<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 20, 1999.
REGISTRATION NO. 333-78829
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BIOPURE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 2836 04-2836871
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
11 HURLEY STREET
CAMBRIDGE, MA 02141
(617) 234-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JANE KOBER, ESQ.
BIOPURE CORPORATION
11 HURLEY STREET
CAMBRIDGE, MA 02141
(617) 234-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
LARS BANG-JENSEN, ESQ. GERALD S. TANENBAUM, ESQ.
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P. CAHILL GORDON & REINDEL
125 WEST 55TH STREET 80 PINE STREET
NEW YORK, NY 10019-5389 NEW YORK, NY 10005
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
Subject to Completion
Dated July 20, 1999
4,500,000 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. We anticipate that the initial offering price will be between $15.50 and
$17.50 per share. We have applied to list the shares of class A common stock 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>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY
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<S> <C> <C> <C>
Per share $ $ $
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Total $ $ $
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</TABLE>
We have agreed to grant the underwriters the right to purchase up to an
additional 675,000 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 , 1999.
J.P. MORGAN & CO.
ADAMS, HARKNESS & HILL, INC.
ROBERT W. BAIRD & CO.
INCORPORATED
KBC SECURITIES
, 1999
<PAGE> 3
[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> 4
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
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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 , 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.
We intend to provide our stockholders with annual reports containing audited
financial statements and quarterly reports containing unaudited interim
financial information for the first three quarters of each fiscal year.
------------------------
Biopure(R), Hemopure(R) and Oxyglobin(R) are registered trademarks of Biopure.
3
<PAGE> 5
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 will occur prior to completion of this offering, and
(2) assumes that the underwriters will not exercise their right to purchase an
additional 675,000 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 expects to file for Hemopure
marketing approval as an alternative to red blood cell transfusions for
specified surgical procedures in South Africa in 1999 and 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> 6
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 an estimated 7,714,171 shares of class A common
stock upon completion of this offering, based upon an assumed initial public
offering price of $16.50 per share, the midpoint of the range shown on the cover
page of this prospectus. 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.............4,500,000 shares of class A common
stock
CLASS A COMMON STOCK TO BE
OUTSTANDING AFTER THE OFFERING...........22,770,513 shares of class A common
stock; 23,445,513 shares of class A
common stock if the underwriters'
over-allotment option is exercised in
full
OVER-ALLOTMENT OPTION....................675,000 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, $8.7 million for capital
expenditures and the balance for
general corporate purposes, including
$38.0 million for clinical trials for
Hemopure and $10.3 million for
pre-marketing expenditures for Hemopure
and expanded marketing efforts for
Oxyglobin
PROPOSED NASDAQ NATIONAL MARKET SYMBOL..."BPUR"
6
<PAGE> 7
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
4,500,000 shares of class A common stock at an assumed initial public offering
price of $16.50 per share, the midpoint of the range shown on the cover page of
this prospectus, after deducting the underwriting discounts and offering
expenses payable by us, and the use of a portion of such net proceeds 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 an estimated 306,367 shares of class A common stock upon completion of this
offering.
<TABLE>
<CAPTION>
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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..... $ (1.68) $ (0.82) $ (0.81)
Pro forma weighted-average common shares outstanding... 17,858 17,679 18,803
</TABLE>
<TABLE>
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AT MAY 1, 1999
---------------------
PRO FORMA
ACTUAL AS ADJUSTED
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(UNAUDITED)
<S> <C> <C>
In thousands
BALANCE SHEET DATA:
Cash and cash equivalents................................... $13,541 $ 77,093
Total current assets........................................ 22,455 86,007
Working capital............................................. 11,014 76,566
Net property and equipment.................................. 29,029 29,029
Total assets................................................ 53,471 116,023
Long-term debt (including current portion).................. 5,000 --
Common stock to be repurchased.............................. 5,300 --
Total stockholders' equity.................................. 31,818 104,670
</TABLE>
7
<PAGE> 8
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> 9
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> 10
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
24.2% 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> 11
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 81% 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 $12.15 in pro forma net tangible book
value per share, or approximately 74% of the offering price, assuming an initial
public offering price of $16.50 per share, the midpoint of the range shown on
the cover page of this prospectus. In contrast, existing stockholders paid an
average price of $13.15 per share.
------------------------
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> 12
USE OF PROCEEDS
The net proceeds we will receive from the sale of the 4,500,000 shares of class
A common stock offered by us are estimated to be $67,880,000, or $78,237,875 if
the underwriters' over-allotment option is exercised in full, after deducting
the estimated underwriting discounts and offering expenses payable by us and
assuming an initial public offering price of $16.50 per share, the midpoint of
the range shown on the cover page of this prospectus.
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, 7.75% per annum at April
30, 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;
- - $8.7 million for capital expenditures; and
- - the balance for general corporate purposes, including
-- $38.0 million for clinical trials for Hemopure, and
-- $10.3 million for pre-marketing expenditures for Hemopure and expanded
marketing efforts for Oxyglobin.
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> 13
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 4,500,000 shares of class A common stock in this
offering at an assumed initial public offering price of $16.50 per share, the
midpoint of the range shown on the cover page of this prospectus, after
deducting the underwriting discounts and offering expenses payable by us, and
the use of a portion of such net proceeds 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 an estimated 306,367 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; 22,770,513 shares
outstanding pro forma as adjusted).................... 106 228
Class B common stock, $1.00 par value (117.7 shares
outstanding actual and pro forma as adjusted)......... -- --
Capital in excess of par value.............................. 221,573 294,378
Contributed capital......................................... 24,574 24,574
Notes receivable............................................ (2,382) (2,382)
Accumulated deficit......................................... (212,128) (212,128)
--------- ---------
Total stockholders' equity............................. 31,818 104,670
--------- ---------
Total capitalization.............................. $ 42,118 $ 104,670
========= =========
</TABLE>
13
<PAGE> 14
DILUTION
Our pro forma net tangible book value as of May 1, 1999 was $36,790,000, or
approximately $1.88 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 an estimated 7,714,171 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 4,500,000 shares of class A common stock in this offering at
an initial public offering price of $16.50 per share, the midpoint of the range
shown on the cover page of this prospectus, 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 $104,670,000, or $4.35 per share of class A common stock. This
represents an immediate increase in pro forma net tangible book value of $2.47
per share to our existing stockholders and an immediate dilution in pro forma
net tangible book value of $12.15 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
------------------
Assumed initial public offering price per share............. $ 16.50
Pro forma net tangible book value per share as of May 1,
1999................................................... $ 1.88
Increase to present stockholders attributable to this
offering............................................... 2.47
-------
Pro forma net tangible book value per share after the
offering.................................................. 4.35
-------
Dilution per share to new investors......................... $ 12.15
=======
</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........................... 19,542,632 81.3% $256,978,000 77.6% $13.15
Purchasers of class A common stock in the
offering...................................... 4,500,000 18.7 74,250,000 22.4 $16.50
---------- ----- ------------ -----
Total................................. 24,042,632 100.0% $331,228,000 100.0%
========== ===== ============ =====
</TABLE>
The foregoing tables and calculations assume no exercise of outstanding options
and warrants.
14
<PAGE> 15
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.
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
4,500,000 shares of class A common stock at an assumed initial public offering
price of $16.50 per share, the midpoint of the range shown on the cover page of
this prospectus, after deducting the underwriting discounts and offering
expenses payable by us, and the use of a portion of such net proceeds 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 an estimated 306,367 shares of class A common stock upon completion of this
offering.
<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......................... $ (1.68) $ (0.82) $ (0.81)
Pro forma weighted-average common
shares outstanding................... 17,858 17,679 18,803
</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 $ 77,093
Total current assets....................... 10,047 10,453 13,636 15,221 13,175 22,455 86,007
Working capital............................ 1,848 3,406 8,111 5,368 1,986 11,014 76,566
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 53,471 116,023
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 31,818 104,670
</TABLE>
15
<PAGE> 16
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 1,080,000 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.
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> 17
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> 18
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. 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 in the remainder of 1999 and 2000 on capital
projects for our existing facilities. We will 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 for any new
facility. 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 until our anticipated filing in 2000 for FDA approval
of Hemopure, exclusive of new plant construction. 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 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.
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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.
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<PAGE> 20
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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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,
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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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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 expects to file for marketing approval of
Hemopure in South Africa in 1999 and 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
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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> 25
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.
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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
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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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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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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 Acom 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.
33
<PAGE> 34
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> 35
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 233,333 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 $500 plus expenses.
35
<PAGE> 36
EXECUTIVE COMPENSATION
Summary Compensation Table
The following summary compensation table summarizes information regarding the
compensation of our Chief Executive Officer and our other four most highly
compensated executive officers for the fiscal years ended October 31, 1996, 1997
and 1998. The non-recurring bonus Mr. Rausch received in 1996 was related to our
agreement with Pharmacia & Upjohn, Inc. The other annual compensation Dr. Jacobs
received in fiscal 1997 and fiscal 1996 represents the difference between the
fair market value and the exercise price of non-qualified stock options at the
date of exercise. Dr. Esseltine resigned in April 1999.
<TABLE>
<CAPTION>
--------------------------------------------------
ANNUAL
COMPENSATION
--------------------------------------------------
FISCAL OTHER ANNUAL
YEAR SALARY($) 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> 37
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> 38
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 166,667 shares of class A
common stock; Dr. Jacobs will receive options to purchase 16,667 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 13,333
shares of class A common stock.
38
<PAGE> 39
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> 40
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 April 30, 1999, the interest
rate was 7.75% 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> 41
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
<CAPTION>
--------------------------------
PERCENT OF
PREFERRED STOCK
-----------------
SERIES D PRO FORMA
----------------- CLASS A
SHARES PERCENT COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNERS ------- ------- ------------
<S> <C> <C> <C>
Carl W. Rausch(1).................. -- --% 26.5%
11 Hurley Street
Cambridge, MA 02141
Biopure Associates Limited
Partnership(2)................... -- -- 13.0
c/o Biopure Corporation
11 Hurley Street
Cambridge, MA 02141
Biopure Associates Limited
Partnership II(2)................ -- -- 10.7
c/o Biopure Corporation
11 Hurley Street
Cambridge, MA 02141
OCM Principal Opportunities
Fund, L.P.(3) ................... 83,333 3.2 13.2
c/o Oaktree Capital Management
333 S. Grand Avenue
Los Angeles, CA 90071
B. Braun Melsungen AG(4)........... -- -- 8.1
Carl Braun Strasse 1
D-34212 Melsungen, Germany
HTV Industries, Inc.(5)............ -- -- 6.0
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 6.1
222 Berkeley Street
Boston, MA 02116
Allan Ferguson(7).................. 170,833 6.5 6.4
222 Berkeley Street
Boston, MA 02116
New Enterprise Associates, L.P..... -- -- 4.0
1119 St. Paul Street
Baltimore, MD 21202
</TABLE>
41
<PAGE> 42
<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>
--------------------------------
PERCENT OF
PREFERRED STOCK
-----------------
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)....... -- -- 2.9
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 1.3
c/o New England Partners
One Boston Place, Suite 2100
Boston, MA 02108
Schooner Capital LLC(11)........... 191,666 7.3 1.1
745 Atlantic Avenue
Boston, MA 02111
KBC Insurance N.V.(12)............. 250,000 9.6 1.1
Wasistraat 6
B-3000 Leuven, Belgium
H & Q Capital Management Inc.(13)... 208,333 8.0 0.8
50 Rowes Wharf
Boston, MA 02110
J.B. Partners...................... -- -- 0.4
645 Madison Avenue
New York, NY 10022
David N. Judelson(14).............. -- -- 8.2
375 Park Avenue, #2507
New York, NY 10152
Stephen A. Kaplan(15).............. 83,333 3.2 13.2
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 48.5
</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 60,000 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".
42
<PAGE> 43
(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 60,000 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.
43
<PAGE> 44
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists 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.
44
<PAGE> 45
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.
45
<PAGE> 46
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 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
46
<PAGE> 47
- - 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 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 0.949 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
47
<PAGE> 48
- - 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 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
We are in the process of amending our restated certificate of incorporation to
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
48
<PAGE> 49
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 is considering the adoption of a stockholders'
rights plan. A stockholders' rights plan would have an anti-takeover effect.
Under this plan, a preferred stock purchase right would 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 a specified percentage 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> 50
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 22,770,513
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 4,500,000 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 18,270,513 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 16,215,883 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>
5,309,621 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
241,423 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
766,092 After December 23, 1999, shares saleable under Rule 144 that
are not subject to the 180-day lock-up
14,491,973 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
1,961,404 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
227,705 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> 51
Following this offering, under specified circumstances and subject to customary
conditions, holders of 15,003,250 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> 52
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..................................
Adams, Harkness & Hill, Inc.................................
Robert W. Baird & Co. Incorporated..........................
-----------
Total............................................. 4,500,000
===========
</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 $ 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 $ 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 675,000
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.............................................. $ $
----------- -----------
Total............................................. $ $
=========== ===========
</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> 53
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 5.0% 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.
We have applied to have our class A common stock listed 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 , 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.
KBC Securities N.V. acted as private placement agent in connection with
Biopure's December 1998 offering of units, each consisting of one share of
series D convertible preferred stock and one warrant to purchase 1/15th of a
share of class A common stock at an exercise price per share equal to the
initial public offering price. For its services as placement agent, KBC
Securities N.V. received $420,000 in cash and warrants to purchase 16,000 shares
of class A common stock at an exercise price of $18.00 per share. In the
December 1998 offering of units, KBC Securities N.V. and its affiliates
purchased an aggregate of 458,001 units.
53
<PAGE> 54
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> 55
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
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> 56
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
The foregoing report is in the form that will be signed upon the completion of
the reverse stock split described in Note 2 to the consolidated financial
statements.
ERNST & YOUNG LLP
Boston, Massachusetts
July 16, 1999
F-2
<PAGE> 57
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 17,964,279 shares issued, 10,396,016,
10,539,225, 10,556,342 and 17,964,279 shares
outstanding at October 31, 1997 and 1998 and May 1,
1999 actual and May 1, 1999 pro forma, respectively.... 106 107 106 180
Class B, $1.00 par value, 179 shares authorized, 117.7
shares issued and outstanding.......................... -- -- -- --
Capital in excess of par value............................ 166,069 197,495 221,573 221,574
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> 58
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....................... $ (1.68) $ (0.82) $ (0.81)
=========== =========== ===========
Weighted-average shares used in
computing pro forma basic net
income (loss) per common share..... 17,858,104 17,678,659 18,802,944
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 59
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> 60
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> 61
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 to be effected in the form of a reverse stock dividend
prior to completion of the initial public offering, as contemplated herein. 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> 62
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> 63
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.......... 5,398,034 5,253,204 6,470,419
------------ ------------ ------------
Total weighted-average
number of common shares
used in computing basic
pro forma net income
(loss) per common share.. 17,858,104 17,678,659 18,802,944
============ ============ ============
Basic pro forma net income (loss)
per common share.............. $ (1.68) $ (0.82) $ (0.81)
============ ============ ============
</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> 64
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> 65
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 May 1999, the holders of the Series B and Series C Convertible Preferred
Stock 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 800,000 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.
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 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.
F-11
<PAGE> 66
BIOPURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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> 67
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> 68
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> 69
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> 70
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> 71
[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> 72
[Biopure Logo]
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth various expenses payable in connection with the
offering of the shares being registered hereby, other than underwriting
discounts and commissions. All the amounts shown are estimates, except the
Securities and Exchange Commission registration fee and the NASD filing fee. We
are paying all of the expenses incurred with the offering.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 25,176
NASD Filing Fee............................................. 9,557
Nasdaq National Market Listing Fee.......................... 90,000
Blue Sky fees and expenses.................................. 10,000
Legal fees and expenses..................................... 450,000
Accounting fees and expenses................................ 175,000
Transfer Agent fees and expenses............................ 6,500
Printing, engraving and postage expenses.................... 315,000
Miscellaneous............................................... 91,267
----------
Total............................................. $1,172,500
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Restated Certificate of Incorporation provides that each of our directors
and officers shall be indemnified and held harmless by Biopure, to the fullest
extent authorized by the Delaware General Corporation Law, against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred by reason
of the fact that he or she is a director or officer.
The Delaware General Corporation Law authorizes a corporation to indemnify its
directors and officers provided that the corporation shall not eliminate or
limit the liability of a director as follows:
- for any action brought by or in the right of a corporation where the
director or officer is adjudged to be liable to the corporation, except
where a court determines the director or officer is entitled to
indemnity,
- for acts or omissions not in good faith or which involve conduct that the
director or officer believes is not in the best interests of the
corporation,
- for knowing violations of the law,
- for any transaction from which the directors derived an improper personal
benefit, and
- for payment of dividends or approval of stock repurchases or redemptions
leading to liability under Section 174 of the Delaware General
Corporation Law.
The Delaware General Corporation Law requires a corporation to indemnify a
director or officer to the extent that the director or officer has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding for which indemnification is lawful.
Our Restated Certificate of Incorporation also provides directors and officers
with the right to be paid by Biopure for expenses (including attorneys' fees)
incurred in defending any proceeding in advance of the proceeding's final
disposition. If a claim is not promptly paid in full by Biopure, as further
described in our Restated Certificate of Incorporation, the director or officer
who is entitled to indemnification may bring suit against Biopure to recover the
unpaid amount of the claim. These rights of indemnification and advancement of
expenses conferred in our Restated Certificate of Incorporation are not
exclusive of any other right which may be acquired under any statute, by-law,
agreement or otherwise.
II-1
<PAGE> 74
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, we have issued securities without registration
under the Securities Act as follows:
(a) Class A Common Stock
In June, July and August 1997, we issued 130,208 shares of class A common
stock to non-U.S. persons for an aggregate purchase price of $2,500,000. In
May and October 1998, we issued 92,592 shares of class A common stock to
non-U.S. persons for $2,500,000.
(b) Class B Common Stock
On January 22, 1997, we issued 3.2 shares of class B common stock pursuant
to an agreement with Pharmacia & Upjohn, Inc. for an aggregate purchase
price of $3,200,000.
(c) Series B Convertible Preferred Stock
Between June and October 1997, we issued 2,127,251 shares of series B
convertible preferred stock to "accredited investors" (as defined in
Regulation D of the Securities Act) for an aggregate purchase price of
$22,548,861.
(d) Series C Convertible Preferred Stock
On November 20, 1997, we issued 2,830,188 shares of series C convertible
preferred stock to "accredited investors" (as defined in Regulation D of
the Securities Act) for an aggregate purchase price of $30,000,000. In
connection with the issuance of the series C convertible preferred stock,
we issued compensatory warrants to purchase 66,667 class A common stock to
Shoreline Pacific Institutional Finance, which acted as placement agent in
connection with the offering.
(e) Series D Convertible Preferred Stock
Between December 23, 1998 and May 27, 1999, we issued 2,610,264 shares of
series D convertible preferred stock to "accredited investors" (as defined
in Regulation D of the Securities Act) for an aggregate purchase price of
$31,323,168. Each purchaser of series D convertible preferred stock
received warrants to purchase one share of class A common stock for every
ten shares of series D convertible preferred stock purchased. In addition,
all existing holders of series B and C convertible preferred stock received
warrants to purchase one share of class A common stock for every ten shares
of series B and C convertible preferred stock held. We also issued
compensatory warrants to purchase 33,480 shares of class A common stock to
Shoreline Pacific Institutional Finance and KBC Securities, each of whom
acted as a placement agent in connection with the offering.
(f) Exercises of Stock Options
Since January 1, 1996, Biopure's employees, directors and officers
exercised options to purchase 100,847 shares of class A common stock
pursuant to Biopure's 1987 and 1988 Stock Option Plans at an aggregate
purchase price of $137,000.
The securities issued in the transactions described in paragraphs (a)-(e)
above were issued in reliance on the exemption from registration under
Section 4(2) and Rule 506 of Regulation D of the Securities Act as
transactions not involving a public offering. All of the recipients in each
such case were "accredited investors" as determined by Biopure or its
placement agents. There was no general solicitation or advertising. All
investors represented their intentions to acquire the securities for
investment purposes only and not with a view for distribution thereof, and
appropriate restrictive legends were affixed to the securities issued in
each transaction. All recipients were furnished or had adequate access,
through employment or other relationships, to information about Biopure.
The stock options exercised since January 1, 1996 as described in paragraph
(f) above were issued in reliance on the exemption from registration under
Rule 701 of the Securities Act. Biopure's employees, directors and officers
who exercised stock options represented their intentions to acquire the
securities for investment purposes only and not with a view for
distribution thereof, and appropriate restrictive legends were affixed to
the shares of class A common stock issued pursuant to the exercise of stock
options.
II-2
<PAGE> 75
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement
*3(i).1 Restated Certificate of Incorporation of Biopure
*3(i).2 Certificate of Amendment to the Restated Certificate of
Incorporation of Biopure dated May 6, 1999
*3(ii).1 By-laws of Biopure, as amended
4.1 See Exhibits 3(i).1, 3(i).2 and 3(ii).1 for provisions of
the Restated Certificate of Incorporation of Biopure and By-
laws of Biopure, as amended, defining rights of security
holders of Biopure
***5.1 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P., regarding
the validity of the class A common stock of Biopure being
registered
**10.1 Promissory Note, dated October 8, 1996, from Biopure
Corporation ("Biopure") in favor of Pharmacia & Upjohn, Inc.
("Pharmacia")
**10.2 Security Agreement, dated October 8, 1996, between Biopure
and Pharmacia
**10.3 Trademark Security Agreement, dated October 8, 1996, between
Biopure and Pharmacia
**10.4 Patent Security Agreement, dated October 8, 1996, between
Biopure and Pharmacia
**10.5 Mortgage, dated October 8, 1996, between Biopure and
Pharmacia (Pennsylvania)
**10.6 Mortgage, dated October 8, 1996, between Biopure and
Pharmacia, Hurley Street (Massachusetts)
**10.7 Mortgage, dated October 8, 1996, between Biopure and
Pharmacia, Spring Street-Hurley Street (Massachusetts)
*10.8 Agreement of Settlement and Mutual General Release dated
December 19, 1996, between Biopure, Biopure Associates
Limited Partnership and Credit Francais International
**10.9 Agreement of License Termination, Stock Repurchase and
Mutual General Release, dated August 29, 1997, between
Biopure, Biopure Europe, Ltd. and B. Braun Melsungen AG
**10.10 Escrow Agreement between Biopure, B. Braun Melsungen and
State Street Bank and Trust Company, Escrow Agent dated
September 2, 1997
**10.11 Purchase Agreement between Biopure and INPACO Corporation,
dated August 28, 1997
**10.12 Agreement between Biopure and Moyer Packing Company dated
October 21, 1994
**10.13 Agency Agreement between Biopure and The Butler Company
dated March 29, 1999
**10.14 Promissory Note dated July 31, 1995, from Carl Rausch in
favor of Biopure in the amount of $1,009,772.01
**10.15 Promissory Note dated July 31, 1995, from Carl Rausch in
favor of Biopure in the amount of $216,033.05
**10.16 Promissory Note dated July 31, 1995, from Edward Jacobs, Jr.
in favor of Biopure in the amount of $262,120.10
**10.17 Promissory Note dated July 31, 1995, from Bing Wong in favor
of Biopure in the amount of $70,714.82
**10.18 Promissory Note dated July 31, 1995, from Maria Gawryl in
favor of Biopure in the amount of $12,601.93
**10.19 Promissory Note dated July 31, 1995, from Brian Lajoie in
favor of Biopure in the amount of $30,748.70
**10.20 Promissory Note dated July 31, 1995, from James Weston in
favor of Biopure in the amount of $10,333.58
**10.21 Promissory Note dated July 31, 1995, from Geoffrey Filbey in
favor of Biopure in the amount of $47,707.30
**10.22 Lease Agreement dated October 12, 1990, between Biopure and
Tarvis Realty Trust
***10.23 Lease Agreement dated May 23, 1997, between Biopure and
Karpowicz Family Trust
**10.24 Lease Agreement dated March 31, 1995, between Biopure and
New England Innovations, Corp.
**10.25 Lease Agreement dated August 29, 1994, between Biopure and
Eleven Hurley Street Associates
**10.26 Lease Agreement dated May 10, 1994, between Biopure and
Tarvis Realty Trust
**10.27 Lease Agreement dated August 23, 1994, between Biopure and
Tarvis Realty Trust
**10.28 Lease Agreement dated October 21, 1994, between Biopure and
Moyer Packing Company
**10.29 Deferred Compensation Agreement with Carl Rausch dated
August 8, 1990, as amended December 12, 1995
**10.30 1993 Incentive Compensation Plan
**10.31 1998 Stock Option Plan
*10.32 1999 Omnibus Securities and Incentive Plan
**10.33 Employment Agreement between Biopure and Daniel R. Davis
dated December 3, 1998 and as amended and restated as of
June 24, 1999
**10.34 Employment Agreement between Biopure Corporation and Paul A.
Looney dated as of June 9, 1999
**10.35 Employment Agreement Concerning Protection of Company
Property and the Arbitration of Legal Disputes
*10.36 1990 Incentive Compensation and Company Stock Purchase
Agreement
**23.1 Consent of Ernst & Young LLP
</TABLE>
II-3
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
**23.2 Consent of Daniel P. Harrington
**23.3 Consent of Paul A. Looney
**24.1 Powers of Attorney
*24.2 Power of Attorney of Paul A. Looney
*27.1 Financial Data Schedule, as amended
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
*** To be filed by Amendment.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on July 20, 1999.
BIOPURE CORPORATION
By: /s/ JANE KOBER
---------------------------------------
JANE KOBER
Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman and Chief Executive Officer July 20, 1999
- ---------------------------------------------------
Carl W. Rausch
* Vice Chairman July 20, 1999
- ---------------------------------------------------
David N. Judelson
* President July 20, 1999
- ---------------------------------------------------
Paul A. Looney
* Director July 20, 1999
- ---------------------------------------------------
Stephen A. Kaplan
* Director July 20, 1999
- ---------------------------------------------------
C. Everett Koop, M.D.
* Director July 20, 1999
- ---------------------------------------------------
Charles A. Sanders, M.D.
