled to priority in liquidation, as of any date, at
$12.00 per share plus a 35% annualized rate of return from their date of
original issuance plus participation with the Common Stock, but in the aggregate
limited to three times their original issue price. In connection with the
issuance of the Series D shares, the liquidation preferences of the Series B
Convertible Preferred Stock and the Series C Convertible Preferred Stock, as
described in Note 8 above, were adjusted to provide a 35% annualized rate of
return plus participation with the Common Stock, but in the aggregate limited to
three times their original issue price.

On December 23, 1998, the Company sold 1,489,498 units at $12.00 per unit, each
consisting of one share of Series D Preferred Stock plus a warrant to purchase
1/15th of a share of Class A Common Stock. In connection with the issuance of
the Series D shares, warrants were issued to the placement agents to purchase
30,667 shares of Class A Common Stock and warrants were issued to the holders of
the Series B and Series C Convertible Preferred Stock to purchase 1/15th of a
share of Class A Common Stock for each share of Series B and Series C
Convertible Preferred Stock held by them. Warrants issued to the placement
agents have an exercise price of $18.00 per share, and warrants issued to the
stockholders will have an exercise price equal to the offering price to the
public in the Company's initial public offering. Warrants issued to the
placement agents and the preferred stockholders expire three years and four
years, respectively, from the date of the initial public offering. Net cash
proceeds, after deducting approximately $930,000 in commissions and expenses
associated with the offering, were $16,946,000.

F-16
<PAGE> 70

[Picture of Biopure's manufacturing facility and its products with the caption
"Biopure uses a proprietary process and patented technology in the manufacture
of its oxygen therapeutics."]
<PAGE> 71

[Biopure Logo]