* Senior Vice President and Chief Financial July 20, 1999
- --------------------------------------------------- Officer
Daniel R. Davis
* Vice President, Controller July 20, 1999
- ---------------------------------------------------
Brian A. Lajoie
*By: /s/ JANE KOBER
- --------------------------------------------------
Jane Kober
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
*1.1 Form of Underwriting Agreement
*3(i).1 Restated Certificate of Incorporation of Biopure
*3(i).2 Certificate of Amendment to the Restated Certificate of
Incorporation of Biopure dated May 6, 1999
3(ii).1 By-laws of Biopure, as amended
4.1 See Exhibits 3(i).1, 3(i).2 and 3(ii).1 for provisions of
the Restated Certificate of Incorporation of Biopure and
By-laws of Biopure, as amended, defining rights of security
holders of Biopure
***5.1 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P., regarding
the validity of the class A common stock of Biopure being
registered
**10.1 Promissory Note, dated October 8, 1996, from Biopure
Corporation ("Biopure") in favor of Pharmacia & Upjohn, Inc.
("Pharmacia")
**10.2 Security Agreement, dated October 8, 1996, between Biopure
and Pharmacia
**10.3 Trademark Security Agreement, dated October 8, 1996, between
Biopure and Pharmacia
**10.4 Patent Security Agreement, dated October 8, 1996, between
Biopure and Pharmacia
**10.5 Mortgage, dated October 8, 1996, between Biopure and
Pharmacia (Pennsylvania)
**10.6 Mortgage, dated October 8, 1996, between Biopure and
Pharmacia, Hurley Street (Massachusetts)
**10.7 Mortgage, dated October 8, 1996, between Biopure and
Pharmacia, Spring Street-Hurley Street (Massachusetts)
*10.8 Agreement of Settlement and Mutual General Release dated
December 19, 1996, between Biopure, Biopure Associates
Limited Partnership and Credit Francais International
**10.9 Agreement of License Termination, Stock Repurchase and
Mutual General Release, dated August 29, 1997, between
Biopure, Biopure Europe, Ltd. and B. Braun Melsungen AG
**10.10 Escrow Agreement between Biopure, B. Braun Melsungen and
State Street Bank and Trust Company, Escrow Agent dated
September 2, 1997
**10.11 Purchase Agreement between Biopure and INPACO Corporation,
dated August 28, 1997
**10.12 Agreement between Biopure and Moyer Packing Company dated
October 21, 1994
**10.13 Agency Agreement between Biopure and The Butler Company
dated March 29, 1999
**10.14 Promissory Note dated July 31, 1995, from Carl Rausch in
favor of Biopure in the amount of $1,009,772.01
**10.15 Promissory Note dated July 31, 1995, from Carl Rausch in
favor of Biopure in the amount of $216,033.05
**10.16 Promissory Note dated July 31, 1995, from Edward Jacobs, Jr.
in favor of Biopure in the amount of $262,120.10
**10.17 Promissory Note dated July 31, 1995, from Bing Wong in favor
of Biopure in the amount of $70,714.82
**10.18 Promissory Note dated July 31, 1995, from Maria Gawryl in
favor of Biopure in the amount of $12,601.93
**10.19 Promissory Note dated July 31, 1995, from Brian Lajoie in
favor of Biopure in the amount of $30,748.70
**10.20 Promissory Note dated July 31, 1995, from James Weston in
favor of Biopure in the amount of $10,333.58
**10.21 Promissory Note dated July 31, 1995, from Geoffrey Filbey in
favor of Biopure in the amount of $47,707.30
**10.22 Lease Agreement dated October 12, 1990, between Biopure and
Tarvis Realty Trust
***10.23 Lease Agreement dated May 23, 1997, between Biopure and
Karpowicz Family Trust
**10.24 Lease Agreement dated March 31, 1995, between Biopure and
New England Innovations, Corp.
**10.25 Lease Agreement dated August 29, 1994, between Biopure and
Eleven Hurley Street Associates
**10.26 Lease Agreement dated May 10, 1994, between Biopure and
Tarvis Realty Trust
**10.27 Lease Agreement dated August 23, 1994, between Biopure and
Tarvis Realty Trust
**10.28 Lease Agreement dated October 21, 1994, between Biopure and
Moyer Packing Company
**10.29 Deferred Compensation Agreement with Carl Rausch dated
August 8, 1990, as amended December 12, 1995
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
**10.30 1993 Incentive Compensation Plan
**10.31 1998 Stock Option Plan
*10.32 1999 Omnibus Securities and Incentive Plan
**10.33 Employment Agreement between Biopure and Daniel R. Davis
dated December 3, 1998 and as amended and restated as of
June 24, 1999
**10.34 Employment Agreement between Biopure Corporation and Paul A.
Looney dated as of June 9, 1999
**10.35 Employment Agreement Concerning Protection of Company
Property and the Arbitration of Legal Disputes
*10.36 1990 Incentive Compensation and Company Stock Purchase
Agreement
**23.1 Consent of Ernst & Young LLP
**23.2 Consent of Daniel P. Harrington
**23.3 Consent of Paul A. Looney
**24.1 Powers of Attorney
*24.2 Power of Attorney of Paul A. Looney
*27.1 Financial Data Schedule, as amended
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
*** To be filed by Amendment.
<PAGE> 1
BIOPURE CORPORATION
_____ Shares of Class A Common Stock
Underwriting Agreement
_________, 1999
J.P. Morgan Securities Inc.
Adams, Harkness & Hill, Inc.
Robert W. Baird & Co. Incorporated
As Representatives of the several Underwriters
listed in Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
Biopure Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters listed in Schedule I
hereto (the "Underwriters"), for whom you are acting as representatives (the
"Representatives"), an aggregate of ___________ shares of Class A Common Stock,
par value $0.01 per share, of the Company (the "Underwritten Shares") and, for
the sole purpose of covering over-allotments in connection with the sale of the
Underwritten Shares, at the option of the Underwriters, up to an additional
________ shares of Class A Common Stock of the Company (the "Option Shares").
The Underwritten Shares and the Option Shares are herein referred to as the
"Shares." The shares of Class A Common Stock of the Company to be outstanding
after giving effect to the sale of the Shares are herein referred to as the
"Class A Common Stock."
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission"), in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement, including a prospectus, relating to the Shares. The registration
statement as amended at the time when it became or shall become effective,
including information (if any) deemed to be part of the registration statement
at the time of effectiveness pursuant to Rule 430A under the Securities Act, is
referred to in this Agreement as the "Registration Statement," and the
prospectus in the form first used to confirm sales of Shares is referred to in
this Agreement as the "Prospectus." If the Company has filed an abbreviated
registration statement pursuant to Rule 462(b) under the Securities Act (the
"Rule
<PAGE> 2
-2-
462 Registration Statement"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement.
The Company hereby agrees with the Underwriters as follows:
1. The Company agrees to issue and sell the Underwritten
Shares to the several Underwriters as hereinafter provided, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees to purchase,
severally and not jointly, from the Company the respective number of
Underwritten Shares set forth opposite such Underwriter's name in Schedule I
hereto at a purchase price per share (the "Purchase Price") of $________.
In addition, the Company agrees to issue and sell the Option
Shares to the several Underwriters as hereinafter provided, and the Underwriters
on the basis of the representations and warranties herein contained, but subject
to the conditions hereinafter stated, shall have the option to purchase,
severally and not jointly, from the Company up to an aggregate of Option
Shares at the Purchase Price, for the sole purpose of covering over-allotments
(if any) in the sale of Underwritten Shares by the several Underwriters.
If any Option Shares are to be purchased, the number of Option
Shares to be purchased by each Underwriter shall be the number of Option Shares
which bears the same ratio to the aggregate number of Option Shares being
purchased as the number of Underwritten Shares set forth opposite the name of
such Underwriter in Schedule I hereto (or such number increased as set forth in
Section 9 hereof) bears to the aggregate number of Underwritten Shares being
purchased from the Company by the several Underwriters, subject, however, to
such adjustments to eliminate any fractional Shares as the Representatives in
their sole discretion shall make.
The Underwriters may exercise the option to purchase the Option
Shares at any time (but not more than once) on or before the thirtieth day
following the date of this Agreement, by written notice from the Representatives
to the Company. Such notice shall set forth the aggregate number of Option
Shares as to which the option is being exercised and the date and time when the
Option Shares are to be delivered and paid for, which may be the same date and
time as the Closing Date (as hereinafter defined) but shall not be earlier than
the Closing Date nor later than the tenth full Business Day (as hereinafter
defined) after the date of such notice (unless such time and date are postponed
in accordance with the provisions of Section 9 hereof). Any such notice shall be
given at least two Business Days prior to the date and time of delivery
specified therein.
2. The Company understands that the Underwriters intend (i) to
make a public offering of the Shares as soon after (A) the Registration
Statement has become effective (if it has not already become effective) and (B)
the parties hereto have executed and delivered
<PAGE> 3
-3-
this Agreement as in the judgment of the Representatives is advisable and (ii)
initially to offer the Shares upon the terms set forth in the Prospectus.
3. Payment for the Shares shall be made by wire transfer in
immediately available funds to the account specified by the Company to the
Representatives, in the case of the Underwritten Shares, on __________, 1999, or
at such other time on the same or such other date, not later than the fifth
Business Day thereafter, as the Representatives and the Company may agree upon
in writing or, in the case of the Option Shares, on the date and time specified
by the Representatives in the written notice of the Underwriters' election to
purchase such Option Shares. The time and date of such payment for the
Underwritten Shares is referred to herein as the "Closing Date" and the time and
date for such payment for the Option Shares, if other than the Closing Date, is
herein referred to as the "Additional Closing Date." As used herein, the term
"Business Day" means any day other than a day on which banks are permitted or
required to be closed in New York City.
Payment for the Shares to be purchased on the Closing Date or the
Additional Closing Date, as the case may be, shall be made against delivery to
the Representatives for the respective accounts of the several Underwriters of
the Shares to be purchased on such date registered in such names and in such
denominations as the Representatives shall request in writing not later than two
full Business Days prior to the Closing Date or the Additional Closing Date, as
the case may be, with any transfer taxes payable in connection with the transfer
to the Underwriters of the Shares duly paid by the Company. The certificates for
the Shares will be made available for inspection and packaging by the
Representatives at the office of J.P. Morgan Securities Inc. set forth above not
later than 1:00 P.M., New York City time, on the Business Day prior to the
Closing Date or the Additional Closing Date, as the case may be.
4. The Company hereby represents and warrants to each of the
several Underwriters that:
(a) no order preventing or suspending the use of any
preliminary prospectus has been issued by the Commission, and each
preliminary prospectus filed as part of the Registration Statement as
originally filed or as part of any amendment thereto, or filed pursuant
to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act, and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in
writing by such Underwriter through the Representatives expressly for use
therein;
<PAGE> 4
-4-
(b) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that purpose
has been instituted or, to the knowledge of the Company, threatened by
the Commission; and the Registration Statement and Prospectus (as amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) comply, or will comply, as the case may be, in all
material respects with the Securities Act and do not and will not, as of
the applicable effective date as to the Registration Statement and any
amendment thereto and as of the date of the Prospectus and any amendment
or supplement thereto, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented, if applicable, at the Closing
Date or Additional Closing Date, as the case may be, will not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; except that the foregoing
representations and warranties shall not apply to statements or omissions
in the Registration Statement or the Prospectus made in reliance upon and
in conformity with information relating to any Underwriter furnished to
the Company in writing by such Underwriter through the Representatives
expressly for use therein;
(c) the consolidated financial statements, and the related
notes thereto, included in the Registration Statement and the Prospectus
present fairly the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates indicated and the results of
their operations and changes in their consolidated cash flows for the
periods specified; said financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis, and the supporting schedules, if any, included in the
Registration Statement present fairly the information required to be
stated therein;
(d) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been any
change in the capital stock or long-term debt of the Company or any of
its subsidiaries, or any material adverse change, or any development that
could be reasonably expected to involve a prospective material adverse
change, in or affecting the business, prospects, management, financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries, taken as a whole (a "Material Adverse Change"),
other than as set forth or contemplated in the Prospectus; and except as
set forth or contemplated in the Prospectus neither the Company nor any
of its subsidiaries has entered into any transaction or agreement
(whether or not in the ordinary course of business) material to the
Company and its subsidiaries taken as a whole;
(e) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with power and
<PAGE> 5
-5-
authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification, other than where the failure to be so qualified or in good
standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(f) each of the Company's U.S. subsidiaries has been duly
incorporated and is validly existing as a corporation under the laws of
its jurisdiction of incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described in
the Prospectus, and has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of
each jurisdiction in which it owns or leases properties, or conducts any
business, so as to require such qualification, other than where the
failure to be so qualified or in good standing would not have a material
adverse effect on the business, prospects, management, financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries, taken as a whole (a "Material Adverse Effect"); and
all the outstanding shares of capital stock of each subsidiary of the
Company have been duly authorized and validly issued, are fully paid and
non-assessable, and all of the outstanding shares of capital stock of
each subsidiary of the Company owned by the Company are owned, directly
or indirectly, free and clear of all liens, encumbrances, security
interests and claims;
(g) this Agreement has been duly authorized, executed and
delivered by the Company;
(h) the Company has an authorized capitalization as set forth
in the Prospectus and such authorized capital stock conforms as to legal
matters to the description thereof set forth in the Prospectus, and all
of the outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and non-assessable and
except as described in the Prospectus are not subject to any pre-emptive
rights; and, except as described in or expressly contemplated by the
Prospectus, there are no outstanding rights (including, without
limitation, pre-emptive rights), warrants or options to acquire, or
instruments convertible into or exchangeable for, any shares of capital
stock or other equity interest in the Company or any of its subsidiaries,
or any contract, commitment, agreement, understanding or arrangement of
any kind relating to the issuance of any capital stock of the Company or
any such subsidiary, any such convertible or exchangeable securities or
any such rights, warrants or options;
(i) the Shares to be issued and sold by the Company hereunder
have been duly authorized and, when issued and delivered to and paid for
by the Underwriters in
<PAGE> 6
-6-
accordance with the terms of this Agreement, will be duly issued and will
be fully paid and non-assessable and will conform to the description
thereof set forth in the Prospectus; and the issuance of the Shares is
not subject to any preemptive or similar rights;
(j) neither the Company nor any of its subsidiaries is, or with
the giving of notice or lapse of time or both would be, in violation of
or in default under its certificate of incorporation or by-laws or any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party or
by which it or any of them or any of their respective properties is
bound, except for violations and defaults which would not, individually
or in the aggregate, have a Material Adverse Effect; the issue and sale
of the Shares and the performance by the Company of its obligations
hereunder and the consummation of the transactions contemplated herein
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is subject,
nor will any such action result in any violation of the provisions of the
certificate of incorporation or by-laws of the Company or any applicable
law or statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company, its
subsidiaries or any of their respective properties; and no consent,
approval, authorization, order, license, registration or qualification of
or with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated herein, except such consents, approvals,
authorizations, orders, licenses, registrations or qualifications as have
been obtained or made under the Securities Act and as may be required
under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters;
(k) other than as set forth or contemplated in the Prospectus,
there are no legal or governmental investigations, actions, suits or
proceedings pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its subsidiaries or any of
their respective properties or to which the Company or any of its
subsidiaries is or may be a party or to which any property of the Company
or any of its subsidiaries is or may be subject which, if determined
adversely to the Company or any of its subsidiaries, could, individually
or in the aggregate, reasonably be expected to have, a Material Adverse
Effect, and, to the knowledge of the Company, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
<PAGE> 7
-7-
(l) there are no statutes, regulations, contracts or other
documents or legal or governmental investigations, actions, suits or
proceedings pending or, to the knowledge of the Company, threatened that
are required to be described in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement, as the case may
be, that are not described or filed as required;
(m) the Company and its subsidiaries have good and marketable
title in fee simple to all items of real property and good and marketable
title to all personal property owned by them, in each case free and clear
of all liens, encumbrances and defects except such as are described or
referred to in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made or proposed
to be made of such property by the Company and its subsidiaries; and any
real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, existing and enforceable
leases with such exceptions as are not material and do not interfere with
the use made or proposed to be made of such property and buildings by the
Company and its subsidiaries;
(n) no relationship, direct or indirect, exists between or
among the Company or any of its subsidiaries on the one hand, and the
directors, officers, stockholders, customers or suppliers of the Company
or any of its subsidiaries on the other hand, which is required by the
Securities Act to be described in the Registration Statement and the
Prospectus which is not so described;
(o) no person has the right to require the Company to register
any securities for offering and sale under the Securities Act by reason
of the filing of the Registration Statement with the Commission or the
issue and sale of the Shares, except for rights which have been waived or
obviated by decision of the Representatives;
(p) the Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company
Act");
(q) the Company has complied with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida) relating to
doing business with the Government of Cuba or with any person or
affiliate located in Cuba;
(r) Ernst & Young LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Securities Act;
(s) the Company and its subsidiaries have filed all federal,
state, local and foreign tax returns which have been required to be filed
and have paid all taxes shown
<PAGE> 8
-8-
thereon and all assessments received by them or any of them to the extent
that such taxes have become due and are not being contested in good faith
except where the failure to file or pay would not, individually or in the
aggregate, have a Material Adverse Effect; and there is no tax deficiency
which has been or might reasonably be expected to be asserted or
threatened against the Company or any subsidiary except for such tax
deficiencies as would not, individually or in the aggregate, be expected
to have a Material Adverse Effect;
(t) the Company has not taken nor will it take, directly or
indirectly, any action designed to, or that might be reasonably expected
to, cause or result in stabilization or manipulation of the price of the
Class A Common Stock;
(u) each of the Company and its subsidiaries owns, possesses or
has obtained all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and has made all declarations
and filings with, all federal, state, local and other governmental
authorities (including foreign regulatory agencies), all self-regulatory
organizations and all courts and other tribunals, domestic or foreign,
necessary to own or lease, as the case may be, and to operate its
properties and to carry on its business as conducted as of the date
hereof, except where the failure to own, possess, obtain or make would
not, individually or in the aggregate, have a Material Adverse Effect,
and neither the Company nor any such subsidiary has received any actual
notice of any proceeding relating to revocation or modification of any
such license, permit, certificate, consent, order, approval or other
authorization, except as described in the Registration Statement and the
Prospectus; each of the Company and its subsidiaries is in compliance
with all laws and regulations relating to the conduct of its business as
conducted as of the date hereof; and all of the descriptions in the
Registration Statement and the Prospectus of the legal and governmental
proceedings and procedures by or before the United States Food and Drug
Administration (the "FDA") or any foreign, state or local governmental
body exercising comparable authority are true and complete in all
material respects;
(v) there are no existing or, to the knowledge of the Company,
threatened labor disputes with the employees of the Company or any of its
subsidiaries which could reasonably be expected to have a Material
Adverse Effect;
(w) the Company and its subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompli-
<PAGE> 9
-9-
ance with Environmental Laws, failure to have received required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, individually
or in the aggregate, have a Material Adverse Effect;
(x) the Company has reasonably concluded that the costs and
liabilities associated with the effect of Environmental Laws on the
business, operations and properties of the Company and its subsidiaries
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to
third parties) would not, individually or in the aggregate, have a
Material Adverse Effect;
(y) each employee benefit plan, within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), that is maintained, administered or contributed to by the
Company or any of its affiliates for employees or former employees of the
Company and its affiliates has been maintained in compliance with its
terms and the requirements of any applicable statutes, orders, rules and
regulations, including but not limited to ERISA and the Internal Revenue
Code of 1986, as amended (the "Code"), except to the extent that the
failure to so comply would not, individually or in the aggregate, have a
Material Adverse Effect; to the knowledge of the Company, no prohibited
transaction, within the meaning of Section 406 of ERISA or Section 4975
of the Code, has occurred with respect to any such plan excluding
transactions effected pursuant to a statutory or administrative
exemption; and for each such plan which is subject to the funding rules
of Section 412 of the Code or Section 302 of ERISA, no "accumulated
funding deficiency" as defined in Section 412 of the Code has been
incurred, whether or not waived, and the fair market value of the assets
of each such plan (excluding for these purposes accrued but unpaid
contributions) exceeded the present value of all benefits accrued under
such plan determined using reasonable actuarial assumptions;
(z) the statistical and market-related data included in the
Registration Statement and the Prospectus are based on or derived from
sources which are believed by the Company to be reliable;
(aa) to the knowledge of the Company, each of the Company and
its subsidiaries owns, is licensed to use or otherwise possesses adequate
rights to use the patents, patent rights, licenses, inventions,
trademarks, service marks, trade names, copyrights and know-how,
including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems, processes or procedures
(collectively, the "Intellectual Property"), reasonably necessary to
carry on the business conducted by it, except to the extent that the
failure to own, be licensed to use or otherwise possess
<PAGE> 10
-10-
adequate rights to use such Intellectual Property would not have a
Material Adverse Effect; the Company has not received any notice of
infringement of or conflict with, and the Company has no knowledge of any
infringement of or conflict with, asserted rights of others with respect
to its Intellectual Property which could reasonably be expected to result
in a Material Adverse Effect; the discoveries, inventions, products or
processes of the Company referred to in the Registration Statement and
the Prospectus do not, to the knowledge of the Company, infringe or
conflict with any right or patent of any third party, or any discovery,
invention, product or process which is the subject of a patent
application filed by any third party; except as described in the
Prospectus, the Company is not obligated to pay a royalty, grant a
license or provide other consideration to any third party in connection
with its patents, patent rights, licenses, inventions, trademarks,
service marks, trade names, copyrights and know-how; and no third party,
including any academic or governmental organization, possesses rights to
the Intellectual Property which, if exercised, could enable such third
party to develop products competitive with those of the Company or its
subsidiaries or could reasonably be expected to have a Material Adverse
Effect;
(bb) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, the studies, tests and
preclinical and clinical trials conducted by or on behalf of the Company
that are described in the Registration Statement and the Prospectus were
and, if still pending, are being conducted in accordance with
experimental protocols, procedures and controls pursuant to, where
applicable, accepted professional scientific standards; the descriptions
of the results of such studies, tests and trials contained in the
Registration Statement and the Prospectus are accurate and complete in
all material respects; and the Company has not received any notices or
correspondence from the FDA or any foreign, state or local governmental
body exercising comparable authority requiring the termination,
suspension or material modification of any studies, tests or preclinical
or clinical trials conducted by or on behalf of the Company which
termination, suspension or material modification could reasonably be
expected to have a Material Adverse Effect; and
(cc) the Company has reviewed its operations and those of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which
the business or operations of the Company or any of its subsidiaries will
be affected by the Year 2000 Problem; as a result of such review, the
Company has no reason to believe, and does not believe, that the Year
2000 Problem will have a Material Adverse Effect or result in any
material loss or interference with the Company's business or operations.
The "Year 2000 Problem" as used herein means any significant risk that
computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical
systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999,
<PAGE> 11
-11-
function at least as effectively as in the case of dates or time periods
occurring prior to January 1, 2000.
5. The Company covenants and agrees with each of the several
Underwriters as follows:
(a) to use its best efforts to cause the Registration Statement
to become effective at the earliest possible time (if it has not already
become effective) and, if required, to file the final Prospectus with the
Commission within the time periods specified by Rule 424(b) and Rule 430A
under the Securities Act and to furnish copies of the Prospectus to the
Underwriters in New York City prior to 10:00 a.m., New York City time, on
the Business Day next succeeding the date of this Agreement in such
quantities as the Representatives may reasonably request;
(b) to deliver, at the expense of the Company, to the
Representatives four signed copies of the Registration Statement (as
originally filed) and each amendment thereto, in each case including
exhibits, and to each other Underwriter a conformed copy of the
Registration Statement (as originally filed) and each amendment thereto,
in each case without exhibits, and, during the period mentioned in
paragraph (e) below, to each of the Underwriters as many copies of the
Prospectus (including all amendments and supplements thereto) as the
Representatives may reasonably request;
(c) before filing any amendment or supplement to the
Registration Statement or the Prospectus, whether before or after the
time the Registration Statement becomes effective, to furnish to the
Representatives a copy of the proposed amendment or supplement for review
and not to file any such proposed amendment or supplement to which the
Representatives reasonably object;
(d) to advise the Representatives promptly, and to confirm such
advice in writing (i) when the Registration Statement has become
effective, (ii) when any amendment to the Registration Statement has been
filed or becomes effective, (iii) when any supplement to the Prospectus
or any amended Prospectus has been filed and to furnish the
Representatives with copies thereof, (iv) of any request by the
Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for any additional
information, (v) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any
order preventing or suspending the use of any preliminary prospectus or
the Prospectus or the initiation or threatening of any proceeding for
that purpose, (vi) of the occurrence of any event, within the period
referenced in paragraph (e) below, as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances when the
Prospectus is
<PAGE> 12
-12-
delivered to a purchaser, not misleading, and (vii) of the receipt by the
Company of any notification with respect to any suspension of the
qualification of the Shares for offer and sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; and to use
its best efforts to prevent the issuance of any such stop order, or of
any order preventing or suspending the use of any preliminary prospectus
or the Prospectus, or of any order suspending any such qualification of
the Shares, or notification of any such order thereof and, if issued, to
obtain as soon as possible the withdrawal thereof;
(e) if, during such period of time after the first date of the
public offering of the Shares as in the opinion of counsel for the
Underwriters a prospectus relating to the Shares is required by law to be
delivered in connection with sales by the Underwriters or any dealer, any
event shall occur as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if it is necessary to amend or supplement
the Prospectus to comply with law, forthwith to prepare and furnish upon
request, at the expense of the Company, to the Underwriters and to the
dealers (whose names and addresses the Representatives will furnish to
the Company) to which Shares may have been sold by the Representatives on
behalf of the Underwriters and to any other dealers, such amendments or
supplements to the Prospectus as may be necessary so that the statements
in the Prospectus as so amended or supplemented will not, in the light of
the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus will comply with law;
(f) to endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the
Representatives shall reasonably request and to continue such
qualification in effect so long as reasonably required for distribution
of the Shares; provided that the Company shall not be required to file a
general consent to service of process in any such jurisdiction;
(g) to make generally available to its security holders and to
the Representatives as soon as practicable an earnings statement covering
a period of at least twelve months beginning with the first fiscal
quarter of the Company occurring after the effective date of the
Registration Statement, which shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 of the Commission promulgated
thereunder;
(h) for three years from the date of the Prospectus, to furnish
to the Representatives copies of all reports or other communications
(financial or other) furnished to holders of the Shares, and copies of
any reports and financial statements furnished to or filed with the
Commission or any national securities exchange;
<PAGE> 13
-13-
(i) for a period of 180 days after the date of the Prospectus
not to (i) offer, pledge, announce the intention to sell, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of
Class A Common Stock or any securities of the Company which are
substantially similar to the Class A Common Stock or any securities
convertible into or exercisable or exchangeable for Class A Common Stock
or (ii) enter into any swap, option, future, forward or other agreement
that transfers, in whole or in part, any of the economic consequences of
ownership of the Class A Common Stock or any securities of the Company
which are substantially similar to the Class A Common Stock (other than,
in the case of either clause (i) or (ii), pursuant to (x) employee stock
option and restricted stock plans existing on the date of the Prospectus,
(y) an employment agreement with any person who is not currently an
employee of the Company provided that any such person delivers to the
Underwriters an executed lock-up agreement substantially in the form of
Exhibit A hereto, including, but not limited to, any security convertible
into or exercisable or exchangeable for Class A Common Stock or (z)
warrants to purchase Class A Common Stock existing on the date of the
Prospectus), whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Class A Common Stock or such other
securities, in cash or otherwise, without the prior written consent of
J.P. Morgan Securities Inc., other than the Shares to be sold by the
Company hereunder and any shares of Class A Common Stock or any
securities of the Company which are substantially similar to the Class A
Common Stock issued upon exercise of options granted under employee stock
option and restricted stock plans existing on the date of the Prospectus;
(j) to use its best efforts to list, subject to notice of
issuance, the Shares on the Nasdaq National Market (the "Nasdaq National
Market");
(k) to file with the Commission such reports as may be required
by Rule 463 under the Securities Act; and
(l) whether or not the transactions contemplated herein are
consummated or this Agreement is terminated, to pay or cause to be paid
all costs and expenses incident to the performance of its obligations
hereunder, including without limiting the generality of the foregoing,
all costs and expenses (i) incident to the preparation, issuance,
execution and delivery of the Shares, (ii) incident to the preparation,
printing and filing under the Securities Act of the Registration
Statement, the Prospectus and any preliminary prospectus (including in
each case all exhibits, amendments and supplements thereto), (iii)
incurred in connection with the registration or qualification of the
Shares under the laws of such jurisdictions as the Representatives may
designate (including fees of counsel for the Underwriters and its
disbursements), (iv) in connection with the listing of the Shares on the
Nasdaq National Market, (v) related to the filing
<PAGE> 14
-14-
with, and clearance of the offering by, the National Association of
Securities Dealers, Inc., (vi) in connection with the furnishing to the
Underwriters and dealers of copies of the Registration Statement and the
Prospectus, including mailing and shipping, as herein provided, (vii) any
expenses incurred by the Company in connection with a "road show"
presentation to potential investors, (viii) the cost of preparing stock
certificates and (ix) the cost and charges of any transfer agent and any
registrar.
6. The several obligations of the Underwriters hereunder to
purchase the Shares on the Closing Date or the Additional Closing Date, as the
case may be, are subject to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) the Registration Statement shall have become effective (or
if a post-effective amendment is required to be filed under the
Securities Act, such post-effective amendment shall have become
effective) not later than 5:00 P.M., New York City time, on the date
hereof; and no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment shall be in
effect, and no proceedings for such purpose shall be pending before or
threatened by the Commission; the Prospectus shall have been filed with
the Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing by the rules and regulations under the
Securities Act and in accordance with Section 5(a) hereof; and all
requests for additional information shall have been complied with to the
satisfaction of the Representatives;
(b) the representations and warranties of the Company contained
herein are true and correct on and as of the Closing Date or the
Additional Closing Date, as the case may be, as if made on and as of the
Closing Date or the Additional Closing Date, as the case may be, and the
Company shall have complied with all agreements and all conditions on its
part to be performed or satisfied hereunder at or prior to the Closing
Date or the Additional Closing Date, as the case may be;
(c) subsequent to the execution and delivery of this Agreement
and prior to the Closing Date or the Additional Closing Date, as the case
may be, there shall not have occurred any downgrading, nor shall any
notice have been given of (i) any downgrading, (ii) any intended or
potential downgrading or (iii) any review or possible change that does
not indicate an improvement, in the rating accorded any securities of or
guaranteed by the Company by any "nationally recognized statistical
rating organization," as such term is defined for purposes of Rule
436(g)(2) under the Securities Act;
(d) since the respective dates as of which information is given
in the Prospectus there shall not have been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries or any
Material Adverse Change otherwise than
<PAGE> 15
-15-
as set forth or contemplated in the Prospectus, the effect of which in
the judgment of the Representatives makes it impracticable or inadvisable
to proceed with the public offering or the delivery of the Shares on the
Closing Date or the Additional Closing Date, as the case may be, on the
terms and in the manner contemplated in the Prospectus; and neither the
Company nor any of its subsidiaries has sustained since the date of the
latest audited financial statements included in the Prospectus any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus;
(e) the Representatives shall have received on and as of the
Closing Date or the Additional Closing Date, as the case may be, a
certificate of an executive officer of the Company, with specific
knowledge about the Company's financial matters, reasonably satisfactory
to the Representatives to the effect set forth in subsections (a) through
(c) (with respect to the respective representations, warranties,
agreements and conditions of the Company) of this Section 6 and to the
further effect that there has not occurred any Material Adverse Change
from that set forth or contemplated in the Registration Statement;
(f) LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel for the
Company, shall have furnished to the Representatives their written
opinion, dated the Closing Date or the Additional Closing Date, as the
case may be, in form and substance satisfactory to the Representatives,
to the effect that:
(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the State of Delaware, with requisite corporate power to own
its properties and conduct its business as described in the
Prospectus;
(ii) the Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of Massachusetts, New Hampshire and
Pennsylvania;
(iii) this Agreement has been duly authorized, executed
and delivered by the Company;
(iv) the authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in the
Prospectus;
(v) the shares of capital stock of the Company
outstanding prior to the issuance of the Shares to be sold by the
Company have been duly authorized and are validly issued, fully
paid and non-assessable;
<PAGE> 16
-16-
(vi) the Shares to be issued and sold by the Company
hereunder have been duly authorized and, when delivered to and
paid for the Underwriters in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable
and except as described in the Prospectus the issuance of the
Shares is not subject to any preemptive rights;
(vii) the statements in the Prospectus under
"Management--The 1998 Stock Option Plan," "Management--1999
Omnibus Securities and Incentive Plan" and "Description of Capital
Stock," and in the Registration Statement in Items 14 and 15,
insofar as such statements constitute a summary of the terms of
the capital stock of the Company, legal matters, documents or
proceedings referred to therein, fairly present the information
called for with respect to such terms, legal matters, documents or
proceedings;
(viii) such counsel is of the opinion that the Registration
Statement and the Prospectus and any amendments and supplements
thereto (other than the financial statements and related schedules
and financial, accounting and statistical data therein, as to
which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Securities Act
and believes that (other than the financial statements and related
schedules and financial, accounting and statistical data therein,
as to which such counsel need express no belief) the Registration
Statement and the Prospectus included therein at the time the
Registration Statement became effective did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and that the Prospectus, as amended or
supplemented, if applicable, does not contain any untrue statement
of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ix) the issue and sale of the Shares being delivered on
the Closing Date or the Additional Closing Date, as the case may
be, and the performance by the Company of its obligations
hereunder and the consummation of the transactions contemplated
herein will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument included as an exhibit to the
Registration Statement to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, nor will any
such action result in any violation of the provisions of the
certificate of incorporation or by-laws of the Company or,
assuming compliance with state securities laws, any applicable
<PAGE> 17
-17-
law or statute of the State of New York, any federal law of the
United States or the General Corporation Law of the State of
Delaware or any order, rule or regulation of any federal or State
of New York court or governmental agency or body;
(x) no consent, approval, authorization, order, license,
registration or qualification of or with any court or governmental
agency or body is required for the issue and sale of the Shares in
the United States, except such consents, approvals,
authorizations, orders, licenses, registrations or qualifications
as have been obtained or made under the Securities Act and as may
be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the
Underwriters; and
(xi) the Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment
company" or entity "controlled" by an "investment company," as
such terms are defined in the Investment Company Act.
In rendering such opinions, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the
United States and the States of New York and Delaware, to the extent such
counsel deems proper and to the extent specified in such opinion, if at
all, upon an opinion or opinions (in form and substance reasonably
satisfactory to the Underwriters' counsel) of other counsel reasonably
acceptable to the Underwriters' counsel, familiar with the applicable
laws and (B) as to matters of fact, to the extent such counsel deems
proper, on certificates of responsible officers of the Company and
certificates or other written statements of officials of jurisdictions
having custody of documents respecting the corporate existence or good
standing of the Company. The opinion of such counsel for the Company
shall state that the opinion of any such other counsel upon which they
relied is in form satisfactory to such counsel and, in such counsel's
opinion, the Underwriters and they are justified in relying thereon. With
respect to the matters to be covered in subparagraph (viii) above counsel
may state their opinion and belief is based upon their participation in
the preparation of the Registration Statement and the Prospectus and any
amendment or supplement thereto and review and discussion of the contents
thereof but is without independent check or verification except as
specified.
The opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P., described
above shall be rendered to the Underwriters at the request of the Company
and shall so state therein;
(g) Jane Kober, Esq., general counsel for the Company, shall
have furnished to the Representatives her written opinion, dated the
Closing Date or the Additional
<PAGE> 18
-18-
Closing Date, as the case may be, in form and substance satisfactory to
the Representatives, to the effect that:
(i) each of the Company's U.S. subsidiaries has been
duly incorporated and is validly existing as a corporation under
the laws of its jurisdiction of incorporation with power and
authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus and has been duly
qualified as a foreign corporation for the transaction of business
and is in good standing under the laws of each other jurisdiction
in which it owns or leases properties, or conducts any business,
so as to require such qualification, other than where the failure
to be so qualified and in good standing would not have a Material
Adverse Effect; and all of the outstanding shares of capital stock
of each subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and all of the
outstanding shares of capital stock of each subsidiary of the
Company owned by the Company are owned, directly or indirectly,
free and clear of all liens, encumbrances, security interests and
claims;
(ii) other than as set forth or contemplated in the
Prospectus, there are no legal or governmental investigations,
actions, suits or proceedings pending or, to the knowledge of such
counsel, threatened against or affecting the Company or any of its
subsidiaries or any of their respective properties or to which the
Company or any of its subsidiaries is or may be a party or to
which any property of the Company or its subsidiaries is or may be
the subject which, if determined adversely to the Company or any
of its subsidiaries, could, individually or in the aggregate,
reasonably be expected to have, a Material Adverse Effect; to the
knowledge of such counsel, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(iii) there are no statutes, regulations, contracts or
other documents or legal or governmental investigations, actions,
suits or proceedings pending or, to the knowledge of such counsel,
threatened that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, as the case may be, that are not described
or filed as required;
(iv) such counsel believes that (other than the financial
statements and related schedules and financial, accounting and
statistical data therein, as to which such counsel need express no
belief) the Registration Statement and the Prospectus included
therein at the time the Registration Statement became effective
did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading, and that the
Prospectus, as amended or supplemented, if
<PAGE> 19
-19-
applicable, does not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading;
(v) neither the Company nor any of its subsidiaries is,
or with the giving of notice or lapse of time or both would be, in
violation of or in default under its certificate of incorporation
or by-laws or any material indenture, mortgage, deed of trust,
loan agreement or other material agreement or instrument known to
such counsel to which the Company or any of its subsidiaries is a
party or by which it or any of them or any of their respective
properties is bound, except for violations and defaults which
would not, individually or in the aggregate, have a Material
Adverse Effect;
(vi) each of the Company and its subsidiaries owns,
possesses or has obtained all licenses, permits, certificates,
consents, orders, approvals and other authorizations from, and has
made all declarations and filings with, all federal, state, local
and other governmental authorities (including foreign regulatory
agencies), all self-regulatory organizations and all courts and
other tribunals, domestic or foreign, necessary to own or lease,
as the case may be, and to operate its properties and to carry on
its business as conducted as of the date hereof except where the
failure to own, possess, obtain or make would not, individually or
in the aggregate, have a Material Adverse Effect, and neither the
Company nor any such subsidiary has received any actual notice of
any proceeding relating to revocation or modification of any such
license, permit, certificate, consent, order, approval or other
authorization, except as described in the Registration Statement
and the Prospectus; and each of the Company and its subsidiaries
is in compliance with all laws and regulations relating to the
conduct of its business as conducted as of the date of the
Prospectus;
(vii) to the knowledge of such counsel, each of the
Company and its subsidiaries owns, possesses or has the right to
use the Intellectual Property employed by it in connection with
the business conducted by it as of the date hereof;
(viii) to the knowledge of such counsel, each of the
Company and its subsidiaries is in compliance with all
Environmental Laws, except, in each case, where noncompliance
would not, individually or in the aggregate, have a Material
Adverse Effect; there are no legal or governmental proceedings
pending or, to the knowledge of such counsel, threatened against
or affecting the Company or any of its subsidiaries under any
Environmental Law which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect; and
<PAGE> 20
-20-
(ix) to the knowledge of such counsel, the Company has
not received any notices or correspondence from the FDA or any
foreign, state or local governmental body exercising comparable
authority requiring the termination, suspension or material
modification of any studies, tests or preclinical or clinical
trials conducted by or on behalf of the Company which termination,
suspension or material modification could reasonably be expected
to have a Material Adverse Effect.
In rendering such opinions, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the
United States and the States of New York and Delaware, to the extent such
counsel deems proper and to the extent specified in such opinion, if at
all, upon an opinion or opinions (in form and substance reasonably
satisfactory to the Underwriters' counsel) of other counsel reasonably
acceptable to the Underwriters' counsel, familiar with the applicable
laws and (B) as to matters of fact, to the extent such counsel deems
proper, on certificates of responsible officers of the Company and
certificates or other written statements of officials of jurisdictions
having custody of documents respecting the corporate existence or good
standing of the Company. The opinion of such general counsel for the
Company shall state that the opinion of any such other counsel upon which
they relied is in form satisfactory to such counsel and, in such
counsel's opinion, the Underwriters and they are justified in relying
thereon. With respect to the matters to be covered in subparagraph (iv)
above counsel may state their opinion and belief is based upon their
participation in the preparation of the Registration Statement and the
Prospectus and any amendment or supplement thereto and review and
discussion of the contents thereof but is without independent check or
verification except as specified.
The opinion of Jane Kober, Esq., described above shall be rendered
to the Underwriters at the request of the Company and shall so state
therein;
(h) Hamilton, Brook, Smith & Reynolds, P.C., patent counsel for
the Company, shall have furnished to the Representatives their written
opinion, dated the Closing Date or the Additional Closing Date, as the
case may be, in form and substance satisfactory to the Representatives,
to the effect that:
(i) such counsel is of the opinion that the statements
in the Registration Statement and the Prospectus included therein
at the time the Registration Statement became effective set forth
under "Risk Factors-Our Business is Dependent on Our Intellectual
Property" and "Business--Intellectual Property," insofar as such
statements concern patents, patent applications and patent rights,
did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading, and that the
statements in the captions set forth above in
<PAGE> 21
-21-
the Prospectus, as amended or supplemented, if applicable, did not
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading;
(ii) to the knowledge of such counsel, each of the
Company and its subsidiaries owns, is licensed to use or otherwise
possesses adequate rights to use the patents and patent rights
reasonably necessary to carry on the business conducted by it,
except to the extent that the failure to own, be licensed to use
or otherwise possess adequate rights to use such Intellectual
Property would not have a Material Adverse Effect;
(iii) to the knowledge of such counsel, the Company has
not received any notice of infringement of or conflict with, and
such counsel has no knowledge of any infringement of or conflict
with, asserted rights of others with respect to its patents or
patent rights which could reasonably be expected to result in a
Material Adverse Effect;
(iv) the discoveries, inventions, products or processes
of the Company referred to in the Registration Statement and the
Prospectus do not, to the knowledge of such counsel, infringe or
conflict with any patents or patent rights of any third party, or
any discovery, invention, product or process which is the subject
of a patent application filed by any third party; and
(v) to the knowledge of such counsel, no third party,
including any academic or governmental organization, possesses
rights to the Company's patents, patent applications or patent
rights which, if exercised, could enable such third party to
develop products competitive with those of the Company or its
subsidiaries or could reasonably be expected to have a Material
Adverse Effect.
In rendering such opinions, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the
United States and the State of Massachusetts, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon
an opinion or opinions (in form and substance reasonably satisfactory to
the Underwriters' counsel) of other counsel reasonably acceptable to the
Underwriters' counsel, familiar with the applicable laws and (B) as to
matters of fact, to the extent such counsel deems proper, on certificates
of responsible officers of the Company. The opinion of such patent
counsel for the Company shall state that the opinion of any such other
counsel upon which they relied is in form satisfactory to such counsel
and, in such counsel's opinion, the Underwriters and they are justified
in relying thereon.
<PAGE> 22
-22-
The opinion of Hamilton, Brook, Smith & Reynolds, P.C., described
above shall be rendered to the Underwriters at the request of the Company
and shall so state therein;
(i) Hogan & Hartson L.L.P., regulatory counsel for the Company,
shall have furnished to the Representatives their written opinion, dated
the Closing Date or the Additional Closing Date, as the case may be, in
form and substance satisfactory to the Representatives, to the effect
that such counsel is of the opinion that the statements in the
Registration Statement and the Prospectus included therein at the time
the Registration Statement became effective set forth under "Risk
Factors-We Must Obtain Regulatory Approvals in Order to Market Hemopure,"
"-We Must Receive FDA Approval to Expand Indications for Our Products,"
"-The Manufacture and Marketing of Our Products is Subject to Stringent
Government Regulation" and "Business," insofar as such statements
summarize applicable provisions of the Federal Food, Drug, and Cosmetic
Act, as amended, Section 351 of the Public Health Services Act, as
amended, and the regulations promulgated thereunder, are accurate
summaries in all material respects of the provisions purported to be
summarized under such captions in the Prospectus.
The opinion of Hogan & Hartson L.L.P. described above shall be
rendered to the Underwriters at the request of the Company and shall so
state therein;
(j) on the effective date of the Registration Statement and the
effective date of the most recently filed post-effective amendment to the
Registration Statement and also on the Closing Date or Additional Closing
Date, as the case may be, Ernst & Young LLP shall have furnished to you
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, containing statements and information of
the type customarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain
financial information contained in the Registration Statement and the
Prospectus;
(k) the Representatives shall have received on and as of the
Closing Date or Additional Closing Date, as the case may be, an opinion
of Cahill Gordon & Reindel, counsel to the Underwriters, with respect to
the due authorization and valid issuance of the Shares, the Registration
Statement, the Prospectus and other related matters as the
Representatives may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(l) the Shares to be delivered on the Closing Date or
Additional Closing Date, as the case may be, shall have been approved for
listing on the Nasdaq National Market, subject to official notice of
issuance;
<PAGE> 23
-23-
(m) on or prior to the Closing Date or Additional Closing Date,
as the case may be, the Company shall have furnished to the
Representatives such further certificates and documents as the
Representatives shall reasonably request; and
(n) the "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain stockholders of the Company
relating to sales and certain other dispositions of [ ] shares of Class A
Common Stock or certain other securities, delivered to you on or before
the date hereof, shall be in full force and effect on the Closing Date or
Additional Closing Date, as the case may be.
7. The Company agrees to indemnify and hold harmless each
Underwriter, each affiliate of any Underwriter which assists such Underwriter in
the distribution of the Shares and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, reasonable legal fees and other expenses
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to any Underwriter furnished to the Company
in writing by such Underwriter through the Representatives expressly for use
therein; provided, however, that the foregoing indemnity with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages or liabilities
purchased Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by laws to have been delivered, at
or prior to the written confirmation of the sale of the Shares to such person,
and if the Prospectus (as so amended or supplemented) would have cured the
defect giving rise to such losses, claims, damages or liabilities.
Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to each Underwriter,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through the Representatives ex-
<PAGE> 24
-24-
pressly for use in the Registration Statement, the Prospectus, any amendment or
supplement thereto, or any preliminary prospectus.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Person has failed within
a reasonable time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood that the Indemnifying Person shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to one local
counsel in any single jurisdiction) for all Indemnified Persons, and that all
such fees and expenses shall be reimbursed as they are incurred. Any such
separate firm for the Underwriters, each affiliate of any Underwriter which
assists such Underwriter in the distribution of the Shares and such control
persons of Underwriters shall be designated in writing by J.P. Morgan Securities
Inc. and any such separate firm for the Company, its directors, its officers who
sign the Registration Statement and such control persons of the Company shall be
designated in writing by the Company. The Indemnifying Person shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the Indemnified
Person for reasonable fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the Indemnifying Person agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such Indemnifying Person of the aforesaid request and (ii) such
Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement. No
Indemnifying Person shall, without the prior written consent of the Indemnified
Person, effect any settlement of any pending or threatened proceeding in respect
of which any Indemnified Person is or could have been a party and indemnity
could have been sought hereunder by such Indemnified Person, unless such
settlement includes an unconditional
<PAGE> 25
-25-
release of such Indemnified Person from all liability on claims that are the
subject matter of such proceeding.
If the indemnification provided for in the first or second
paragraph of this Section 7 is unavailable to an Indemnified Person or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each Indemnifying Person under such paragraph, in lieu of
indemnifying such Indemnified Person thereunder, shall contribute to the amount
paid or payable by such Indemnified Person as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand shall be
deemed to be in the same respective proportions as the net proceeds from the
offering (before deducting expenses) received by the Company and the total
underwriting discounts and the commissions received by the Underwriters, in each
case as set forth in the table on the cover of the Prospectus, bear to the
aggregate public offering price of the Shares. The relative fault of the Company
on the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purposes) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses incurred by such Indemnified
Person in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall an
Underwriter be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this
<PAGE> 26
-26-
Section 7 are several in proportion to the respective number of Shares set forth
opposite their names in Schedule I hereto, and not joint.
The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter or by or on
behalf of the Company, its officers or directors or any other person controlling
the Company and (iii) acceptance of and payment for any of the Shares.
8. Notwithstanding anything herein contained, this Agreement
(or the obligations of the several Underwriters with respect to the Option
Shares) may be terminated in the absolute discretion of the Representatives, by
notice given to the Company, if after the execution and delivery of this
Agreement and prior to the Closing Date (or, in the case of the Option Shares,
prior to the Additional Closing Date) (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange or the American Stock Exchange or the National Association
of Securities Dealers, Inc., (ii) trading of any securities of or guaranteed by
the Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either Federal or New York State authorities or (iv)
there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in the judgment of
the Representatives, is material and adverse and which, in the judgment of the
Representatives, makes it impracticable to market the Shares being delivered at
the Closing Date or the Additional Closing Date, as the case may be, on the
terms and in the manner contemplated in the Prospectus.
9. This Agreement shall become effective upon the later of (x)
execution and delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of the Registration Statement by the
Commission.
If on the Closing Date or the Additional Closing Date, as the case
may be, any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of Shares to be purchased on such date, the other Underwriters
shall be obligated severally, in the proportions that the number of Shares set
forth opposite their respective names in Schedule I bears to the aggregate
number of Underwritten Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other
<PAGE> 27
-27-
proportions as the Representatives may specify, to purchase the Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date; provided that in no event shall the number of Shares that
any Underwriter has agreed to purchase pursuant to Section 1 be increased
pursuant to this Section 9 by an amount in excess of one-ninth of such number of
Shares without the written consent of such Underwriter. If on the Closing Date
or the Additional Closing Date, as the case may be, any Underwriter or
Underwriters shall fail or refuse to purchase Shares which it or they have
agreed to purchase hereunder on such date, and the aggregate number of Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Shares are not made within 36 hours after such default, this Agreement (or the
obligations of the several Underwriters to purchase the Option Shares, as the
case may be) shall terminate without liability on the part of any non-defaulting
Underwriter or the Company. In the case of either the first sentence or the
second sentence of this paragraph, either you or the Company shall have the
right to postpone the Closing Date (or, in the case of the Option Shares, the
Additional Closing Date), but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
10. If this Agreement shall be terminated by the Underwriters,
or any of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company shall be unable to perform its obligations under
this Agreement or any condition of the Underwriters' obligations cannot be
fulfilled, the Company agrees to reimburse the Underwriters or such Underwriters
as have so terminated this Agreement with respect to themselves, severally, for
all out-of-pocket expenses (including the reasonable fees and expenses of its
counsel) reasonably incurred by the Underwriter in connection with this
Agreement or the offering contemplated herein.
11. This Agreement shall inure to the benefit of and be binding
upon the Company, the Underwriters, each affiliate of any Underwriter which
assists such Underwriter in the distribution of the Shares, any controlling
persons referred to herein and their respective successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person, firm or corporation any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. No purchaser of Shares from any Underwriter shall be deemed to be a
successor by reason merely of such purchase.
12. Any action by the Underwriters hereunder may be taken by
J.P. Morgan Securities Inc. alone on behalf of the Underwriters, and any such
action taken by J.P. Morgan
<PAGE> 28
-28-
Securities Inc. alone shall be binding upon the Underwriters. All notices and
other communications hereunder shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260 (telefax: 212-648-5705), Attention: Syndicate Department, with a copy
to Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005 (telefax:
212-269-5420), Attention: Gerald S. Tanenbaum, Esq. Notices to the Company shall
be given to it at its offices at 11 Hurley Street, Cambridge, Massachusetts
02141 (telefax: 617-234-6507), Attention: Jane Kober, Esq., with a copy to
LeBoeuf, Lamb, Greene & MacRae, L.L.P., 125 West 55th Street, New York, New York
10019 (telefax: 212-424-8500), Attention: Lars Bang-Jensen, Esq.
13. This Agreement may be signed in counterparts, each of which
shall be an original and all of which together shall constitute one and the same
instrument.
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PROVISIONS THEREOF.
<PAGE> 29
-29-
If the foregoing is in accordance with your understanding, please
sign and return four counterparts hereof.
Very truly yours,
BIOPURE CORPORATION
By:
----------------------------------
Name:
Title:
<PAGE> 30
-30-
Accepted: _________, 1999
J.P. MORGAN SECURITIES INC.
ADAMS, HARKNESS & HILL, INC.
ROBERT W. BAIRD & CO. INCORPORATED
Acting severally on behalf
of themselves and the
several Underwriters listed
in Schedule I hereto.
By: J.P. MORGAN SECURITIES INC.
Acting on behalf of itself and the
several Underwriters listed in
Schedule I hereto.
By:
------------------------------------
Name:
Title:
<PAGE> 31
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares
Underwriter To Be Purchased
- ----------- ---------------
<S> <C>
J.P. Morgan Securities Inc..............................
Adams, Harkness & Hill, Inc.............................
Robert W. Baird & Co. Incorporated......................
---------------
Total.....................................
===============
</TABLE>
<PAGE> 32
ANNEX A
[FORM OF LOCK-UP AGREEMENT]
<PAGE> 1
EXHIBIT 3(i).1
RESTATED CERTIFICATE OF INCORPORATION
OF BIOPURE CORPORATION
PURSUANT TO SECTIONS 242 AND 245 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Biopure Corporation, a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Biopure Corporation (the
"Corporation"). The Corporation was originally incorporated under the name
Biopure Fine Chemicals, Inc., which name was changed to "Biopure Corporation" on
October 31, 1985. The original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on July 30, 1984 and was restated on
November 14, 1997.
2. This Restated Certificate of Incorporation restates and further amends
the Restated Certificate of Incorporation of the Corporation and has been
adopted and approved in accordance with Sections 242 and 245 of the General
Corporation Laws of the State of Delaware.
3. The text of the Restated Certificate of Incorporation as heretofore
amended is hereby amended and restated to read in its entirety as follows:
A. FIRST: NAME. The name of the Corporation is:
Biopure Corporation
B. SECOND: REGISTERED AGENT. The registered office of the Corporation is
to be located at 1013 Centre Road, in the City of Wilmington, County of New
Castle, State of Delaware and the registered agent's name is the Corporation
Service Company.
C. THIRD: PURPOSE. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
D. FOURTH: CAPITALIZATION. The total number of shares of capital stock
which the Corporation shall have authority to issue is 49,000,179 shares,
divided into two classes. The total authorized number of shares of common stock
is 40,000,179, consisting of 40,000,000 shares of Class A Common Stock, par
value $0.01 ("Common Stock"), and 179 shares of Class B Common Stock, par value
$1.00 ("Class B Common Stock"). The total authorized number of shares of
preferred stock ("Preferred Stock") is 9,000,000 shares, par value $.01 per
share, of which 346,663 shares are designated Series A Convertible Preferred
Stock ("Series A Preferred Stock"), 2,358,490 shares are designated Series B
Convertible Preferred Stock ("Series B Preferred Stock") 2,830,188 shares are
designated Series C Convertible Preferred Stock ("Series C Preferred Stock") and
3,333,333 shares are designated Series D Convertible Preferred Stock ("Series D
Preferred Stock").
Except as otherwise provided herein with respect to the Series A
Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock and the
Series D Preferred Stock, and subject
<PAGE> 2
to any limitations prescribed by law, the Board of Directors is authorized to
provide for the issuance of shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware (such
certificate being hereinafter referred to as a "Preferred Stock Designation"),
to establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences, and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof. The number of authorized shares of Preferred Stock in any such series
may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of holders of a majority of the voting
power entitled to vote generally in the election of directors, without a vote of
the holders of Preferred Stock of such series, unless a vote of any such holders
is required pursuant to the terms of any Preferred Stock Designation.
The powers, preferences and rights of the shares of the Common Stock, the
Class B Common Stock, the Series A Preferred Stock, the Series B Preferred
Stock, the Series C Preferred Stock and the Series D Preferred Stock and the
qualifications, limitations or restrictions thereof, are as follows:
4.1. Common Stock
4.1.1. Except as otherwise required by law and subject to the
voting rights of the holders of Preferred Stock, the holders of Common Stock are
entitled at all times to one vote per share on all matters to be voted on by the
Corporation's stockholders.
4.1.2. The holders of the Common Stock are entitled to receive
dividends when and as dividends on the Common Stock are declared by the Board of
Directors.
4.2. Class B Common Stock
4.2.1. Dividends. The holders of the Class B Common Stock shall
not be entitled to receive dividends.
4.2.2. Voting Rights. The holders of the Class B Common Stock
shall have no right as such holders to vote at or participate in any meeting of
stockholders of the Corporation or to receive any notice of such meeting, except
as required by law.
4.2.3. Distribution of Assets. In the event of the voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation, and
after all amounts to which the holders of Preferred Stock have been paid or set
aside in cash for payment, the holders of Class B Common Stock will be entitled
to receive on a pari passu basis with the holders of Common Stock all of the
remaining assets of the Corporation available for distribution to holders of its
Common Stock. For purposes of determining the portion of such remaining assets
to be received by holders of the Class B Common Stock, shares of Class B Common
Stock shall be deemed to have been converted into a number of shares of Common
Stock to be determined by multiplying the Share Limit by the Class B Liquidation
Ratio.
-2-
<PAGE> 3
4.2.4. Conversion. All outstanding shares of Class B Common Stock
shall be automatically converted into shares of Common Stock at the time and on
the terms set forth below.
(a) Upon receipt by the Corporation of the Determination, all
shares of Class B Common Stock shall, subject to adjustment as provided in
subparagraph (b) below, be automatically converted into that number of shares of
Common Stock equal to the product of the Exchange Rate (based on the Fair Market
Value per share of Common Stock as set forth in the Determination) and the Class
B Conversion Value provided that the aggregate number of shares of Common Stock
issued pursuant to this provision shall not exceed an amount equal to the
product of the Class B Conversion Ratio and the Share Limit.
If each outstanding share of the Class B Common Stock is so
automatically converted, it shall be converted without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of the Common Stock issuable upon conversion of any shares
of the Class B Common Stock unless certificates evidencing such shares of the
Class B Common Stock are either delivered to the Corporation or any transfer
agent, as hereinafter provided, or the holder notifies the Corporation that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection therewith. Upon the occurrence of the automatic
conversion of the Class B Common Stock, the holders of the Class B Common Stock
shall surrender the certificates representing such shares at the office of the
Corporation or of any transfer agent for the Class B Common Stock or the Common
Stock. Thereupon, there shall be issued and delivered to such holder, promptly
at such office and in his name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of Common
Stock into which the shares of the Class B Common Stock surrendered were
converted on the date on which the Determination was received by the
Corporation.
(b) Any conversion of Class B Common Stock under subparagraph
(a) shall be subject to adjustment as described below. In the event that the
Corporation shall (i) declare a dividend or make a distribution on Common Stock
payable in shares of its capital stock (whether shares of Common Stock or of
capital stock of any other class), (ii) subdivide outstanding shares of Common
Stock into a greater number of shares, (iii) combine outstanding shares of
Common Stock into a smaller number of shares, or (iv) issue any shares of its
capital stock by reclassification of Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Corporation is the continuing Corporation), then if the record date, in the case
of such a dividend or distribution, or the effective date, in the case of such a
subdivision, combination or reclassification, is after the 30th day after PLA
and ELA Approval, then the holder shall be entitled to receive upon conversion
of its shares of Class B Common Stock pursuant to paragraph (a) above the
aggregate number and kind of shares which, if such conversion had been made at
the Exchange Rate and subject to the Share Limit in effect immediately prior to
such event, the holder would have owned upon such conversion and been
-3-
<PAGE> 4
entitled to receive by virtue of such dividend, distribution, subdivision,
combination or reclassification.
(c) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of shares of the Class B Common Stock,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Class B Common
Stock; and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of the Class B Common Stock, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of the Common Stock to such number of shares as
shall be sufficient for such purpose.
4.2.5. Definitions.
"Class B Conversion Ratio" means a fraction, the numerator of which
shall be 24.574 plus the number of shares of Class B Common Stock held by the
holders and the denominator of which shall be 225.
"Class B Conversion Value" means the multiplicative product of (x)
24.574 plus the number of outstanding shares of Class B Common Stock and (y) $1
million.
"Class B Liquidation Ratio" means a fraction, the numerator of which
shall be the number of shares of Class B Common Stock held by the holders and
the denominator of which shall be 225.
"Determination" means the determination by the Qualified Arbitrator
of the Fair Market Value of the Corporation as of the 30th day following PLA and
ELA Approval pursuant to a Determination Process which shall commence on the
30th day following PLA and ELA Approval.
"Determination Process" means the following process through which
the Determination shall be made:
(a) On or before the 40th day following PLA and ELA Approval,
the Corporation and the holder of the Class B Common Stock (the "Parties") shall
agree on the appointment of a Qualified Arbitrator and such Qualified Arbitrator
shall within 60 days further make the Determination, provided, however, that:
(i) if the Parties shall not agree on the appointment
of a Qualified Arbitrator as aforesaid, the Parties shall each appoint a
disinterested third party as its representative on or before such 40th day
following PLA and ELA Approval and the representatives thus appointed shall
appoint a Qualified Arbitrator, and such Qualified Arbitrator shall be
instructed to make the determination within 30 days;
-4-
<PAGE> 5
(ii) if either Party shall have failed to appoint a
representative as aforesaid, the first representative appointed shall appoint
the Qualified Arbitrator;
(iii) if the two representatives appointed by the
Parties shall be unable to agree upon the appointment of the Qualified
Arbitrator within 15 days of their appointment, they shall give notice of such
failure to agree to the Parties and, either of the Parties upon notice to the
other Party may apply for such appointment to the Chancery Court of Delaware;
and
(iv) in the event of the failure, refusal or inability
of the Qualified Arbitrator to act, a new Qualified Arbitrator shall be
appointed in its stead, which appointment shall be made in the same manner as
hereinbefore provided for the appointment of the Qualified Arbitrator.
(b) The Qualified Arbitrator shall give notice to the Parties
stating its determination, and shall furnish to each a copy of such
determination signed by it. Such Determination, absent manifest error, shall be
binding.
"Exchange Rate" means at any time of determination the amount
determined in accordance with the following formula:
1
-------------------------------------------
Fair Market Value per Share of Common Stock
"Fair Market Value per Share of Common Stock" means the
Determination of the fair market value of the Company divided by 20,453,287
adjusted to the same extent of any adjustments pursuant to the definition of
"Share Limit," being the number of shares, as of January 20, 1997, of Common
Stock on a fully diluted basis that gives effect to any outstanding options,
warrants, rights or securities convertible into or exercisable for Common Stock,
and agreements to issue any such securities or rights, in each case, to the
extent that such issuance would have a dilutive effect on such fair market value
after also taking into account any exercise price payable in connection with the
exercise thereof; provided, that if the product of the "Fair Market Value per
Share of Common Stock" and the aggregate number of shares of Common Stock
outstanding and issuable pursuant to any options, warrants, rights and
agreements described above (the "Aggregate Biopure Common Equity Value") is more
than $3,000,000,000, then the "Fair Market Value per Share of Common Stock"
shall be deemed to be such amount as would cause the Aggregate Biopure Common
Equity Value to be $3,000,000,000.
"Hemopure" means a bovine hemoglobin source Blood Product known as
Hemopure developed for clinical use by the Corporation which is the subject of
pending United States and foreign patent applications.
"PLA and ELA Approval" means receipt of all regulatory approvals
required for the development, production, use, lease, sale, license, sublicense
and other disposition of
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Hemopure for the sale and distribution of Hemopure for in vivo use as an oxygen
transport material in humans in the United States.
"Qualified Arbitrator" means an investment banking or appraisal firm
of nationally recognized standing having the knowledge and experience necessary
to make the Determination selected in accordance with the procedures set forth
in the definition of Determination Process above.
"Share Limit" means, at the time of the Determination, 3,017,700,
subject to adjustment as follows: In the event that the Corporation shall on or
after January 20, 1997 (i) declare a dividend or make a distribution on Common
Stock payable in shares of its capital stock (whether shares of Common Stock or
of capital stock of any other class) and set a record date for such dividend or
distribution as a date prior to the date on which the Corporation receives the
Determination, (ii) subdivide outstanding shares of Common Stock into a greater
number of shares, (iii) combine outstanding shares of Common Stock into a
smaller number of shares, or (iv) issue any shares of its capital stock by
reclassification of Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Corporation is the
continuing Corporation), then the Share Limit in effect immediately prior to
such event shall automatically be adjusted immediately after the record date, in
the case of such a dividend or distribution, or the effective date, in the case
of such a subdivision, combination or reclassification, to be such aggregate
number of shares of Common Stock that a holder of a number of shares of Common
Stock equal to the Share Limit in effect immediately prior to such event, would
have been entitled to receive by virtue of such dividend, distribution,
subdivision, combination or reclassification.
4.3. Series A Preferred Stock
4.3.1. Dividends. Subject to Sections 4.4.4(b), 4.5.4(b) and
4.6.4(b) hereof, the holders of outstanding shares of Series A Preferred Stock
shall participate equally, share for share, with the holders of shares of Common
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and any other class or series of stock of the Corporation authorized after
June 20, 1997 entitled to receive payment of dividends and entitled to receive
assets on liquidation, dissolution or winding up of the affairs of the
Corporation on a parity with the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock (such stock, with
the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock and the Series D Preferred Stock, the "Parity Stock"), in all
dividends and distributions payable out of funds legally available therefor
(except as otherwise provided in Section 4.3.2), if and when declared by the
Board of Directors, except that the holder of each share of Series A Preferred
Stock shall be entitled to receive dividends and distributions in the amount
payable in respect of the number of shares of Common Stock into which such
Series A Preferred Stock could be converted, pursuant to the provisions of
Section 4.3.4 hereof, on the record date for the dividend or distribution on
Common Stock.
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<PAGE> 7
4.3.2. Liquidation, Dissolution or Winding Up.
(a) Treatment at Liquidation, Dissolution or Winding Up. In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of each share of Series A
Preferred Stock shall be entitled to be paid first out of the assets of the
Corporation available for distribution to holders of the Corporation's capital
stock before any distribution or payment shall be made to the holders of Common
Stock and Class B Common Stock (the "Corporation Assets"), an amount equal to
the greater of:
(i) $3.75 per share of Series A Preferred Stock (which
amount shall be subject to equitable adjustment whenever there shall occur a
stock split, combination, reclassification or other similar event involving the
Series A Preferred Stock), plus all declared but unpaid dividends thereon (the
aggregate of such amount with respect to all the outstanding Series A Preferred
Stock being referred to as the "Preference"), or
(ii) such amount per share of Series A Preferred Stock
as would have been payable had each such share been converted to Common Stock
immediately prior to such event of liquidation, dissolution or winding up
pursuant to the provisions of Section 4.3.4.
If the Corporation Assets shall be insufficient to permit the
payment in full to holders of the Series A Preferred Stock of the amounts thus
distributable, then the entire assets of the Corporation available for such
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock and other Parity Stock. After such payment shall have been made
in full to the holders of Series A Preferred Stock and other Parity Stock, or
funds necessary for such payment shall have been set aside by the Corporation in
trust for the account of the holders of the Series A Preferred Stock so as to be
available for such payment, the holders of the Series A Preferred Stock shall be
entitled to no further participation in the distribution of the assets of the
Corporation and shall have no further rights of conversion, and the remaining
assets available for distribution shall be distributed ratably among the holders
of the Common Stock and the Class B Common Stock.
(b) Treatment of Reorganizations, Consolidations, Mergers, and
Sales of Assets. A reorganization of the Common Stock as provided in Section
4.3.4(h) or a consolidation or merger of the Corporation or a sale of all or
substantially all of the assets of the Corporation shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Corporation within
the meaning of this Section 4.3.2; provided, however, that each holder of Series
A Preferred Stock shall have the right to elect the benefits of the provisions
of Section 4.3.4(h) hereof in lieu of receiving payment in liquidation,
dissolution or winding up of the Corporation pursuant to this Section 4.3.2.
(c) Distributions Other Than Cash. Whenever the distribution
provided for in this Section 4.3.2 shall be payable in property other than cash,
the value of such distribution shall be the fair market value of such property
as determined in good faith by the Board of Directors of the Corporation.
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<PAGE> 8
4.3.3. Voting Rights. Except as otherwise expressly provided in
Section 4.3.5 hereof, or as required by law, each holder of Series A Preferred
Stock shall be entitled to vote on all matters and shall be entitled to that
number of votes equal to the largest number of whole shares of Common Stock into
which such shares of Series A Preferred Stock could be converted, pursuant to
Section 4.3.4 hereof, in each case determined as of the record date for the
determination of shareholders entitled to vote on such matter (or to act by
written consent, if such is the case). Except as otherwise expressly provided
herein or as required by law, the holders of shares of Common Stock, and the
holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock shall vote together as a single
class on all matters.
4.3.4. Conversion Rights. The holders of Series A Preferred Stock
shall have the following rights with respect to the conversion of the Series A
Preferred Stock into shares of Common Stock:
(a) General. Subject to and in compliance with the provisions
of this Section 4, any share of Series A Preferred Stock may, at the option of
the holder, be converted at any time into fully-paid and non-assessable shares
of Common Stock. The number of shares of Common Stock to which a holder of
Series A Preferred Stock shall be entitled upon conversion shall be the product
obtained by multiplying the Applicable Conversion Rate (determined as provided
in Section 4.3.4(b)) by the number of shares of Series A Preferred Stock being
converted.
(b) Applicable Conversion Rate. The conversion rate in effect
at any time for the Series A Preferred Stock (the "Applicable Conversion Rate")
shall be the quotient obtained by dividing $3.75 by the Applicable Conversion
Value, calculated as provided in Section 4(c).
(c) Applicable Conversion Value. The Applicable Conversion
Value in effect from time to time, except as adjusted in accordance with Section
4.3.4(d) hereof, shall be $3.75.
(d) Adjustments to Applicable Conversion Value.
(i)(A) Upon Sale of Common Stock. If at any time the
Corporation shall issue or sell shares of its Common Stock without consideration
or at a price per share less than the Applicable Conversion Value in effect
immediately prior to such issuance or sale, then in each such case such
Applicable Conversion Value (with respect to all authorized shares of Series A
Preferred Stock, regardless whether some or all have been issued or not) upon
each such issuance or sale, except as hereinafter provided, shall be lowered so
as to be equal to an amount determined by multiplying the Applicable Conversion
Value by a fraction:
(1) the numerator of which shall be (a) the number
of shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of
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<PAGE> 9
Common Stock plus (b) the number of shares of Common Stock which the net
aggregate consideration, if any, received by the Corporation for the total
number of such additional shares of Common Stock so issued would purchase at the
Applicable Conversion Value in effect immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number
of shares of Common Stock, outstanding immediately prior to the issuance of such
additional shares of Common Stock plus (b) the number of such additional shares
of Common Stock so issued.
(B) Upon Issuance of Warrants, Options and Rights to
Common Stock.
(1) For the purposes of this Section 4.3.4(d)(i),
the issuance of any warrants, options, subscriptions or purchase rights with
respect to shares of Common Stock and the issuance of any securities convertible
into or exchangeable for shares of Common Stock (or the issuance of any
warrants, options or any rights with respect to such convertible or exchangeable
securities) shall be deemed an issuance at such time of such Common Stock if the
Net Consideration Per Share (as hereinafter determined) which may be received by
the Corporation for such Common Stock shall be less than the Applicable
Conversion Value for the Series A Preferred Stock in effect at the time of such
issuance. Any obligation, agreement or undertaking to issue warrants, options,
subscriptions or purchase rights at any time in the future shall be deemed to be
an issuance at the time such obligation, agreement or undertaking is made or
arises. No adjustment of the Applicable Conversion Value for the Series A
Preferred Stock shall be made under this Section 4.3.4(d)(i) upon the issuance
of any shares of Common Stock which are issued pursuant to the exercise of any
warrants, options, subscriptions or purchase rights or pursuant to the exercise
of any conversion or exchange rights in any convertible securities if any
adjustment shall previously have been made upon the issuance of any such
warrants, options or subscriptions or purchase rights or upon the issuance of
any such convertible securities (or upon the issuance of any such warrants,
options or any rights therefor) as above provided.
Should the Net Consideration Per Share of any such
warrants, options, subscriptions or purchase rights or convertible securities be
decreased from time to time, then, upon the effectiveness of each such change,
the Applicable Conversion Value shall be adjusted to such Applicable Conversion
Value as would have obtained (1) had the adjustments made upon the issuance of
such warrants, options, rights or convertible securities been made upon the
basis of the actual Net Consideration Per Share of such securities, and (2) had
the adjustments made to the Applicable Conversion Value since the date of
issuance of such securities been made to the Applicable Conversion Value as
adjusted pursuant to (1) above. Any adjustment of the Applicable Conversion
Value with respect to this paragraph which relates to warrants, options,
subscriptions or purchase rights with respect to shares of Common Stock shall be
disregarded if, as, and when all of such warrants, options, subscriptions or
purchase rights expire or are cancelled without being exercised, so that the
Applicable Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Applicable Conversion Value in effect at the
time
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<PAGE> 10
of the issuance of the expired or cancelled warrants, options, subscriptions or
purchase rights, with such additional adjustments as would have been made to
that Applicable Conversion Value had the expired or cancelled warrants, options,
subscriptions or purchase rights not been issued.
(2) For purposes of this paragraph, the "Net
Consideration Per Share" which may be received by the Corporation shall be
determined as follows:
a. The "Net Consideration Per Share" shall
mean the amount equal to the total amount of consideration, if any, received by
the Corporation for the issuance of such warrants, options, subscriptions or
other purchase rights or convertible or exchangeable securities, plus the
minimum amount of consideration, if any, payable to the Corporation upon
exercise or conversion thereof, divided by the aggregate number of shares of
Common Stock that would be issued if all such warrants, options, subscriptions
or other purchase rights or convertible or exchangeable securities were
exercised, exchanged or converted.
b. The Net Consideration Per Share which may
be received by the Corporation shall be determined in each instance as of the
date of issuance of warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities without giving effect to any possible
future upward price adjustments or rate adjustments which may be applicable with
respect to such warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities.
(C) Stock Dividends. In the event the Corporation
shall make or issue, or shall fix a record date for the determination of holders
of any stock of the Corporation entitled to receive a dividend or other
distribution payable in Common Stock or securities of the Corporation
convertible into or otherwise exchangeable for the Common Stock of the
Corporation, then such Common Stock or other securities issued in payment of
such dividend shall be deemed to have been issued without consideration, except
for (i) dividends payable in shares of Common Stock payable pro rata to holders
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock and to holders of any other class of stock, whether
or not paid to holders of any other class of stock, or (ii) dividends payable in
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock; provided, however, that the holders of any
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock shall be entitled to receive such shares of
Common Stock for which the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock are then
convertible at the Applicable Conversion Value.
(D) Consideration Other Than Cash. For purposes of
this Section 4.3.4(d)(i), if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section 4.3.4(d)(i) consists
of property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation.
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(E) Exceptions. This Section 4.3.4(d)(i) shall not
apply: (1) to a maximum of 400,000 shares of Common Stock, or options
exercisable therefor (such number subject to equitable adjustment in the event
of any stock split, combination, reclassification or other similar event),
issuable to officers and employees of the Corporation pursuant to any stock
option plan, stock purchase plan or other bona fide compensation arrangement
approved by the Board of Directors of the Corporation; and (2) under any of the
circumstances which would constitute an Extraordinary Common Stock Event (as
hereinafter defined in Section 4.3.4(d)(ii)).
(d) (ii) Adjustments to Applicable Conversion Value Upon
Extraordinary Common Stock Event. Upon the happening of an Extraordinary Common
Stock Event (as hereinafter defined), the Applicable Conversion Value shall,
simultaneously with the happening of such Extraordinary Common Stock Event, be
adjusted by multiplying the then effective Applicable Conversion Value by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such Extraordinary Common Stock Event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such Extraordinary Common Stock Event, and the product so
obtained shall thereafter be the Applicable Conversion Value. The Applicable
Conversion Value, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (A) a
subdivision of outstanding shares of Common Stock into a greater number of
shares of the Common Stock, or (B) a combination of outstanding shares of the
Common Stock into a smaller number of shares of the Common Stock.
(e) Automatic Conversion Upon Initial Public Offering.
(i) Immediately upon the closing of an underwritten public
offering on a firm commitment basis pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer
and sale of Common Stock for the account of the Corporation resulting in
gross proceeds to the Corporation of at least $5,000,000 at a price per
share of at least $12.00 (as adjusted for stock splits, stock dividends,
recapitalization and similar events), all outstanding shares of Series A
Preferred Stock shall be converted automatically into the number of shares
of Common Stock into which such class of Series A Preferred Stock is
convertible pursuant to Section 4.3.4 hereof as of the closing of such
underwritten public offering without any further action by the holders of
such shares and whether or not the certificates representing such shares
are surrendered to the Corporation or its transfer agent for the Common
Stock.
(ii) Upon the occurrence of the conversion specified in
the preceding paragraph (i), the holders of Series A Preferred Stock
shall, upon notice from the Corporation, surrender the certificates
representing such shares at the office of the Corporation or of its
transfer agent for the Common Stock.
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<PAGE> 12
Thereupon, there shall be issued and delivered to such holder a
certificate or certificates for the number of shares of Common Stock into
which the shares of such class of Series A Preferred Stock surrendered
were convertible on the date on which such conversion occurred. The
Corporation shall not be obligated to issue such certificates unless
certificates evidencing such shares of the Series A Preferred Stock being
converted are either delivered to the Corporation or any such transfer
agent, or the holder notifies the Corporation or any such transfer agent
that such certificates have been stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation
from any loss incurred by it in connection therewith.
(f) Dividends. In the event the Corporation shall make or
issue, or shall fix a record date for the determination of holders of Common
Stock entitled to receive a dividend or other distribution (other than a
distribution in liquidation or other distribution otherwise provided for herein)
with respect to the Common Stock payable in (i) securities of the Corporation
other than shares of Common Stock or (ii) assets (excluding cash dividends or
distributions), then and in each such event provision shall be made so that the
holders of Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
number of securities or such other assets of the Corporation which they would
have received had the Series A Preferred Stock been converted into Common Stock,
on the date of such event and had they thereafter, during the period from the
date of such event to and including the Conversion Date (as that term is
hereafter defined in Section 4.3.4(j)), retained such securities or such other
assets receivable by them as aforesaid during such period, giving application to
all adjustments called for during such period under this Section 4 with respect
to the rights of the holders of the Series A Preferred Stock.
(g) Capital Reorganization or Reclassification. If the Common
Stock issuable upon the conversion of the Series A Preferred Stock shall be
changed into the same or different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend or a merger or
sale of assets provided for elsewhere in this Section 4.3.4, or the sale of all
or substantially all of the Corporation's properties and assets to any other
person), then and in each such event the holder of each share of Series A
Preferred Stock shall have the right thereafter to convert such shares into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification or other change by holders of the
number of shares of Common Stock into which such shares of Series A Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
(h) Capital Reorganization, Merger or Sale of Assets. If at
any time or from time to time there shall be a capital reorganization of the
Common Stock (other than a subdivision, combination, reclassification, or
exchange of shares provided for elsewhere in this Section 4) or a merger or
consolidation of the Corporation with or into another corporation, or the sale
of all or substantially all of the Corporation's properties and assets to any
other person,
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then, as a part of such merger, or consolidation or sale, provision shall be
made so that the holders of Series A Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series A Preferred Stock, the number
of shares of stock or other securities or property of the Corporation, or of the
successor Corporation resulting from such merger, consolidation or sale, to
which such holders would have been entitled if such holders had converted their
shares of Series A Preferred Stock immediately prior to such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
4.3.4 with respect to the rights of the holders of the Series A Preferred Stock
after the reorganization, merger, consolidation or sale to the end that the
provisions of this Section 4.3 (including adjustment of the Applicable
Conversion Value then in effect and the number of shares issuable upon
conversion of the Series A Preferred Stock) shall be applicable after that event
in as nearly equivalent a manner as may be practicable.
Each holder of Series A Preferred Stock upon the occurrence of
a capital reorganization, merger or consolidation of the Corporation, or the
sale of all or substantially all its assets and properties, as such events are
more fully set forth in the first paragraph of this Section 4.3.4(h), shall have
the option of electing treatment of his shares of Series A Preferred Stock under
either this Section 4.3.4(h) or Section 4.3.2 hereof, notice of which election
shall be submitted in writing to the Corporation at its principal offices no
later than ten (10) business days before the effective date of such event.
(i) Accountant's Certificate as to Adjustments; Notices by
Corporation. In each case of an adjustment or readjustment of the Applicable
Conversion Rate, the Corporation at its expense will furnish each holder of
Series A Preferred Stock with a certificate, prepared by independent public
accountants of recognized standing, showing such adjustment or readjustment, and
stating in detail the facts upon which such adjustment or readjustment is based.
(j) Exercise of Conversion Privilege. To exercise its
conversion privilege, a holder of Series A Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of Series
A Preferred Stock surrendered for conversion shall be accompanied by proper
assignment thereof to the Corporation or in blank. The date when such written
notice is received by the Corporation, together with the certificate or
certificates representing the shares of Series A Preferred Stock being
converted, shall be the "Conversion Date." As promptly as practicable after the
Conversion Date, the Corporation shall issue and shall deliver to the holder of
the shares of Series A Preferred Stock being converted, or on its written order,
such certificate or certificates as it may request for the number of whole
shares of Stock issuable upon the conversion of such shares of Series A
Preferred Stock, as the case may be, in accordance with the provisions of this
Section 4.3.4, cash in the amount of all accrued and unpaid dividends on such
shares of each class of Series A Preferred Stock, up to and including the
Conversion Date, and cash, as provided in Section 4.3.4(k), in respect of any
fraction of share of
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Common Stock issuable upon such conversion. Such conversion shall be deemed to
have been effected immediately prior to the close of business on the Conversion
Date, and at such time the rights of the holder as holder of the converted
shares of Series A Preferred Stock shall cease and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such Conversion shall be deemed to have become the holder
or holders of record of the shares of Common Stock represented thereby.
(k) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series A Preferred Stock, the Corporation shall pay to the holder of the shares
of Series A Preferred Stock, as the case may be, which were converted, a cash
adjustment in respect of such fractional shares in an amount equal to the same
fraction of the market price per share of Common Stock (as determined in a
reasonable manner prescribed by the Board of Directors) at the close of business
on the Conversion Date. The determination as to whether or not any fractional
shares are issuable shall be based upon the total number of shares of Series A
Preferred Stock being converted at any one time by any holder thereof, not upon
each share of Series A Preferred Stock being converted.
(l) Partial Conversion. In the event some but not all of the
shares of Series A Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series A Preferred Stock which
were not converted.
(m) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of Series A Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series A Preferred Stock, and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Series A Preferred Stock, the
Corporation shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose. For purposes of this Section 4.3.4, the term
Common Stock shall include the Corporation's Common Stock, $.01 par value per
share, any other capital stock or any class or classes (however designated) of
the Corporation, authorized on or after the date hereof, the holders of which
shall have the right, without limitation as to amount, either to all or a share
of the balance of current dividends and distributions on any shares entitled to
preference, and the holders of which shall ordinarily, in the absence of
contingencies, be entitled to vote for directors of the Corporation (even though
the right so to vote has been suspended by the happening of such a contingency);
and any other securities into which any of the securities described above may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.
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4.3.5. Restrictions and Limitations.
(a)(i) Corporate Action With Respect to Series A Preferred
Stock. Except as expressly provided herein or as required by law, so long as an
aggregate of 100,000 shares of Series A Preferred Stock remain outstanding, the
Corporation shall not, and shall not permit any subsidiary (which shall mean any
corporation or trust of which the Corporation directly or indirectly owns at the
time a majority of the outstanding shares of every class other than directors'
qualifying shares) to, without the approval by the holders of at least sixty-six
and two-thirds percent (66-2/3%) of the then outstanding shares of Series A
Preferred Stock voting separately as a class:
(1) redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose), any share or
shares of Series A Preferred Stock;
(2) authorize or issue, or obligate itself to
authorize or issue, additional shares of Series A Preferred Stock, or additional
shares of Common Stock except as set forth in Section 4.3.4(d)(i)(E) hereof or
except with respect to stock option or purchase plans for key employees;
(3) merge or consolidate with any other entity, or
sell, assign, lease or otherwise dispose of or voluntarily part with the control
of (whether in one transaction or in a series of transactions) all, or
substantially all, of its assets (whether now owned or hereinafter acquired) or
sell, assign or otherwise dispose of (whether in one transaction or in series of
transactions) any of its accounts receivable (whether now in existence or
hereinafter created) at a discount or with recourse, to any person, or permit
any subsidiary to do any of the foregoing, except for sales or other
dispositions of assets in the ordinary course of business and except that (A)
any subsidiary may merge into or consolidate with or transfer assets to any
other subsidiary and (B) any subsidiary may merge into or transfer assets to the
Corporation.
(4) amend or restate its Certificate of Incorporation,
if such amendment would:
(i) Change the relative seniority rights of the
holders of Series A Preferred Stock, as to the payment of dividends in
relation to the holders of any other capital stock of the Corporation; or
(ii) reduce the amount payable to the holders of
Series A Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, or change the relative seniority
of the liquidation preferences of the holders of Series A Preferred Stock, to
the rights upon liquidation of the holders of any capital stock of the
Corporation or change the dividend rights of the holders of Series A Preferred
Stock, as the case may be; or
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(iii) authorize or issue, or obligate itself to
authorize or issue, any other equity security senior to or on a parity with the
Series A Preferred Stock as to liquidation preferences, conversion rights,
voting rights, dividend rights or otherwise; or
(iv) cancel or modify the conversion rights of the
holders of Series A Preferred Stock provided for in Section 4.3.4 herein; or
(v) otherwise adversely change any of the rights,
preferences, privileges or limitations, which are provided for herein for the
benefit of the Series A Preferred Stock.
4.3.6. No Dilution or Impairment. The Corporation will not, by
amendment or restatement of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Series A Preferred Stock
set forth herein, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Series A
Preferred Stock against dilution or other impairment. Without limiting the
generality of the foregoing, the Corporation (a) will not increase the par value
of any shares of stock receivable on the conversion of the Series A Preferred
Stock above the amount payable therefor on such conversion, (b) will take all
such action as may be necessary or appropriate in order that the Corporation may
validly and legally issue fully paid and nonassessable shares of stock on the
conversion of all Series A Preferred Stock from time to time outstanding, (c)
will not transfer all or substantially all of its properties and assets to any
other person (corporate or otherwise), or consolidate with or merge into any
other person or permit any such person to consolidate with or merge into the
Corporation (if the Corporation is not the surviving person), unless such other
person shall expressly assume in writing and will be bound by all the terms of
the Series A Preferred Stock, as the case may be, set forth herein.
4.3.7. Notices of Record Date. In the event of
(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other corporation, or
any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, then and in each such event the Corporation shall
mail or cause to be mailed to each holder of Series A Preferred Stock a notice
specifying (i) the date on which any such record
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is to be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective and (iii) the time, if any, that is to be fixed, as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least thirty (30) days prior to the
date specified in such notice on which such action is to be taken.
4.4. Series B Preferred Stock.
4.4.1. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, each holder of a share of Series B Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of Common Stock or
Class B Common Stock by reason of their ownership thereof, an amount equal to
any declared but unpaid dividends on such share of Series B Preferred Stock to
and including the date full payment is so tendered to the holders of the Series
B Preferred Stock with respect to such liquidation, dissolution or winding up,
plus an amount equal to the greater of: (a)(i) if such liquidation, dissolution
or winding up occurs prior to the third anniversary of the Series B Original
Issue Date, the Return Amount per share or (ii) if such liquidation, dissolution
or winding up occurs on or after the third anniversary of the Series B Original
Issue Date, $21.73 per share or (b) such amount per share of Series B Preferred
Stock as would have been payable had each share of Parity Stock been converted
to Common Stock immediately prior to such liquidation, dissolution or winding up
pursuant to the provisions of Section 4.4.2; provided that the amount
distributable per share of Common Stock pursuant to this clause (b) exceeds
$31.80. The liquidation amount set forth in this Section 4.4.1 shall be subject
to equitable adjustment whenever there shall occur a stock split, stock
dividend, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the Series B Preferred Stock.
"Return Amount" shall mean, as of any date, an amount equal to the
Series B Original Issue Price plus a 35% annualized rate of return on the Series
B Original Issue Price from the Series B Original Issue Date to such date.
"Series B Original Issue Price" shall mean Ten Dollars and Sixty
Cents ($10.60).
If the assets or surplus funds to be distributed to the holders of
the Series B Preferred Stock, Series A Preferred Stock and other Parity Stock
are insufficient to permit the payment to such holders of their full
preferential amount, the assets and surplus funds legally available for
distribution shall be distributed ratably among the holders of the Series B
Preferred Stock and other Parity Stock in proportion to the full preferential
amount each such holder is otherwise entitled to receive. In the event that the
holder of Series B Preferred Stock receives the liquidation rights under option
(a) set forth above in this Section 4.4.1, and after payment to the
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Series B Preferred Stockholders of the liquidation amount described above and
after all preference amounts to the holders of Parity Stock have been paid or
set aside in cash for payment, the remaining assets shall be distributed ratably
to the holders of the Common Stock, the Class B Common Stock, the Series B
Preferred Stock, the Series C Preferred Stock and Series D Preferred Stock on a
common equivalent basis (i.e., as if each share had been converted to Common
Stock immediately prior to the liquidation, dissolution or winding up pursuant
to the provisions of Section 4.4.2), provided that the holders of Series B
Preferred Stock will stop participating once they have received a total
liquidation amount per share of $31.80, plus any declared but unpaid dividends.
A merger, acquisition, sale of voting control or sale of
substantially all of the assets of the Corporation shall be deemed to be a
liquidation within the meaning of this Section 4.4.1, but only if the holders of
the outstanding stock of the Corporation immediately prior to the closing of
such merger, sale or acquisition hold, immediately after such transaction, less
than a majority in interest of the issued and outstanding shares of voting
securities (as measured by voting power) of the purchasing corporation or of the
corporation (including without limitation the Corporation) surviving or
resulting from such merger, as the case may be; provided, however, that (i) any
holder of Series B Preferred Stock may elect, by notice to the Corporation no
later than 5 days before the effective date of such event, to be treated under
the provisions of Section 4.4.2(d)(vii) in lieu of this Section 4.4.1 in
connection with such sale, merger or consolidation and (ii) in the event the
consideration payable to the Corporation or to the holders of its outstanding
stock in connection with any such sale, merger or consolidation (the
"Transaction Consideration") does not consist entirely of cash, then the
Corporation may satisfy its obligations under this Section 4.4.1. by paying to
the holders of Series B Preferred Stock a portion of the Transaction
Consideration with a fair market value equal to the amount required to be
distributed pursuant to this Section 4.4.1. The fair market value of the
Transaction Consideration shall be as determined in good faith by the Board of
Directors of the Corporation. If the Transaction Consideration consists of more
than one type of consideration, then each type of consideration shall be
distributed or offered to each holder of Series B Preferred Stock in the same
proportions as such type of consideration represents of the total Transaction
Consideration.
4.4.2. Conversion. The holders of Series B Preferred Stock
shall have conversion rights as follows (the "Series B Conversion Rights"):
(a) Right to Convert. Each share of Series B Preferred Stock
shall be convertible at the option of the holder thereof at any time after the
date of issuance and without the payment of any additional consideration
therefor into that number of fully paid and nonassessable shares of Common Stock
as is determined by dividing Ten and 60/100 Dollars ($10.60) by the then
effective Conversion Price (as defined below) as adjusted pursuant to this
Section 4.4.2 and in effect at the time of conversion. The initial Conversion
Price of the Series B Preferred Stock shall be Ten and 60/100 Dollars ($10.60).
Subject to Section 4.4.2(e), the Conversion Price shall be subject to adjustment
(in order to adjust the number of shares of Common Stock into which the Series B
Preferred Stock is convertible) as hereinafter provided.
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Each person so converting shares of Series B Preferred Stock shall forfeit any
declared but unpaid dividends up to the time of the conversion.
(b) Automatic Conversion. Each share of Series B Preferred
Stock shall automatically and immediately be converted into shares of Common
Stock at the then effective Conversion Price upon:
(i) the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Corporation to the public at a public offering price of
at least $15.00 per share (with such amount to be appropriately adjusted in the
event of any stock dividend, stock distribution or subdivision as provided in
Section 4.4.2(d)(vi)) and having an aggregate offering price to the public
resulting in net proceeds to the Corporation (after deducting commissions
payable to the underwriters) in excess of $40,000,000; or
(ii) the written consent of holders in interest of 80%
or more of the Series B Preferred Stock then outstanding.
The person(s) entitled to receive Common Stock issuable upon a
conversion of Series B Preferred Stock hereunder shall not be deemed to have
converted the Series B Preferred Stock until immediately prior to the closing of
such offering or the receipt by the Corporation of such consent. Each person who
holds of record Series B Preferred Stock immediately prior to an automatic
conversion shall forfeit any declared but unpaid dividends up to the time of the
automatic conversion.
(c) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series B Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the greater of
the price to public in the IPO (as such term is defined in Section 4.6.2(b)(ii))
or the then effective applicable Conversion Price. Before any holder of Series B
Preferred Stock shall be entitled to convert the same into full shares of Common
Stock under Section 4.4.2(a), such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series B Preferred Stock, and shall give written notice
to the Corporation at such office that such holder elects to convert the same
and shall state therein his name or the name or names of his nominees in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued, together with the applicable federal taxpayer identification number.
The Corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series B Preferred Stock, or to his nominee or
nominees, a certificate or certificates for the number of shares of Common Stock
to which he shall be entitled, together with cash in lieu of any fraction of a
share. Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of the shares of Series B
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon conversion shall
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be treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Section
4.4.2(d), the following definitions shall apply:
(1) "Option" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "Series B Original Issue Date" shall mean June
25, 1997.
(3) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common Stock, Class B Common
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock) or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued (or, pursuant to Section 4.4.2(d)(iii), deemed
to be issued) by the Corporation after the Series B Original Issue Date, other
than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Class B
Common Stock, Series A, Preferred Stock Series C Preferred Stock or Series D
Preferred Stock or by way of dividend or distribution on shares of Common Stock,
Class B Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock or Series D Preferred Stock;
(B) to officers, directors or employees of, or
consultants to, the Corporation pursuant to action by the Board of Directors
after the Series B Original Issue Date under any stock purchase or option plan
or other employee or director stock incentive or compensation program up to an
aggregate of 500,000 shares; and
(C) upon the exercise of options and warrants
outstanding on the Series B Original Issue Date up to an aggregate of 271,525
shares.
(ii) No Adjustment of Conversion Price. No adjustment
in the number of shares of Common Stock into which Series B Preferred Stock is
convertible shall be made by adjustment in the Conversion Price of Series B
Preferred Stock in respect of the issuance of Additional Shares of Common Stock
or otherwise, unless the consideration per share for such Additional Shares of
Common Stock issued or deemed to be issued by the Corporation is less than the
Conversion Price of Series B Preferred Stock in effect on the date of, and
immediately prior to, the issue of such Additional Shares.
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(iii) Issue of Securities Deemed Issue of Additional
Shares of Common Stock.
(1) Options and Convertible Securities. In the
event the Corporation at any time or from time to time after the Series B
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the shares
(as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Section 4.4.2(d)(v)) of such
Additional Shares of Common Stock would be less than the Conversion Price of the
Series B Preferred Stock in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, and provided further that in any
such case in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price of
the Series B Preferred Stock shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price of the Series B Preferred Stock computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price of the Series B Preferred Stock
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto) and any subsequent adjustments based thereon shall,
upon such expiration, be recomputed as if:
(I) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the
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consideration actually received by the Corporation upon such exercise, or for
the issue of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually received by the
Corporation upon such conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation
(determined pursuant to Section 4.4.2(d)(v)) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C)
above shall have the effect of increasing the Conversion Price of the Series B
Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price
of the Series B Preferred Stock on the original adjustment date, or (ii) the
Conversion Price of the Series B Preferred Stock that would have resulted from
any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date;
(E) in the case of any Options which expire by their
terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Conversion Price of the Series B Preferred Stock shall be made
until the expiration or exercise of all such Options, whereupon such adjustment
shall be made in the same manner provided in clause (C) above; and
(F) if such record date shall have been fixed and
such Options or Convertible Securities are not issued on the date fixed
therefor, the adjustment previously made in the Conversion Price of the Series B
Preferred Stock which became effective on such record date shall be cancelled as
of the close of business on such record date, and thereafter the Conversion
Price of the Series B Preferred Stock shall be adjusted pursuant to this Section
4.4.2(d)(iii) as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and
Subdivisions. In the event the Corporation at any time or from time to time
after the Series B Original Issue Date of the Series B Preferred Stock shall
declare or pay any dividend or make any other distribution on the Common Stock
payable in Common Stock, or effect a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a dividend in
Common Stock), then and in any such event, Additional Shares of Common Stock
shall not be deemed to have been issued, but the Conversion Price of each series
of Series B Preferred Stock shall be adjusted in accordance with Section
4.4.2(d)(vi).
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(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock.
In the event the Corporation shall issue Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to Section 4.4.2(d)(iii)) without consideration or for a
consideration per share less than the Conversion Price of the Series B Preferred
Stock in effect on the date of and immediately prior to such issue, then and in
such event, in order to increase the number of shares of Common Stock into which
the Series B Preferred Stock is convertible, concurrently with such issuance,
the Conversion Price of the Series B Preferred Stock shall be reduced to a price
(calculated to the nearest cent) equal to the price per Additional Share of
Common Stock being so issued or deemed to be issued, provided that the
Conversion Price shall not be so reduced at such time if the amount of such
reduction would be an amount less than $0.05, but any such amount shall be
carried forward and reduction with respect thereto made at the time of and
together with any subsequent reduction which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $0.05 or more.
(v) Determination of Consideration. For purposes of
this Section 4.4.2(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 4.4.2(d)(iii)(1),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the Corporation as
consideration for the issue of such Options or Convertible Securities, plus the
minimum aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such consideration until such subsequent
adjustment occurs) payable to the Corporation upon the exercise of such Options
or
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the conversion or exchange of such Convertible Securities or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by (y)
the maximum number of shares of Common Stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such number until such subsequent adjustment occurs)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Adjustment for Dividends, Distributions,
Subdivisions, Combinations or Consolidation of Common Stock.
(1) Stock Dividends, Distributions or Subdivisions.
In the event the Corporation at any time or from time to time shall declare or
pay any dividend or make any other distribution on the Common Stock payable in
Common Stock, or effect a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend in Common
Stock), the Conversion Price on the Series B Preferred Stock in effect
immediately prior to such stock dividend, stock distribution or subdivision
shall, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, be proportionately decreased.
(2) Combinations or Consolidations. In the event
the outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Conversion Price of the Series B Preferred Stock in effect immediately prior
to such combination or consolidation shall, concurrently with the effectiveness
of such combination or consolidation, be proportionately increased.
(vii) Adjustment for Merger or Reorganization.
Subject to the last sentence of this Section 4.4.2(d)(vii), in case of any
consolidation or merger of the Corporation with or into another corporation or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Series B Preferred Stock shall thereafter be
convertible, at the option of the holder thereof in the manner described in the
last sentence of this Section, into the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Corporation deliverable upon conversion of such Series B Preferred Stock
would have been entitled upon such consolidation, merger or conveyance. In any
such case, appropriate adjustment (as determined by the Board of Directors)
shall be made in the application of these provisions set forth with respect to
the rights and interest thereafter of the holders of the Series B Preferred
Stock, to the end that these provisions (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series B
Preferred Stock. In the event that such merger or consolidation of the
Corporation or the sale of all or substantially all its assets shall also be
subject to the provisions of Section 4.4.1 above, each holder of Series B
Preferred Stock may elect to obtain the treatment of such holder's shares of
Series B Preferred Stock under this Section 4.4.2(d)(vii) in lieu of that
described in Section 4.4.1, notice of which
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election shall be submitted in writing to the Corporation at its principal
offices no later than five (5) days before the effective date of such event.
(e) No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4.4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section
4.4.2, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with these terms and furnish to each holder of Series
B Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based; provided that the failure to promptly provide such notice shall not
affect the effectiveness of such adjustment, readjustment or conversion. The
Corporation shall, upon the written request at any time of any holder of Series
B Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price of the Series B Preferred Stock at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of the Series B
Preferred Stock.
(g) Notices of Record Date. In the event of (i) any taking by
the Corporation of a record date of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, or (ii) any capital reorganization of
the Corporation, any reclassification or recapitalization of the capital stock
of the Corporation, any merger or consolidation of the Corporation, and any
transfer of all or substantially all of the assets of the Corporation to any
other Corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Series B Preferred Stock at least 30
days prior to the record date specified therein, a notice specifying (A) the
date on which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (B) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (C) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
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(h) Common Stock Reserved. The Corporation shall reserve and
keep available out of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of the Series B Preferred Stock.
4.4.3. Voting Rights.
The holders of shares of Series B Preferred Stock shall be
entitled to notice of any stockholders' meeting and to vote upon any and all
matters submitted to a stockholder for a vote, as though the Common Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock constituted a single class of stock, except with
respect to those matters on which the Delaware Corporation Law requires that a
vote must be by a separate class or classes or by separate series, as to which
each such class or series shall have the right to vote in accordance with such
law, and holders of Series B Preferred Stock shall have that number of votes per
share as is equal to the number of shares of Common Stock into which each such
share of Series B Preferred Stock held by such holder is then convertible.
4.4.4. Dividend Rights.
(a) The holders of outstanding Series B Preferred Stock shall
be entitled to receive a dividend (determined on the basis of the number of
shares of Common Stock into which a share of Series B Preferred Stock is then
convertible) equal to any dividend declared or paid on Common Stock, Series A
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock,
calculated on an as converted basis, based on the number of shares of Common
Stock into which such Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock is convertible on the date of
such declaration (or, if the Board makes no declaration, on the date of
payment).
(b) Such Series B Preferred Stock dividends shall be paid
prior to any payment of any dividends on the Common Stock. In the event such
dividends are not paid prior to the payment of the Series B Preferred Stock
liquidation preference in accordance with Section 4.4.1 hereof, such dividends
shall be payable on liquidation and redemption in accordance with Section 4.4.1
hereof.
4.4.5. Covenants. In addition to Section 4.4.3 and any vote which
the Series B Preferred Stock may have under Delaware law, so long as any shares
of Series B Preferred Stock shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of not less than
seventy five percent (75%) of such outstanding shares of Series B Preferred
Stock:
(a) amend, restate or repeal any provision of, or add any
provision to, the Corporation's Restated Certificate of Incorporation or By-Laws
if such action would change the preferences, rights, privileges or powers of, or
the restrictions provided for the benefit of, the Series B Preferred Stock
generally or increases the number of authorized shares of Series B Preferred
Stock;
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(b) reclassify any 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 Preferred Stock;
(c) create or issue 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
Preferred Stock; or
(d) create or issue 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 (i) with an aggregate liquidation preference not to
exceed $30,000,000 and (ii) having terms no more favorable to an investor than
the terms of the Series B Preferred Stock.
4.4.6. Converted or Otherwise Acquired Shares. Any share of Series B
Preferred Stock that is converted under Section 4.4.2 or otherwise acquired by
the Corporation will be canceled and will not be reissued, sold or transferred.
4.5. Series C Preferred Stock.
4.5.1. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, each holder of a share of Series C Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of Common Stock or
Class B Common Stock by reason of their ownership thereof, an amount equal to
any declared but unpaid dividends on such share of Series C Preferred Stock to
and including the date full payment is so tendered to the holders of the Series
C Preferred Stock with respect to such liquidation, dissolution or winding up,
plus an amount equal to the greater of: (a)(i) if such liquidation, dissolution
or winding up occurs prior to the third anniversary of the Series C Original
Issue Date, the Return Amount per share or (ii) if such liquidation, dissolution
or winding up occurs on or after the third anniversary of the Series C Original
Issue Date, $21.73 per share or (b) such amount per share of Series C Preferred
Stock as would have been payable had each share of Parity Stock been converted
to Common Stock immediately prior to such liquidation, dissolution or winding up
pursuant to the provisions of Section 4.5.2; provided that the amount
distributable per share of Common Stock pursuant to this clause (b) exceeds
$31.80. The liquidation amounts set forth in this Section 4.5.1 shall be subject
to equitable adjustment whenever there shall occur a stock split, stock
dividend, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the Series C Preferred Stock.
"Return Amount" shall mean, as of any date, an amount equal to the
Series C Original Issue Price plus a 35% annualized rate of return on the Series
C Original Issue Price from the Series C Original Issue Date to such date.
"Series C Original Issue Price" shall mean Ten Dollars and Sixty
Cents ($10.60).
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If the assets or surplus funds to be distributed to the holders of
the Series C Preferred Stock and other Parity Stock are insufficient to permit
the payment to such holders of their full preferential amount, the assets and
surplus funds legally available for distribution shall be distributed ratably
among the holders of the Series C Preferred Stock and other Parity Stock in
proportion to the full preferential amount each such holder is otherwise
entitled to receive. In the event that the holder of Series C Preferred Stock
receives the liquidation rights under option (a) set forth above in this Section
4.5.1, and after payment to the Series C Preferred Stockholders of the
liquidation amount described above and after all preference amounts to the
holders of Parity Stock have been paid or set aside in cash for payment, the
remaining assets shall be distributed ratably to the holders of the Common
Stock, the Class B Common Stock, the Series B Preferred Stock, the Series C
Preferred Stock and the Series D Preferred Stock on a common equivalent basis
(i.e., as if each share had been converted to Common Stock immediately prior to
the liquidation, dissolution or winding up pursuant to the provisions of Section
4.5.2), provided that the holders of Series C Preferred Stock will stop
participating once they have received a total liquidation amount per share of
$31.80, plus any declared but unpaid dividends.
A merger, acquisition, sale of voting control or sale of
substantially all of the assets of the Corporation shall be deemed to be a
liquidation within the meaning of this Section 4.5.1, but only if the holders of
the outstanding stock of the Corporation immediately prior to the closing of
such merger, sale or acquisition hold, immediately after such transaction, less
than a majority in interest of the issued and outstanding shares of voting
securities (as measured by voting power) of the purchasing corporation or of the
corporation (including without limitation the Corporation) surviving or
resulting from such merger, as the case may be; provided, however, that any
holder of Series C Preferred Stock may elect by notice to the Corporation no
later than five (5) days before the effective date of such event, to be treated
under the provisions of Section 4.5.2(d)(vii) in lieu of this Section 4.5.1 in
connection with such merger, acquisition, sale or consolidation. In the event
the consideration payable to the Corporation or to the holders of its
outstanding stock in connection with any such sale or merger (the "Transaction
Consideration") does not consist entirely of cash, then the Corporation may
satisfy its obligations under this Section 4.5.1. by paying to the holders of
Series C Preferred Stock a portion of the Transaction Consideration with a fair
market value equal to the amount required to be distributed pursuant to this
Section 4.5.1. The fair market value of the Transaction Consideration shall be
as determined in good faith by the Board of Directors of the Corporation. If the
Transaction Consideration consists of more than one type of consideration, then
each type of consideration shall be distributed or offered to each holder of
Series C Preferred Stock in the same proportions as such type of consideration
represents of the total Transaction Consideration.
4.5.2. Conversion. The holders of Series C Preferred Stock
shall have conversion rights as follows (the "Series C Conversion Rights"):
(a) Right to Convert. Each share of Series C Preferred Stock
shall be convertible at the option of the holder thereof at any time after the
date of issuance and without the payment of any additional consideration
therefor into that number of fully paid and nonassessable shares of Common Stock
as is determined by dividing Ten and 60/100 Dollars
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($10.60) by the Conversion Price (as defined below) as adjusted pursuant to this
Section 4.5.2 and in effect at the time of conversion. The initial Conversion
Price of the Series C Preferred Stock shall be Ten and 60/100 Dollars ($10.60).
Subject to Section 4.5.2(d), the Conversion Price shall be subject to adjustment
(in order to adjust the number of shares of Common Stock into which the Series C
Preferred Stock is convertible) as hereinafter provided. Each person so
converting shares of Series C Preferred Stock shall forfeit any declared but
unpaid dividends up to the time of the conversion.
(b) Automatic Conversion. Each share of Series C Preferred
Stock shall automatically and immediately be converted into shares of Common
Stock at the then effective Conversion Price upon:
(i) the closing of a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the Corporation
to the public at a public offering price of at least: (a) $20.00 per share
during the first year following the Series C Original Issue Date (pro-rated
based upon the number of months elapsed during such period), (b) $20.00 during
the second year following the Series C Original Issue Date, plus $0.50 for each
month or partial month elapsed during such year, (c) $26.00 during the third
year following the Series C Original Issue Date plus $0.75 for each month or
partial month elapsed during each year; and (d) $35.00 on and following the
third anniversary of the Series C Original Issue Date (in each case
appropriately adjusted in the event of any stock dividend, stock distribution or
subdivision as provided in Section 4.5.2(d)(vi)), and having an aggregate
offering price to the public resulting in net proceeds to the Corporation (after
deducting commissions payable to the underwriters and expenses) of not less than
$40,000,000 (a "Qualifying IPO"); or
(ii) the written consent of the holders in interest of
two-thirds or more of the Series C Preferred Stock then outstanding.
The person(s) entitled to receive Common Stock issuable upon a
conversion of Series C Preferred Stock hereunder shall not be deemed to have
converted the Series C Preferred Stock until immediately prior to the closing of
the IPO or the receipt by the Corporation of such consent, as the case may be.
Each person who holds of record Series C Preferred Stock immediately prior to an
automatic conversion shall forfeit any declared but unpaid dividends up to the
time of the automatic conversion.
(c) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series C Preferred Stock. In lieu of
any fractional share to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the greater of
the price to public in the IPO (as such term is defined in Section 4.6.2(b)(ii))
or the then effective applicable Conversion Price. Before any holder of Series C
Preferred Stock shall be entitled to convert the same into full shares of Common
Stock under Section 4.5.2(a), such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series C Preferred Stock, and shall
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give written notice to the Corporation at such office that such holder elects to
convert the same and shall state therein his name or the name or names of his
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued, together with the applicable federal taxpayer
identification number. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Series C Preferred Stock, or
to his nominee or nominees, a certificate or certificates for the number of
shares of Common Stock to which he shall be entitled, together with cash in lieu
of any fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series C Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Section
4.5.2(d), the following definitions shall apply:
(1) "Option" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "Series C Original Issue Date" shall mean
November 17, 1997.
(3) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common Stock, Class B Common
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock) or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued (or, pursuant to Section 4.5.2(d)(iii),
deemed to be issued) by the Corporation after the Series C Original Issue Date,
other than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Class B
Common Stock; Series A Preferred Stock, Series B Preferred Stock or Series D
Preferred Stock or by way of dividend or distribution on shares of Common Stock,
Class B Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock or Series D Preferred Stock; and
(B) to officers, directors or employees of, or
consultants to, the Corporation pursuant to action by the Board of Directors
after the Series C Original Issue Date under any stock purchase or option plan
or other employee or director stock incentive or compensation program up to an
aggregate of 730,040 shares of Common Stock.
(ii) No Adjustment of Conversion Price. No adjustment
in the number of shares of Common Stock into which Series C Preferred Stock is
convertible shall be
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made by adjustment in the Conversion Price of Series C Preferred Stock in
respect of the issuance of Additional Shares of Common Stock or otherwise,
unless the consideration per share for such Additional Shares of Common Stock
issued or deemed to be issued by the Corporation is less than the Conversion
Price of Series C Preferred Stock in effect on the date of, and immediately
prior to, the issue of such Additional Shares.
(iii) Issue of Securities Deemed Issue of Additional
Shares of Common Stock.
(1) Options and Convertible Securities. In the
event the Corporation at any time or from time to time after the Series C
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the shares
(as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Section 4.5.2(d)(v)) of such
Additional Shares of Common Stock would be less than the Conversion Price of the
Series C Preferred Stock in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, and provided further that in any
such case in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price of
the Series C Preferred Stock shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price of the Series C Preferred Stock computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price of the Series C Preferred Stock
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto) and any subsequent adjustments based thereon shall,
upon such expiration, be recomputed as if:
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(I) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation
(determined pursuant to Section 4.5.2(d)(v)) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C)
above shall have the effect of increasing the Conversion Price of the Series C
Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price
of the Series C Preferred Stock on the original adjustment date, or (ii) the
Conversion Price of the Series C Preferred Stock that would have resulted from
any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date;
(E) in the case of any Options which expire by their
terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Conversion Price of the Series C Preferred Stock shall be made
until the expiration or exercise of all such Options, whereupon such adjustment
shall be made in the same manner provided in clause (C) above; and
(F) if such record date shall have been fixed and
such Options or Convertible Securities are not issued on the date fixed
therefor, the adjustment previously made in the Conversion Price of the Series C
Preferred Stock which became effective on such record date shall be cancelled as
of the close of business on such record date, and thereafter the Conversion
Price of the Series C Preferred Stock shall be adjusted pursuant to this Section
4.5.2(d)(iii) as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and
Subdivisions. In the event the Corporation at any time or from time to time
after the Series C Original Issue Date of the Series C Preferred Stock shall
declare or pay any dividend or make any other distribution on the Common Stock
payable in Common Stock, or effect a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a dividend in
Common Stock), then and in any such event, Additional Shares of Common Stock
shall not be deemed to
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have been issued, but the Conversion Price of each series of Series C Preferred
Stock shall be adjusted in accordance with Section 4.5.2(d)(vi).
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock.
In the event the Corporation shall issue Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to Section 4.5.2(d)(iii)) without consideration or for a
consideration per share less than the Conversion Price of the Series C Preferred
Stock in effect on the date of and immediately prior to such issue, then and in
such event, in order to increase the number of shares of Common Stock into which
the Series C Preferred Stock is convertible, concurrently with such issuance,
the Conversion Price of the Series C Preferred Stock shall be reduced to a price
(calculated to the nearest cent) equal to the price per Additional Share of
Common Stock being so issued or deemed to be issued, provided that the
Conversion Price shall not be so reduced at such time if the amount of such
reduction would be an amount less than $0.05, but any such amount shall be
carried forward and reduction with respect thereto made at the time of and
together with any subsequent reduction which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $0.05 or more.
(v) Determination of Consideration. For purposes of
this Section 4.5.2(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Section 4.5.2(d)(iii)(1), relating to Options
and Convertible Securities, shall be determined by dividing (x) the total
amount, if any, received or receivable by the Corporation as consideration for
the issue of such Options or Convertible Securities, plus the minimum aggregate
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amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such consideration until such subsequent adjustment occurs)
payable to the Corporation upon the exercise of such Options or the conversion
or exchange of such Convertible Securities or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities, by (y) the
maximum number of shares of Common Stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such number until such subsequent adjustment occurs)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Adjustment for Dividends, Distributions,
Subdivisions, Combinations or Consolidation of Common Stock.
(1) Stock Dividends, Distributions or Subdivisions.
In the event the Corporation at any time or from time to time shall declare or
pay any dividend or make any other distribution on the Common Stock payable in
Common Stock, or effect a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend in Common
Stock), the Conversion Price on the Series C Preferred Stock in effect
immediately prior to such stock dividend, stock distribution or subdivision
shall, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, be proportionately decreased.
(2) Combinations or Consolidations. In the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Conversion Price of the Series C Preferred Stock in effect immediately prior
to such combination or consolidation shall, concurrently with the effectiveness
of such combination or consolidation, be proportionately increased.
(vii) Adjustment for Merger or Reorganization.
Subject to the last sentence of this Section 4.5.2(d)(vii), in case of any
consolidation or merger of the Corporation with or into another corporation or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Series C Preferred Stock shall thereafter be
convertible, at the option of the holder thereof in the manner described in the
last sentence of this Section, into the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Corporation deliverable upon conversion of such Series C Preferred Stock
would have been entitled upon such consolidation, merger or conveyance. In any
such case, appropriate adjustment (as determined by the Board of Directors)
shall be made in the application of these provisions set forth with respect to
the rights and interest thereafter of the holders of the Series C Preferred
Stock, to the end that these provisions (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series C
Preferred Stock. In the event that such merger or consolidation of the
Corporation or the sale of all or substantially all its
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assets shall also be subject to the provisions of Section 4.5.1 above, each
holder of Series C Preferred Stock may elect to obtain the treatment of such
holder's shares of Series C Preferred Stock under this Section 4.5.2(d)(vii) in
lieu of that described in Section 4.5.1, notice of which election shall be
submitted in writing to the Corporation at its principal offices no later than
five (5) days before the effective date of such event.
(e) No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4.5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series C Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section
4.5.2, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with these terms and furnish to each holder of Series
C Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based; provided that the failure to promptly provide such notice shall not
affect the effectiveness of such adjustment, readjustment or conversion. The
Corporation shall, upon the written request at any time of any holder of Series
C Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price of the Series C Preferred Stock at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of the Series C
Preferred Stock.
(g) Notices of Record Date. In the event of (i) any taking by
the Corporation of a record date of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, or (ii) any capital reorganization of
the Corporation, any reclassification or recapitalization of the capital stock
of the Corporation, any merger or consolidation of the Corporation, and any
transfer of all or substantially all of the assets of the Corporation to any
other Corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Series C Preferred Stock at least 30
days prior to the record date specified therein, a notice specifying (A) the
date on which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (B) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (C) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities)
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for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
(h) Common Stock Reserved. The Corporation shall reserve and
keep available out of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of the Series C Preferred Stock.
4.5.3. Voting Rights.
The holders of shares of Series C Preferred Stock shall be
entitled to notice of any stockholders' meeting and to vote upon any and all
matters submitted to a stockholder for a vote, as though the Common Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
the Series D Preferred Stock constituted a single class of stock, except with
respect to those matters on which the Delaware Corporation Law requires that a
vote must be by a separate class or classes or by separate series, as to which
each such class or series shall have the right to vote in accordance with such
law, and holders of Series C Preferred Stock shall have that number of votes per
share as is equal to the largest number of whole shares of Common Stock into
which the Series C Preferred Stock held by such holder is then convertible.
4.5.4. Dividend Rights.
(a) The holders of outstanding Series C Preferred Stock shall
be entitled to receive a dividend (determined on the basis of the number of
shares of Common Stock into which a share of Series C Preferred Stock is then
convertible) equal to any dividend declared or paid on Common Stock, Series A
Preferred Stock, Series B Preferred Stock or Series D Preferred Stock,
calculated on an as converted basis, based on the number of shares of Common
Stock into which such Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock is convertible on the date of
such declaration (or, if the Board makes no declaration, on the date of
payment).
(b) Such Series C Preferred Stock dividends shall be paid
prior to any payment of any dividends on the Common Stock, the Series A
Preferred Stock or the Series B Preferred Stock. In the event such dividends are
not paid prior to the payment of the Series C Preferred Stock liquidation
preference in accordance with Section 4.5.1, such dividends shall be payable on
liquidation in accordance with Section 4.5.1.
4.5.5. Covenants. In addition to Section 4.5.3 and any vote which
the Series C Preferred Stock may have under Delaware law, so long as any shares
of Series C Preferred Stock shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of at least
two-thirds of such outstanding shares of Series C Preferred Stock, take any
action that:
(a) alters, restates or changes the rights, preferences or
privileges of the Series C Preferred Stock;
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(b) increases or decreases the authorized number of shares
of Series C Preferred Stock;
(c) creates (by reclassification or otherwise) any new class
or series of shares or debt securities having rights, preferences or privileges
senior to or on a parity with the Series C Preferred Stock;
(d) results in the redemption of any shares of Common
Stock (other than pursuant to employee agreements or in connection with
redemption of certain shares held by B. Braun Melsunger AG); or
(e) amends, restates or waives any provision of the Company's
Restated Certificate of Incorporation or by-laws relative to the Series C
Preferred Stock.
4.5.6. Converted, Redeemed or Otherwise Acquired Shares. Any share
of Series C Preferred Stock that is converted under Section 4.5.2 or otherwise
acquired by the Corporation will be canceled and will not be reissued, sold or
transferred.
4.6. Series D Preferred Stock.
4.6.1. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, each holder of a share of Series D Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of Common Stock or
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 Preferred Stock to
and including the date full payment is so tendered to the holders of the Series
D Preferred Stock with respect to such liquidation, dissolution or winding up,
plus an amount equal to the greater of: (a)(i) if such liquidation, dissolution
or winding up occurs prior to the third anniversary of the Series D Original
Issue Date, the Return Amount per share or (ii) if such liquidation, dissolution
or winding up occurs on or after the third anniversary of the Series D Original
Issue Date, $24.60 per share or (b) such amount per share of Series D Preferred
Stock as would have been payable had each share of Parity Stock been converted
to Common Stock immediately prior to such liquidation, dissolution or winding up
pursuant to the provisions of Section 4.6.2; provided that the amount
distributable per share of Common Stock pursuant to this clause (b) exceeds
$36.00.
For purposes of this Section 4.6.1, Section 4.6.2 and Section 4.6.6:
"Return Amount" shall mean, as of any date, an amount equal to the
Series D Original Issue Price plus a 35% annualized rate of return on the Series
D Original Issue Price from the Series D Original Issue Date to such date. By
way of illustration, on the first, second and third anniversaries of the Series
D Original Issue Date, the Return Amount will be $16.20, $20.40 and $24.60
respectively.
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"Series D Original Issue Price" shall mean Twelve Dollars
($12.00).
The liquidation amounts set forth in this Section 4.6.1 shall be subject to
equitable adjustment whenever there shall occur a stock split, stock dividend,
combination, reorganization, recapitalization, reclassification or other similar
event involving a change in the Series D Preferred Stock.
If the assets or surplus funds to be distributed to the holders of
the Series D Preferred Stock and other Parity Stock are insufficient to permit
the payment to such holders of their full preferential amount, the entire assets
of the Corporation legally available for distribution shall be distributed
ratably among the holders of the Series D Preferred Stock and Parity Stock in
proportion to the full preferential amount each such holder is otherwise
entitled to receive. In the event that the holder of Series D Preferred Stock
receives the liquidation rights under option (a) set forth above in this Section
4.6.1, and after payment to the Series D Preferred Stockholders of the
liquidation amount described above and after all preference amounts to the
holders of the Parity Stock have been paid or set aside in cash for payment, the
remaining assets shall be distributed ratably to the holders of the Common
Stock, the Class B Common Stock, the Series B Preferred Stock, the Series C
Preferred Stock and the Series D Preferred Stock on a common equivalent basis
(i.e., as if each share had been converted to Common Stock immediately prior to
the liquidation, dissolution or winding up pursuant to the provisions of Section
4.6.2), provided that the holders of Series D Preferred Stock will stop
participating once they have received a total liquidation amount per share of
$36.00, plus any declared but unpaid dividends.
A merger, acquisition, sale of voting control or sale of
substantially all of the assets of the Corporation shall be deemed to be a
liquidation within the meaning of this Section 4.6.1, but only if the holders of
the outstanding stock of the Corporation immediately prior to the closing of
such merger, sale or acquisition hold, immediately after such transaction, less
than a majority in interest of the issued and outstanding shares of voting
securities (as measured by voting power) of the purchasing corporation or of the
corporation (including without limitation the Corporation) surviving or
resulting from such merger, as the case may be; provided, however, that any
holder of Series D Preferred Stock may elect by notice to the Corporation no
later than five (5) days before the effective date of such event, to be treated
under the provisions of Section 4.6.2(d)(vii) in lieu of this Section 4.6.1 in
connection with such merger, acquisition, sale or consolidation. In the event
the consideration payable to the Corporation or to the holders of its
outstanding stock in connection with any such sale or merger (the "Transaction
Consideration") does not consist entirely of cash, then the Corporation may
satisfy its obligations under this Section 4.6.1 by paying to the holders of
Series D Preferred Stock a portion of the Transaction Consideration with a fair
market value equal to the amount required to be distributed pursuant to this
Section 4.6.1. The fair market value of the Transaction Consideration shall be
as determined in good faith by the Board of Directors of the Corporation. If the
Transaction Consideration consists of more than one type of consideration, then
each type of consideration shall be distributed or offered to each holder of
Series D Preferred Stock in the same proportions as such type of consideration
represents of the total Transaction Consideration.
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4.6.2. Conversion. The holders of Series D Preferred Stock shall
have conversion rights as follows (the "Series D Conversion Rights"):
(a) Right to Convert. Each share of Series D Preferred Stock
shall be convertible at the option of the holder thereof at any time after the
date of issuance and without the payment of any additional consideration
therefor into that number of fully paid and nonassessable shares of Common Stock
as is determined by dividing Twelve Dollars ($12.00) by the Conversion Price (as
defined below) as adjusted pursuant to this Section 4.6.2 and in effect at the
time of conversion. The Conversion Price of the Series D Preferred Stock shall
be Twelve Dollars ($12.00) and shall be subject to adjustment pursuant to
Section 4.6.2(d) (in order to adjust the number of shares of Common Stock into
which the Series D Preferred Stock is convertible) as hereinafter provided. Each
person so converting shares of Series D Preferred Stock shall forfeit any
declared but unpaid dividends up to the time of the conversion.
(b) Automatic Conversion. Each share of Series D Preferred
Stock shall automatically and immediately be converted into shares of Common
Stock at the Conversion Price upon:
(i) the vote of the holders in interest of at least
two-thirds of the Series D Preferred Stock then outstanding at the then
effective Conversion Factor; or
(ii) the closing of an initial public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Corporation (the "IPO"); provided that if the price to the public in the IPO is
less than $16.00 per share (as adjusted for stock splits, stock dividends,
recapitalizations and similar events), each share of Series D Preferred Stock
shall be converted into shares of Common stock at the greater of (i) the number
of shares of Common Stock such shares of Series D Preferred Stock can be
converted into at the Conversion Price or (ii) the number of shares of Common
Stock (including fractional shares expressed to four decimal places) that when
multiplied by the greater of the price to the public in the IPO and $10.60
equals the Return Amount multiplied by the total number of shares of Common
Stock.
The person(s) entitled to receive Common Stock issuable upon a
conversion of Series D Preferred Stock hereunder shall not be deemed to have
converted the Series D Preferred Stock until immediately prior to the closing of
the IPO or the receipt by the Corporation of such consent, as the case may be.
Each person who holds of record Series D Preferred Stock immediately prior to an
automatic conversion shall forfeit any declared but unpaid dividends up to the
time of the automatic conversion.
(c) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series D Preferred Stock. In lieu of
any fractional share to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the greater of
the price to public in the IPO or the then effective applicable Conversion
Price. Before any holder of Series D Preferred Stock shall be entitled to
convert the
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same into full shares of Common Stock under Section 4.6.2(a), such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Series D Preferred Stock,
and shall give written notice to the Corporation at such office that such holder
elects to convert the same and shall state therein his name or the name or names
of his nominees in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued, together with the applicable federal
taxpayer identification number. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series D
Preferred Stock, or to his nominee or nominees, a certificate or certificates
for the number of shares of Common Stock to which he shall be entitled, together
with cash in lieu of any fraction of a share. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series D Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Section
4.6.2(d), the following definitions shall apply:
(1) "Option" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "Series D Original Issue Date" shall mean
December 23, 1998.
(3) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common Stock, Class B Common
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock) or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued (or, pursuant to Section 4.6.2(d)(iii),
deemed to be issued) by the Corporation after the Series D Original Issue Date,
other than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Class B
Common Stock, Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock or by way of dividend or distribution on shares of Common Stock,
Class B Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock or Series D Preferred Stock; and
(B) to officers, directors or employees of, or
consultants to, the Corporation pursuant to action by the Board of Directors
after the Series D Original Issue Date under any stock purchase or option plan
or other employee or director stock incentive or compensation program up to an
aggregate of 919,390 shares of Common Stock.
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(ii) No Adjustment of Conversion Price. No adjustment
in the number of shares of Common Stock into which Series D Preferred Stock is
convertible shall be made by adjustment in the Conversion Price of Series D
Preferred Stock in respect of the issuance of Additional Shares of Common Stock
or otherwise, unless the consideration per share for such Additional Shares of
Common Stock issued or deemed to be issued by the Corporation is less than the
Conversion Price of Series D Preferred Stock in effect on the date of, and
immediately prior to, the issue of such Additional Shares.
(iii) Issue of Securities Deemed Issue of Additional
Shares of Common Stock.
(1) Options and Convertible Securities. In the
event the Corporation at any time or from time to time after the Series D
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the shares
(as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Section 4.6.2(d)(v)) of such
Additional Shares of Common Stock would be less than the Conversion Price of the
Series D Preferred Stock in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, and provided further that in any
such case in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price of
the Series D Preferred Stock shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price of the Series D Preferred Stock computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price of the Series D Preferred Stock
computed upon the original issue thereof (or
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upon the occurrence of a record date with respect thereto) and any subsequent
adjustments based thereon shall, upon such expiration, be recomputed as if:
(I) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation
(determined pursuant to Section 4.6.2(d)(v)) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C)
above shall have the effect of increasing the Conversion Price of the Series D
Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price
of the Series D Preferred Stock on the original adjustment date, or (ii) the
Conversion Price of the Series D Preferred Stock that would have resulted from
any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date;
(E) in the case of any Options which expire by their
terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Conversion Price of the Series D Preferred Stock shall be made
until the expiration or exercise of all such Options, whereupon such adjustment
shall be made in the same manner provided in clause (C) above; and
(F) if such record date shall have been fixed and
such Options or Convertible Securities are not issued on the date fixed
therefor, the adjustment previously made in the Conversion Price of the Series D
Preferred Stock which became effective on such record date shall be cancelled as
of the close of business on such record date, and thereafter the Conversion
Price of the Series D Preferred Stock shall be adjusted pursuant to this Section
4.6.2(d)(iii) as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and
Subdivisions. In the event the Corporation at any time or from time to time
after the Series D Original Issue Date of the Series D Preferred Stock shall
declare or pay any dividend or make any other distribution on the Common Stock
payable in Common Stock, or effect a subdivision of the outstanding shares of
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Common Stock (by reclassification or otherwise than by payment of a dividend in
Common Stock), then and in any such event, Additional Shares of Common Stock
shall not be deemed to have been issued, but the Conversion Price of each series
of Series D Preferred Stock shall be adjusted in accordance with Section
4.6.2(d)(vi).
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock.
In the event the Corporation shall issue Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to Section 4.6.2(d)(iii)) without consideration or for a
consideration per share less than the Conversion Price of the Series D Preferred
Stock in effect on the date of and immediately prior to such issue, then and in
such event, in order to increase the number of shares of Common Stock into which
the Series D Preferred Stock is convertible, concurrently with such issuance,
the Conversion Price of the Series D Preferred Stock shall be reduced to a price
(calculated to the nearest cent) equal to the price per Additional Share of
Common Stock being so issued or deemed to be issued, provided that the
Conversion Price shall not be so reduced at such time if the amount of such
reduction would be an amount less than $0.05, but any such amount shall be
carried forward and reduction with respect thereto made at the time of and
together with any subsequent reduction which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $0.05 or more.
(v) Determination of Consideration. For purposes of
this Section 4.6.2(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 4.6.2(d)(iii)(1),
relating to Options and Convertible Securities, shall be
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determined by dividing (x) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration until such
subsequent adjustment occurs) payable to the Corporation upon the exercise of
such Options or the conversion or exchange of such Convertible Securities or in
the case of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities, by (y) the maximum number of shares of Common Stock (as set forth in
the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number until such subsequent
adjustment occurs) issuable upon the exercise of such Options or the conversion
or exchange of such Convertible Securities.
(vi) Adjustment for Dividends, Distributions,
Subdivisions, Combinations or Consolidation of Common Stock.
(1) Stock Dividends, Distributions or
Subdivisions. In the event the Corporation at any time or from time to time
shall declare or pay any dividend or make any other distribution on the Common
Stock payable in Common Stock, or effect a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in Common Stock), the Conversion Price on the Series D Preferred Stock in effect
immediately prior to such stock dividend, stock distribution or subdivision
shall, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, be proportionately decreased.
(2) Combinations or Consolidations. In the
event the outstanding shares of Common Stock shall be combined or consolidated,
by reclassification or otherwise, into a lesser number of shares of Common
Stock, the Conversion Price of the Series D Preferred Stock in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be proportionately
increased.
(vii) Adjustment for Merger or Reorganization.
Subject to the last sentence of this Section 4.6.2(d)(vii), in case of any
consolidation or merger of the Corporation with or into another corporation or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Series D Preferred Stock shall thereafter be
convertible, at the option of the holder thereof in the manner described in the
last sentence of this Section, into the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Corporation deliverable upon conversion of such Series D Preferred Stock
would have been entitled upon such consolidation, merger or conveyance. In any
such case, appropriate adjustment (as determined by the Board of Directors)
shall be made in the application of these provisions set forth with respect to
the rights and interest thereafter of the holders of the Series D Preferred
Stock, to the end that these provisions (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or
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other property thereafter deliverable upon the conversion of the Series D
Preferred Stock. In the event that such merger or consolidation of the
Corporation or the sale of all or substantially all its assets shall also be
subject to the provisions of Section 4.6.1 above, each holder of Series D
Preferred Stock may elect to obtain the treatment of such holder's shares of
Series D Preferred Stock under this Section 4.6.2(d)(vii) in lieu of that
described in Section 4.6.1, notice of which election shall be submitted in
writing to the Corporation at its principal offices no later than five (5) days
before the effective date of such event.
(e) No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4.6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series D Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section
4.6.2, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with these terms and furnish to each holder of Series
D Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based; provided that the failure to promptly provide such notice shall not
affect the effectiveness of such adjustment, readjustment or conversion. The
Corporation shall, upon the written request at any time of any holder of Series
D Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price of the Series D Preferred Stock at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of the Series D
Preferred Stock.
(g) Notices of Record Date. In the event of (i) any taking by
the Corporation of a record date of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, or (ii) any capital reorganization of
the Corporation, any reclassification or recapitalization of the capital stock
of the Corporation, any merger or consolidation of the Corporation, and any
transfer of all or substantially all of the assets of the Corporation to any
other Corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Series D Preferred Stock at least 30
days prior to the record date specified therein, a notice specifying (A) the
date on which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (B) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (C) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or
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other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.
(h) Common Stock Reserved. The Corporation shall reserve and
keep available out of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of the Series D Preferred Stock.
4.6.3. Voting Rights.
The holders of shares of Series D Preferred Stock shall be
entitled to notice of any stockholders' meeting and to vote upon any and all
matters submitted to a stockholder for a vote, as though the Common Stock,
Series A Preferred Stock, Series B Preferred Stock, the Series C Preferred Stock
and the Series D Preferred Stock constituted a single class of stock, except
with respect to those matters on which the Delaware Corporation Law requires
that a vote must be by a separate class or classes or by separate series, as to
which each such class or series shall have the right to vote in accordance with
such law, and holders of Series D Preferred Stock shall have that number of
votes per share as is equal to the largest number of whole shares of Common
Stock into which the Series D Preferred Stock held by such holder is then
convertible.
4.6.4. Dividend Rights.
(a) The holders of outstanding Series D Preferred Stock shall
be entitled to receive a dividend (determined on the basis of the number of
shares of Common Stock into which a share of Series D Preferred Stock is then
convertible) equal to any dividend declared or paid on Common Stock, Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
calculated on an as converted basis, based on the number of shares of Common
Stock into which such Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock is convertible on the date of
such declaration (or, if the Board makes no declaration, on the date of
payment).
(b) Such Series D Preferred Stock dividends shall be paid
prior to any payment of any dividends on the Common Stock, the Series A
Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock.
In the event such dividends are not paid prior to the payment of the Series D
Preferred Stock liquidation preference in accordance with Section 4.6.1, such
dividends shall be payable on liquidation in accordance with Section 4.6.1.
4.6.5. Covenants. In addition to Section 4.6.3 and any vote which
the Series D Preferred Stock may have under Delaware law, so long as any shares
of Series D Preferred Stock shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of at least
two-thirds of such outstanding shares of Series D Preferred Stock, take any
action that:
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(a) alters, restates or changes the rights, preferences or
privileges of the Series D Preferred Stock;
(b) increases or decreases the authorized number of shares of
Series D Preferred Stock;
(c) 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 Preferred Stock;
(d) results in the redemption of any shares of Common Stock
(other than pursuant to employee agreements or in connection with redemption of
certain shares held by B. Braun Melsungen AG); or
(e) amends, restates or waives any provision of the Company's
Restated Certificate of Incorporation or by-laws relative to the Series D
Preferred Stock.
4.6.6. Redemption.
(a) The Corporation may, at its sole option, commencing no
earlier than six (6) months following the Series D Original Issue Date,
repurchase in whole at any time or in part from time to time, the Series D
Preferred Stock for the Return Amount (as such term is defined in Section
4.6.1), commencing on the Series D Original Issue Date and continuing through
the date of redemption. If a Liquidity Event occurs within twelve (12) months
following such repurchase, the Corporation shall make a payment to the holder of
each share of Series D Preferred Stock that it has purchased of cash payment
equal to the excess, if any, of ninety percent (90%) of the value attributable
to such share by the Liquidity Event (or that would have been attributable if
the share had been outstanding at the time of the Liquidity Event), without
regard to liquidity discounts or other restrictions, over the price paid by the
Corporation for such share upon exercise of the repurchase option.
For purposes of this Section 4.6.6:
"Liquidity Event" shall mean an IPO or any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation,
including a merger, acquisition, sale of voting control or sale of substantially
all of the assets of the Corporation that is deemed a liquidation under Section
4.6.1.
(b) If less than all of the outstanding shares of the Series D
Preferred Stock are to be redeemed, the shares to be redeemed shall be
apportioned among all of the registered holders of the Series D Preferred Stock
outstanding, taken together, as nearly as possible in proportion to their
holdings as shown by the books of the Corporation.
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(c) Notice of the intention of the Corporation to redeem
shares of the Series D Preferred Stock and of the date and place for redemption
shall be given by first class mail, postage prepaid, mailed at least twenty (20)
and not more than sixty (60) days prior to the date designated for redemption to
each holder of record of shares so to be redeemed at his last known address as
shown by the records of the Corporation, but no failure to mail such notice or
any defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to the holder to whom the Corporation
failed to mail such notice or whose notice or the mailing thereof was defective.
Each such notice shall state: (i) the redemption date; (ii) the number of shares
of Series D Preferred Stock to be redeemed and, if less than all the shares held
by such holder are to be redeemed, the number of such shares to be redeemed;
(iii) the redemption price; (iv) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date.
On or after the date of redemption designed in such notice, each
holder of shares called for redemption, upon surrender to the Corporation at the
place designated in such notice of the certificate or certificates for such
shares, properly endorsed in blank for transfer or accompanied by proper
instruments of assignment or transfer in blank, shall thereupon be entitled to
receive payment of the redemption price in cash. In case less than all shares
represented by a surrendered certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares.
If such notice of redemption shall have been duly given, and if on
or before the redemption date funds necessary for the redemption of the shares
to be redeemed shall have been set aside in cash so as to be and continue to be
available therefor, then notwithstanding that any certificate representing any
shares so called for redemption shall not have been surrendered, all rights with
respect to the shares so called for redemption shall forthwith after such
redemption date cease, except only the right of the holder to receive the
redemption price without interest. Any moneys so set aside by the Corporation
and unclaimed by the end of three years from the date fixed for such redemption
shall revert to the general funds of the Corporation.
(d) All shares of the Series D Preferred Stock redeemed or
otherwise acquired by the Corporation shall be cancelled and retired and shall
not be reissued.
FIFTH: BY-LAWS. The board of directors of the Corporation is
expressly authorized to adopt, amend or repeal the by-laws of the Corporation.
SIXTH: DIRECTORS. Elections of directors need not be by written
ballot except and to the extent provided in the by-laws of the Corporation.
SEVENTH: LIABILITY. No director shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that to the extent required by the
provisions of Section 102(b)(7) of the General Corporation Law of the State of
Delaware or any successor statute, as the same may be
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interpreted or amended from time to time, or any other laws of the State of
Delaware, this provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware or (iv) for
any transaction from which the director derived an improper personal benefit. If
the General Corporation Law of the State of Delaware hereafter is amended to
authorize the further elimination or limitation on personal liability of
directors, then the liability of a director of the Corporation, in addition to
the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended General Corporation Law of the State of
Delaware. Any repeal or modification of this Article SEVENTH by the stockholders
of the Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
EIGHTH: INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
8.1 Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or an officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnities in connection therewith; provided, however, that,
except as provided in Section 8.3 of this Article EIGHTH with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnities in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
8.2 Right to Advancement of Expenses.
The right to indemnification conferred in Section 8.1 of this
Article EIGHTH shall include the right to be paid by the Corporation the
expenses (including attorneys' fees) incurred in defending any such proceeding
in advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer
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(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section 8.2 or otherwise. The rights to indemnification and
to the advancement of expenses conferred in Sections 8.1 and 8.2 of this Article
EIGHTH shall be contract rights and such rights shall continue as to an
indemnitee who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the indemnitee's heirs, executors and administrators.
8.3 Right of Indemnitee to Bring Suit.
If a claim under Sections 8.1 or 8.2 of this Article EIGHTH is not
paid in full by the Corporation within sixty (60) days after a written claim has
been received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
(20) days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that, and
(ii) in any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met any applicable standard for indemnification set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of suit
that indemnification of the indemnitee is proper in the circumstances because
the indemnitee has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal
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counsel, or its stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the indemnitee has not met
the applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article EIGHTH or otherwise shall be on the Corporation.
8.4 Non-Exclusivity of Rights.
The rights to indemnification and to the advancement of expenses
conferred in this Article EIGHTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, by-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
8.5 Insurance.
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another Corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
8.6 Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
IN WITNESS WHEREOF, the undersigned has caused this Restated
Certificate of Incorporation to be executed in its corporate name by its
________________ this ___ day of _______, 1998.
------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 3(i).2
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF BIOPURE CORPORATION
PURSUANT TO SECTION 242 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Biopure Corporation, a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Biopure Corporation (the
"Corporation"). The Corporation was originally incorporated under the name
Biopure Fine Chemicals, Inc., which name was changed to "Biopure Corporation" on
October 31, 1985. The original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on July 30, 1984 and was restated on
November 14, 1997 and December 22, 1998.
2. This Certificate of Amendment to the Restated Certificate of
Incorporation amends the Restated Certificate of Incorporation of the
Corporation and has been adopted and approved in accordance with Section 242 of
the General Corporation Laws of the State of Delaware.
3. Section 4.6.2(d)(i) (2) of Article 4 of the Restated Certificate of
Incorporation is hereby amended to read in its entirety as follows:
"Series D Original Issue Date" shall mean, as to any share of Series D
Preferred Stock, the date such share was issued by the Corporation.
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Amendment to the Restated Certificate of Incorporation to be executed in its
corporate name by its Senior Vice President this 6th day of May, 1999.
/s/ Jane Kober
---------------------------
Name: Jane Kober
Title: Senior Vice President
<PAGE> 1
EXHIBIT 3(ii).1
BY-LAWS
OF
BIOPURE CORPORATION
(AS AMENDED JUNE 24, 1999)
ARTICLE I
OFFICES
1. Registered Office. The registered office in the State of Delaware is
the Corporation Service Company, 1013 Centre Rd., in the City of Wilmington, in
the State of Delaware.
2. Other Offices. The Corporation may have other offices, either within
or without the State of Delaware, at such place or places as the Board of
Directors may from time to time appoint or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
1. Annual Meetings. Annual meetings of stockholders for the election of
directors and for such other business as may be stated in the notice of the
meeting shall be held at such place, either within or without the State of
Delaware, and at such time and date as shall be designated by the Board of
Directors.
2. Special Meetings. Special meetings of stockholders may be held at such
place, either within or without the State of Delaware, and at such time and date
as shall be stated in the notice of the meeting. Special meetings of the
stockholders, other than those required by statute, may be called at any time
only by the Chairman of the Board of Directors or by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors. The Board of Directors may postpone, reschedule or cancel any
previously scheduled special meeting.
3. Annual and Special Meeting Procedures. Nominations of persons for
election to the Board of Directors and the proposal of business to be transacted
by the stockholders may be made at an annual meeting of stockholders (a)
pursuant to the Corporation's notice with respect to such meeting, (b) by or at
the direction of the Board of Directors or (c) by any stockholder of record of
the Corporation who was a stockholder of record at the time of the giving of the
notice provided for in the following paragraph, who is entitled to vote at the
meeting and who has complied with the notice procedures set forth in this
section.
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (c) of the foregoing paragraph, (1)
<PAGE> 2
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation, (2) such business must be a proper matter for
stockholder action under the General Corporation Law of the State of Delaware,
(3) if the stockholder, or the beneficial owner on whose behalf any such
proposal or nomination is made, has provided the Corporation with a Solicitation
Notice, as that term is defined in subclause (c)(iii) of this paragraph, such
stockholder or beneficial owner must, in the case of a proposal, have delivered
a proxy statement and form of proxy to holders of at least the percentage of the
Corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the Corporation's
voting shares reasonably believed by such stockholder or beneficial holder to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder, and must, in either case, have included in such materials the
Solicitation Notice and (4) if no Solicitation Notice relating thereto has been
timely provided pursuant to this section, the stockholder or beneficial owner
proposing such business or nomination must not have solicited a number of
proxies sufficient to have required the delivery of such a Solicitation Notice
under this section. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not less
than 45 or more than 75 days prior to the first anniversary (the "Anniversary")
of the date on which the Corporation first mailed its proxy materials for the
preceding year's annual meeting of stockholders; provided, however, that if no
proxy materials were mailed by the Corporation in connection with the preceding
year's annual meeting, or if the date of the annual meeting is advanced more
than 30 days prior to or delayed by more than 30 days after the anniversary of
the preceding year's annual meeting, notice by the stockholder to be timely must
be so delivered not later than the close of business on the later of (i) the
90th day prior to such annual meeting or (ii) the 10th day following the day on
which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person as would be required to be disclosed in solicitations of
proxies for the election of such nominees as directors pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and such person's written consent to serve as a director if elected; (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of such business, the reasons for conducting such business at
the meeting and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made; (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, (ii) the class and number of shares of the Corporation that are owned
beneficially and of record by such stockholder and such beneficial owner, and
(iii) whether either such stockholder or beneficial owner intends to deliver a
proxy statement and form of proxy to holders of, in the case of a proposal, at
least the percentage of the Corporation's voting shares required under
applicable law to carry
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<PAGE> 3
the proposal or, in the case of a nomination or nominations, a sufficient number
of holders of the Corporation's voting shares to elect such nominee or nominees
(an affirmative statement of such intent, a "Solicitation Notice").
Notwithstanding anything in the second sentence of the second paragraph
of this Section 3 to the contrary, in the event that the number of directors to
be elected to the Board of Directors is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board made by the Corporation at least 55 days prior to the
Anniversary, a stockholder's notice required by this Bylaw shall also be
considered timely but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
Only persons nominated in accordance with the procedures set forth in
this Section 3 shall be eligible to serve as directors and only such business
shall be conducted at an annual meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
section. The chair of the meeting shall have the power and the duty to determine
whether a nomination or any business proposed to be brought before the meeting
has been made in accordance with the procedures set forth in these By-laws and,
if any proposed nomination or business is not in compliance with these By-laws,
to declare that such defective proposed business or nomination shall not be
presented for stockholder action at the meeting and shall be disregarded.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board of Directors or (b) by any stockholder of
record of the Corporation who is a stockholder of record at the time of giving
of notice provided for in this paragraph, who shall be entitled to vote at the
meeting and who complies with the applicable notice procedures set forth in this
Section 3. Nominations by stockholders of persons for election to the Board of
Directors may be made at such a special meeting of stockholders if the
stockholder's notice required by the second paragraph of this Section 3 shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the later of the 90th day prior to such
special meeting or the 10th day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board to be elected at such meeting.
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For purposes of this section, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press or a
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this Section 3, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to matters set forth in this
Section 3. Nothing in this Section 3 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
5. Time Periods.
In applying any provision of these By-laws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
6. Voting. Each stockholder entitled to vote in accordance with the terms
of the Restated Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to such number of votes as
provided in the Restated Certificate of Incorporation, in person or by proxy,
for each share of stock entitled to vote held by such stockholder, but no proxy
shall be voted after three years from its date unless such proxy provides for a
longer period. Upon the demand of any stockholder, the vote for directors and
the vote upon any question before the meeting shall be by ballot. At all
meetings of stockholders, all matters, except for the election of directors and
except as otherwise provided by law, the Restated Certificate of Incorporation
or these By-laws, shall be determined by the affirmative vote of the holders
entitled to cast a majority of the votes entitled to be cast in respect of the
shares present in person or by proxy and entitled to vote on the subject matter.
Directors shall be elected by a plurality of the votes cast at the annual
meeting of stockholders.
7. Voting List. A complete list of the stockholders entitled to vote at
the ensuing election of directors, arranged in alphabetical order showing the
address of each stockholder and the number of shares held by each stockholder,
shall be open to
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the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
8. Quorum. Except as otherwise required by law, the Restated Certificate
of Incorporation or these By-Laws, the presence, in person or by proxy, of
stockholders entitled to cast a majority of the votes entitled to be cast in
respect of all outstanding shares of stock of the Corporation shall constitute a
quorum at all meetings of the stockholders. In case a quorum shall not be
present at any meeting, the Chairman of the Board, the President or other person
entitled to chair the meeting or a majority in voting interest of the
stockholders entitled to vote thereat, present in person or by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
noticed.
9. Notice of Meetings. Written notice, stating the place, date and time
of the meeting, and the general nature of the business to be considered, shall
be given to each stockholder entitled to vote thereat at his address as it
appears on the records of the Corporation, not less than ten nor more than sixty
days before the date of the meeting. No business other than that stated in the
notice shall be transacted at any special meeting without the unanimous consent
of all the stockholders entitled to vote thereat.
ARTICLE III
DIRECTORS
1. Number and Term. The business and affairs of the Corporation shall be
managed by or under a Board of Directors consisting of five or more directors,
the number thereof to be determined from time to time by the Board. Subject to
the Restated Certificate of Incorporation, the directors shall be elected at the
annual meeting of the stockholders, and each director shall be elected to serve
until his successor shall be elected and shall qualify or until the director's
earlier resignation or removal. Directors need not be stockholders.
2. Resignations. Any director may resign at any time. Such resignation
shall be made in writing, and shall take effect at the time specified therein,
and if no time be specified, at the time of its receipt by the Chairman of the
Board of
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Directors, if one be elected, the President or the Secretary. The acceptance of
a resignation shall not be necessary to make it effective, unless so specified
therein.
3. Vacancies. Subject to the Restated Certificate of Incorporation, if
the office of any director becomes vacant for any reason, including but not
limited to newly created directorships resulting from any increase in the number
of directors within the limits provided for by Section l of this Article III,
the remaining directors in office, though less than a quorum, by a majority vote
may appoint any qualified person to fill such vacancy, who shall hold office for
the unexpired term and until his or her successor shall be duly chosen.
4. Powers. The Board of Directors shall exercise all of the powers of the
Corporation except such as are by law, the Restated Certificate of Incorporation
or these By-Laws conferred upon or reserved to the stockholders.
5. Meetings. Regular meetings of the directors may be held without notice
at such places and times as shall be determined from time to time by resolution
of the directors. Special meetings of the Board of Directors may be called by
the Chairman of the Board or the President or by the Secretary on the written
request of any two directors on at least two days' notice to each director and
shall be held at such place or places as may be determined by the directors, or
as shall be stated in the call of the meeting. Notice of a meeting need not be
given to any director who submits a signed waiver of notice before or after the
meeting, nor to any director who attends the meeting without protesting the lack
of notice either prior to the meeting or at its commencement.
6. Quorum. A majority of the total number of directors shall constitute a
quorum for the transaction of business, and the acts of a majority of the
directors present at a meeting at which a quorum is present shall be the acts of
the Board of Directors, unless otherwise provided by law, the Restated
Certificate of Incorporation or these By-Laws. If at any meeting of the Board of
Directors there shall be less than a quorum present, a majority of those present
may adjourn the meeting from time to time until a quorum is obtained, and no
further notice thereof need be given other than by announcement at the meeting
which shall be so adjourned.
7. Compensation. The Board of Directors may establish by resolution
reasonable compensation of all directors for services to the Corporation as
directors. Nothing herein contained shall be construed to preclude any director
from serving the Corporation in any other capacity as an officer, agent or
otherwise, and receiving compensation therefor. Each director shall be entitled
to be reimbursed by the Corporation for such transportation and other expenses
actually and reasonably incurred by him or her in attending a meeting and in
traveling to and from such meeting.
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8. Action Without Meeting. Any action required or permitted to be taken
at any meeting of the Board of Directors, or of any committee thereof, may be
taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and such written
consent is filed with the minutes of the proceedings of the Board of Directors
or the committee, as the case may be.
9. Participation in Meeting by Telephone. Any one or more members of the
Board of Directors or any committee thereof may participate in a meeting of the
Board of Directors or any committee thereof by means of a conference telephone
or similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at such meeting.
ARTICLE IV
COMMITTEES
1. Committees. The Board of Directors, by resolution passed by a majority
of the entire board, may designate one (1) or more committees of the Board of
Directors, each consisting of two (2) or more directors. To the extent provided
in the resolution, and permitted by law, the committee or committees shall have
and may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation. Any committee or committees shall have
the name or names determined from time to time by resolution adopted by the
Board of Directors. Any vacancy in a committee occurring from any cause
whatsoever may be filled by the Board of Directors.
The Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The By-laws may provide that for the absence or disqualification
of a member of a committee, the member or members present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to sit
at the meeting in the place of any such absent or disqualified member.
2. Resignation. Any member of a committee may resign at any time upon
notice to the Board of Directors. Such resignation shall be made in writing and
shall take effect at the time specified therein, or, if no time be specified, at
the time of its receipt by the Chairman of the Board of Directors, if one be
elected, the President or the Secretary. The acceptance of a resignation shall
not be necessary to make it effective unless so specified therein.
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3. Quorum. A majority of the members of a committee shall constitute a
quorum. The act of a majority of the members of a committee present at any
meeting at which a quorum is present shall be the act of such committee. The
members of a committee shall act only as a committee, and the individual members
thereof shall have no powers as such.
4. Record of Proceedings. Each committee shall keep a record of its acts
and proceedings and shall report the same to the Board of Directors when and as
required by the Board of Directors.
5. Organization, Meetings, Notices. A committee may hold its meetings at
the principal office of the Corporation, or at any other place upon which a
majority of the committee may at any time agree. Each committee may make such
rules as it may deem expedient for the regulation and carrying on of its
meetings and proceedings. Any notice of a meeting of such Committee may be given
by the Secretary of the Corporation or by the chairman of the Committee and
shall be sufficiently given if given to each member at least two (2) days before
the day on which the meeting is to be held. Notice of a meeting need not be
given to any member who submits a signed waiver of notice before or after the
meeting, nor to any director who attends the meeting without protesting the lack
of notice prior to the meeting or at its commencement.
6. Compensation. The members of any committee shall be entitled to such
compensation as may be allowed them by resolution of the Board of Directors.
ARTICLE V
OFFICERS
1. Officers. The officers of the Corporation shall be a Chief Executive
Officer, a President and a Secretary, all of whom shall be elected by the Board
of Directors and who shall, except as provided herein, hold office until their
successors are elected and qualified or until their earlier resignation or
removal. In addition, the Board of Directors may elect a Chairman of the Board
of Directors, a Treasurer, one or more Vice-Presidents and such other officers
as it deems proper. None of the officers of the Corporation need be directors.
The officers shall be elected at the first meeting of the Board of Directors
after each annual meeting. Any two or more offices may be held by the same
person. The Board of Directors may fill any vacancy which may occur in any
office.
2. Removal of Officers. Any officer of the Corporation may be removed
from office, for or without cause, by a vote of a majority of the Board of
Directors.
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<PAGE> 9
3. Resignation. Any officer of the Corporation may resign at any time
upon notice to the Corporation. Such resignation shall be in writing and shall
take effect at the time specified therein, and if no time be specified, at the
time of its receipt by the Chairman of the Board of Directors, if one be
elected, the President or the Secretary. The acceptance of a resignation shall
not be necessary in order to make it effective, unless so specified therein.
4. Other Officers and Agents. The Board of Directors may appoint such
other officers and agents as it may deem advisable, who shall hold their offices
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board of Directors.
5. Chairman of the Board of Directors. The Chairman of the Board of
Directors, if one be elected, shall preside at all meetings of the Board of
Directors and shall have and perform such other duties as from time to time may
be assigned to him or her by the Board of Directors.
6. Chief Executive Officer. The Chief Executive Officer shall be the
chief executive officer of the Corporation and shall have the general powers and
duties of supervision and management usually vested in the office of chief
executive officer of a corporation. The Chief Executive Officer shall preside at
all meetings of the stockholders if present thereat, and, in the absence or
non-election of the Chairman of the Board of Directors, at all meetings of the
Board of Directors.
7. President. The President shall be the chief operating officer of the
Company and shall have general supervision, direction and control of the
business of the Corporation. Except as the Board of Directors shall authorize
the execution thereof in some other manner, the President shall execute bonds,
mortgages and other contracts on behalf of the Corporation.
8. Vice-President. Each Vice-President shall have such powers and shall
perform such duties as shall be assigned to him or her by the Board of
Directors.
9. Treasurer. The Treasurer, if one be elected, shall have the custody of
the corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. The Treasurer,
if one be elected, shall deposit all moneys and other valuables in the name and
to the credit of the Corporation in such depositories as may be designated by
the Board of Directors. The Treasurer, if one be elected, shall disburse the
funds of the Corporation as may be ordered by the Board of Directors or the
President, taking proper vouchers for such disbursements. The Treasurer, if one
be elected, shall render to the President and Board of Directors at the regular
meetings of the Board of Directors, or whenever they may request it, an account
of all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer, if one
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<PAGE> 10
be elected, shall give the Corporation a bond for the faithful discharge of his
or her duties in such amount and with such surety as the Board of Directors
shall prescribe.
10. Secretary. The Secretary shall give, or cause to be given, notice of
all meetings of stockholders and directors, and all other notices required by
law or by these By-Laws, and in case of his or her absence or refusal or neglect
to do so, any such notice may be given by any person thereunto directed by the
President or the Board of Directors as provided in these By-Laws. The Secretary
shall attend all meetings of the Board of Directors and of the stockholders and
shall record all votes and the minutes of all the proceedings of such meetings
in a book to be kept for that purpose, and shall perform like duties for any
committee appointed by the Board of Directors. The Secretary shall perform such
other duties as may be assigned to him or her by the Board of Directors or the
President.
11. Assistant Treasurers and Assistant Secretaries. Assistant Treasurers
and Assistant Secretaries, if any, shall have such powers and shall perform such
duties as shall be assigned to them, respectively, by the Board of Directors.
ARTICLE VI
MISCELLANEOUS
1. Certificate of Stock. Certificates representing stock in the
Corporation shall be signed by the Chairman of the Board of Directors, if one be
elected, the President or one of the Vice-Presidents and the Treasurer or an
Assistant Treasurer, or Secretary or an Assistant Secretary, and shall be issued
to each stockholder certifying the number of shares owned by him in the
Corporation. Any or all of the signatures on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she was such
officer, transfer agent or registrar at the date of issue.
2. Lost Certificates. A new certificate of stock may be issued in the
place of any certificate, theretofore issued by the Corporation, alleged to have
been lost, stolen or destroyed, and the Board of Directors may, in their
discretion, require the owner of the lost, stolen or destroyed certificate or
his legal representative to give the Corporation a bond, in such sum as they may
direct, not exceeding double the value of the stock, to indemnify the
Corporation against any claim that may be made against the Corporation by reason
of the issue of such new certificate and against any other liability in the
premises, or may remit such holder to such remedy or remedies as the holder may
have under the laws of the State of Delaware.
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<PAGE> 11
3. Transfer of Shares. The shares of stock of the Corporation shall be
transferable only upon its books by the holders thereof in person or by their
duly authorized attorneys or legal representatives, and upon such transfer the
old certificates shall be surrendered to the Corporation by the delivery thereof
to the person in charge of the stock and transfer books and ledgers, or to such
other person as the Board of Directors may designate, by whom such certificates
shall be canceled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
4. Stockholders' Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors and which shall not be more
than sixty nor less than ten days before the date of any meeting of
stockholders, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
5. Dividends. Subject to any restrictions contained in the Restated
Certificate of Incorporation, the Board of Directors may, out of funds legally
available therefor, at any regular or special meeting declare dividends upon the
capital stock of the Corporation. Before declaring any dividend there may be set
apart out of any funds of the Corporation available for dividends, such sum or
sums as the directors from time to time in their discretion deem proper for
working capital or as a reserve fund to meet contingencies or for equalizing
dividends or for such other purposes as the directors shall deem conducive to
the interests of the Corporation.
6. Fiscal Year. The fiscal year of the Corporation shall be determined by
resolution of the Board of Directors.
7. Checks. All checks, drafts or other orders for the payment of money,
notes or other evidences of indebtedness issued in the name of the Corporation
shall be signed by such officer or officers, agent or agents of the Corporation,
and in such manner as shall be determined from time to time by resolution of the
Board of Directors.
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<PAGE> 12
8. Notice and Waiver of Notice. Whenever any notice is required by these
By-Laws to be given, personal notice is not meant unless expressly so stated,
and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage prepaid, addressed to the
person entitled thereto at his or her address as it appears on the records of
the Corporation, and such notice shall be deemed to have been given on the day
of such mailing. Stockholders not entitled to vote shall not be entitled to
receive notice of any meetings except as otherwise provided by statute. Whenever
any notice is required to be given under the provisions of any law, or under the
provisions of the Restated Certificate of Incorporation or these By-Laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE VII
AMENDMENTS
1. By Shareholders. These By-Laws may be amended or repealed at any
annual meeting of the stockholders or at any special meeting thereof, if notice
of the proposed amendment or repeal to be made is contained in the notice of
such special meeting; provided, however, that, in addition to any vote of the
holders of any class or series of stock of the Corporation required by law or by
the Restated Certificate of Incorporation, the affirmative vote of the holders
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to adopt, amend or repeal any provision of the
By-Laws of the Corporation.
2. By Directors. The Board of Directors is expressly empowered to adopt,
amend or repeal the By-Laws of the Corporation. Any adoption, amendment or
repeal of the By-Laws of the Corporation by the Board of Directors shall require
the approval of a majority of the Whole Board. For purposes of this Section, the
term "Whole Board" shall mean the total number of authorized directors whether
or not there exist any vacancies in previously authorized directorships.
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<PAGE> 13
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnities in connection therewith; provided, however, that, except as provided
in Section 3 of this ARTICLE VIII with respect to proceedings to enforce rights
to indemnification, the Corporation shall indemnify any such indemnities in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
2. Right to Advancement of Expenses.
The right to indemnification conferred in Section 1 of this ARTICLE VIII
shall include the right to be paid by the Corporation the expenses (including
attorney's fees) incurred in defending any such proceeding in advance of its
final disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section 2 or otherwise. The rights to indemnification and to
the
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<PAGE> 14
advancement of expenses conferred in Sections 1 and 2 of this ARTICLE VIII shall
be contract rights and such rights shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
3. Right of Indemnitee to Bring Suit.
If a claim under Section 1 or 2 of this ARTICLE VIII is not paid in full
by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty (20) days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this ARTICLE VIII or otherwise shall be on the
Corporation.
4. Non-Exclusivity of Rights.
The rights to indemnification and to the advancement of expenses
conferred in this ARTICLE VIII shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Restated Certificate of Incorporation, By-Laws, agreement, vote of stockholders
or disinterested directors or otherwise.
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<PAGE> 15
5. Insurance.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
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<PAGE> 1
AGREEMENT OF SETTLEMENT
AND MUTUAL GENERAL RELEASE
This Agreement is made December 19, 1996 by and among, on the one hand,
Biopure Corporation ("Biopure") and Biopure Associates Limited Partnership
("BALP") (collectively called "the Biopure Parties" herein), and, on the other
hand, Credit Francais International, S.A. ("CFI").
Whereas, CFI, the Biopure Parties, together with Peter Fisher and Balfour
Holdings, Inc. (together referred to as "Fisher"), are parties in consolidated
actions in the United States District Court for the District of Massachusetts,
Civil Actions No. 90-11775-T and No. 90-12688-T (the "Actions") in which CFI has
sought, among other things, the restitution of funds that were fraudulently
obtained from it by William Trainor and others, and in which Fisher has sought,
among other things, a share or portion of this restitution pursuant to an
alleged joint venture ("the Fisher Claims") and in which the Biopure Parties
have sought, among other things, the restitution of certain license rights and
equity interests allegedly fraudulently obtained from them by William Trainor
and others; and
Whereas, the Biopure Parties, on the one hand, and CFI, on the other,
under the circumstances giving rise to these Actions, and subject to the terms
and conditions set forth below, now wish to confirm the rescission of the
agreements described in paragraphs 2 and 3 below and provide restitution to the
undersigned parties to the extent feasible by way of a compromise and settlement
of all claims that have been or might have been brought by either against the
other;
Now therefore, the Biopure Parties and CFI hereby agree as follows:
1. Biopure and BALP agree to pay CFI three hundred thousand dollars
($300,000) (the "License Payment") on December 20, 1996 payable in cash.
2. In consideration for the License Payments and upon receipt of the same,
CFI shall, by operation of this agreement, relinquish and assign to BALP and
Biopure any and all right to product licenses for hemoglobin-based products in
any country regardless and notwithstanding the extent or percentage of such
right, under any and all agreements and
<PAGE> 2
purported agreements, written or oral, executed or in draft form, originally
between any Biopure Party and any party or affiliate of a party included in the
term "Other Parties" as defined in paragraph 9 below, including without
limitation the Investment Agreement ("Investment Agreement") and the License
Agreement, both of which are dated January 29, 1990, and all other agreements
that are the subject matter of either of the Actions.
3. Upon either the expiration of the time to appeal a decision granting
any motion for summary judgment or comparable motion seeking dismissal of the
Fisher Claims pursuant to Paragraph 8 below without any appeal being filed, or,
if such decision dismissing the Fisher Claims is appealed, upon affirmance of
the dismissal of the Fisher Claims by the United States Court of Appeals for the
First Circuit (hereinafter "Final Dismissal"), and upon receipt by CFI of all
payments by the Biopure Parties pursuant to paragraphs 1, 5(a) and 5(b), CFI
shall, by operation of this agreement, relinquish and assign to BALP and to
Biopure as their interests may appear: any and all right, title and interest of
CFI in and to any limited partnership interest in BALP or equity interest in
Biopure, or any other claim, interest or right that CFI may have as against
Biopure or BALP by reason of the June 28, 1994 Memorandum and Order of Senior
Judge Watson in the Action, including without limitation, a BALP interest
convertible into 350,000 shares of Common Stock, par value $.01 per share, of
Biopure for which $1,250,000 was paid and services were rendered pursuant to a
Purchase and Sale of Limited Partnership Interest Agreement (dated January 29,
1990), the License Agreement and the Investment Agreement by and among Biopure,
BALP and Bio-Vita, Ltd.
4. CFI agrees to dismiss its claims against the Biopure Parties, without
prejudice, within 30 days of the execution of this agreement, and the parties
shall commence no action relating to the subject matter of the Agreement against
any other party to this Agreement so long as there is no breach of this
Agreement, subject to the conditions provided in paragraph 8 below.
<PAGE> 3
5. Biopure and BALP agree to pay to CFI the following (subject to the
provisions of paragraph 8 and the Escrow Agreement referenced therein):
(a) Two million three hundred thousand dollars ($2,300,000) in three
equal installments, plus interest on this amount calculated at the rate of
6% per annum from June 1, 1995 until fully paid (the "Buy Back Payments"),
payable in cash as follows (subject to the provisions set forth in
paragraphs 7 and 8 below): (i) $1,081,383.34 on August 31, 1997 (which
amount constitutes one-third of the principal ($766,666.67) and interest
on the $2,300,000 from June 1, 1995 until August 31, 1997); (ii)
$797,333.33 on December 31, 1997 (which amount constitutes one-third of
the principal ($766,666.67) and interest on the outstanding principal from
August 31, 1997 until December 31, 1997); and (iii) $778,166.67 on March
31, 1998 (which amount constitutes one-third of the principal
($766,666.66) and interest on the outstanding principal from December 31,
1997 until March 31, 1998).
(b) Seven hundred and fifty thousand dollars ($750,00O), plus
interest on this amount at the rate of 6% per annum from October 1, 1995,
until fully paid (the "Reimbursement Payments"), payable in cash as
follows (subject to the provisions set forth in paragraphs 6 and 7 below):
(i) $337,500 on August 31, 1997 (which amount constitutes one-third of the
principal ($250,000) and interest on the $750,000 from October 1, 1995
until August 31, 1997); (ii) $260,000 on December 31, 1997 (which amount
constitutes one-third of the principal ($250,000) and interest on the
outstanding principal from August 31, 1997 until December 31, 1997); and
(iii) $253,750 on March 31, 1998 (which amount constitutes one-third of
the principal ($250,000) and interest on the outstanding principal from
December 31, 1997 until March 31, 1998).
(c) If the Biopure Parties fail to make any payment to CFI as
required by paragraphs 1, 5(a) and 5(b) within five calendar days of the
deadlines set forth therein, CFI shall have the option of (1) enforcing
this Agreement; (2) reinstituting the Action; or (3) accepting late
payment of any such payment, in which case interest shall accrue at 6%
from the date payment was due until the day before payment is sent to CFI
by the Biopure Parties.
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<PAGE> 4
6. Upon execution of this agreement, Biopure, by operation of this
Agreement, shall assign to CFI all of Biopure's right, title and interest in and
to certain equipment listed in Schedule A located in Guatemala ("the
Equipment"), the purchase price of which was paid by Biopure and not reimbursed
(but as to which Equipment Biopure makes no representations or warranties
whatsoever, including title).
7. Biopure and BALP may prepay the Buy Back Payments and the Reimbursement
Payments without penalty and such prepayments will be accepted by CFI, provided,
however, that any prepayment shall be made only on the first day of the month
and shall consist of the principal and interest for that day as set forth under
the Outstanding Balance Due column of Schedules B and C attached to this
agreement and incorporated herein.
8. The parties agree to file motions for summary judgment or comparable
motions ("the Motions") seeking dismissal of the Fisher Claims as soon as
practicable after this Agreement is executed. In the event that Final Dismissal
does not occur by the time the first Buy Back Payment or Reimbursement Payment
comes due, then Biopure and BALP shall make those payments as they become due to
an escrow account established by the parties to this agreement pursuant to a
separately executed Escrow Agreement substantially in the form attached to this
agreement as Exhibit 1 and incorporated herein as part of this agreement. Within
seven (7) days of Final Dismissal of the Fisher Claims, the parties shall cause
the funds held pursuant to the Escrow Agreement to be paid to CFI in accordance
with paragraph 6 of the Escrow Agreement. In the event the Fisher Claims are not
dismissed as a result of the filing of the Motions, or a judgment dismissing the
Fisher Claims is reversed, remanded or vacated by the United States Court of
Appeals for the First Circuit, then (i) the parties shall cause the funds to be
returned to the Biopure Parties in accordance with paragraph 7 of the Escrow
Agreement; (ii) the Biopure Parties shall not have any obligation to pay CFI any
amount under this Agreement, except as provided under paragraph 1 above; and
(iii) CFI may seek leave to reinstate its claims asserted in the Actions or to
file a new action based on any claim raised in them, and the Biopure Parties
hereby waive any opposition or challenge to the reinstatement or new filing on
grounds the statute of limitations has run, laches, or on any other grounds
relating to the passage of time or the voluntary dismissal of the action
pursuant to this Agreement. The parties further agree that the payment of the
License Payment and the assignment of
4
<PAGE> 5
the License rights to the Biopure Parties are final notwithstanding any further
adjudication of the Fisher Claims, any subsequent breach of this Agreement or
declaration that it is invalid in any other respect.
9. The Biopure Parties and Carl W. Rausch ("Rausch"), on their own
respective behalfs and on behalf of their respective executors, administrators,
legal or personal representatives, affiliates, successors or assigns, on the one
hand, and CFI, on its own behalf, and on behalf of its affiliates, successors
and assigns, on the other hand, do hereby mutually and reciprocally remise,
release and forever discharge each other and the respective administrators,
executors, legal or personal representatives, successors and assigns of each
other, of and from all, and all manner of, actions, causes of action, suits,
debts, dues, sums of money, accounts, reckonings, covenants, contracts,
controversies, agreements, promises, commissions, damages, judgments, extents,
executions, claims, third-party claims and demands whatsoever in law or in
equity that they or either of them ever had, now has, or that they or their
administrators, executors, legal or personal representatives, successors and
assigns hereafter can or may have, by reason of any act, omission, matter, cause
or thing whatsoever occurring at any time prior to the execution of these
presents, whether known or unknown, suspected or unsuspected, foreseen or
unforeseen, liquidated or unliquidated, matured or unmatured, including, without
limitation, all claims which are or could be asserted by them in the Actions.
This reciprocal general release is specifically conditioned upon and does not
become effective until CFI has actually received final payment of all the
License Payment, the Buy Back Payments, and the Reimbursement Payments
(collectively the "Settlement Payments"). Upon CFI's actual receipt of the
Settlement Payments, its voluntary dismissal of its claims in the Actions will
be with prejudice. This release does not affect any rights or relationships
among the Biopure Parties inter sese. This reciprocal general release shall not
limit the respective rights of the parties to enforce the terms of this
Agreement, nor shall it operate to release or impair any claim that CFI or any
of the Biopure Parties or Rausch may have against any party to either of the
Actions (including Fisher or Ideal Environmental Systems, Inc., which has sought
to assert claims in the Actions) who is not a party to this Agreement
(collectively the "Other Parties"). If this release among the present parties
would have that unintended effect, as to that claim or claims this release shall
be and operate as a covenant not to sue only.
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<PAGE> 6
10. No person other than the parties signatory to this Agreement shall be
deemed a beneficiary of this Agreement with the sole exception of Rausch who the
parties agree is a party to and a beneficiary of the mutual general release set
forth in paragraph 9.
11. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts applicable to agreements made in and wholly to be
performed within the Commonwealth of Massachusetts. The United States District
Court for the District of Massachusetts shall have exclusive jurisdiction over
any dispute or enforcement action arising out of this agreement or the Escrow
Agreement, and each of the parties hereto submits to the jurisdiction of that
Court for that purpose.
12. Any notice given hereunder shall be given in writing as follows:
Any Biopure Party:
c/o Carl W. Rausch
Biopure Corporation
11 Hurley Street
Cambridge, MA 02141
CFI:
c/o Conway Von Girsewald
970 Andora Avenue
Miami, FL 33146
13. The parties represent that this instrument represents the entire
agreement of the parties with regard to the subject matter hereof, that there
are no other representations or warranties regarding the subject matter of this
instrument except those expressly set forth in this instrument, and that this
instrument supersedes all prior agreements and understandings, express or
implied, written or oral. Any modification of this agreement may be made only by
an instrument in writing signed by the parties hereto or their duly authorized
representatives.
14. The parties warrant that they have read this agreement, that they
intend to be legally bound by it, that they have sought and obtained the advice
of their respective counsel in regards to this agreement and that they have the
full right, power, authority, and capacity to enter into and execute this
agreement.
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<PAGE> 7
15. Nothing contained in this agreement or any other agreement or
instrument delivered by any party shall constitute an admission that any party
is, or ever was, liable to the other party or has committed or done any of the
acts or things alleged by the other party concerning the matters raised or which
could have been raised in connection with or arising out of the Actions.
16. The parties may disclose this agreement, the Escrow Agreement and
their terms to the Court or to any party in the Actions, and any appeals
therefrom. The parties further agree that this agreement, the Escrow Agreement
and their terms shall be kept confidential by the parties as to all others
except as necessary to persons with a legitimate need to know. CFI agrees that
CFI will not disclose this agreement, the Escrow Agreement or their terms to any
party which participates in, or seeks to participate in, the market for medical
or biological products. However, if CFI determines that it is necessary to make
such disclosure to a party participating in, or seeking to participate in, the
market for medical or biological products, CFI shall seek the consent of the
Biopure Parties and such consent may not be unreasonably withheld.
CREDIT FRANCAIS INTERNATIONAL, S.A.
By: /s/ Giles Duret
----------------------------------
Title: Director
BIOPURE CORPORATION
By: /s/ Carl W. Rausch
----------------------------------
Title:
BIOPURE ASSOCIATES LIMITED PARTNERSHIP
By: /s/ Carl W. Rausch
----------------------------------
General Partner
7
<PAGE> 8
27-JUL-94 GUATEQIP
SCHEDULE "A"
BIOPURE CORPORATION
LISTING OF GUATEMALA EQUIPMENT
<TABLE>
<CAPTION>
Invoice Purchase
Equipment Description Vendor Serial # Date Price
- --------------------- ------ ------- ---- -----
<S> <C> <C> <C> <C>
7 Liter Reactor Appilkon 01/18/90 $3,573
Pump Aries Medical, Inc. Mthly 20,415
503 S 170rpm Drive Bacon Technical Industries 133814 01/26/90 1,394
3 - 640U/R 165rpm Bacon Technical Industries 139303,4&5 01/19/90 8,231
RCS Air Sampler Biotest 7945 01/22/90 1,734
Tube Sealer Engineering & Research Assoc 10901573 01/18/90 2,093
BAL EL PM200 115/230V Fisher Scientific 01/24/90 1,549
Conductivity Meter Fisher Scientific 01/26/90 961
Model 200L w/Probe Met One, Inc. 90023665 01/23/90 8,698
MC2 2 Speed Rotor Wheaton 01/23/90 2,011
2 Clean Rooms Envirco 01/23/90 32,598
Getinge Autoclave Healthstar, Inc. 34702 01/18/90 27,500
286 Computer & Printer Alpine Computer Systems 01/30/90 2,889
Balance A-160 Fisher Scientific 01/30/90 1,579
Balance EL GT8000 Fisher Scientific 02/02/90 1,259
Bath Shaking Small 120V Fisher Scientific 01/30/90 1,496
Glassware Washer Fisher Scientific 01/31/90 2,756
SCD Device Haemonetics 50809 02/06/90 7,933
Olympus Microscope Micro-Tech Optical TBHTU001A 02/07/90 6,272
CFT-75A PD2 230/60 NESLAB Instrument 02/08/90 2,371
PH Meter Radiometer 92R16N23 02/13/90 6,287
PH Meter Radiometer 92R16N23 02/07/90 3,307
Spectra 21 DV VWR Scientific 02/08/90 2,368
MCC/34O Mark II Flow Laboratories 02/09/90 12,812
Centrifuge 120V 50/60HZ Fisher Scientific 01/29/90 7,176
Refurb Demo DDW Marquette Electronics FE4736997605 02/23/90 6,060
Vaponics Still Model #ST1-5 Healthstar, Inc. 048421352-1 01/25/90 9,500
Computer and Word Perfect Alpine Computer Systems 02/28/90 2,982
Power Base Fisher Scientific 02/28/90 987
7010RA Monitor Marquette Leasing Mthly 99,239
Air Sampler New Brunswick Scientific 090119835 02/26/90 3,055
PACS 50 Base Unit Getinge International 02/22/90 2,134
2 8" X 24" TFE Pipe Spools AMSCO Sales 03/13/90 6,520
Filtration Beds Kaloyanides & Assoc. 03/15/90 12,288
Analyzer Stat Profile Nova Biomedical Mthly 2,539
Used LAL - 5000 Assoc. of Cape Cod 91-021 04/26/90 7,672
Tube Sealer Engineering & Research Assoc 10901611 04/26/90 2,106
Data SIM 6000 w/CO Module Marquette Electronics 02/14/90 2,062
----------------------------------------------------------------
TOTAL PURCHASE PRICE OF EQUIPMENT $326,407
================================================================
</TABLE>
<PAGE> 9
SCHEDULE B
Principal: $2,300,000
Interest: 6% from June 1, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Date Principal Required Interest Outstanding Required
Balance Principal Balance Balance for Payment
Installments Prepayment
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/97 $2,300,000.00 $766,666.67 $314,716.67 $2,614,716.67 $1,081,383.34
09/31/97 $1,533,333.33 $7,666.67 $1,541,000.00
10/31/97 $1,533,333.33 $15,333.33 $1,548,666.66
11/31/97 $1,533,333.33 $23,000.00 $1,556,333.33
12/31/97 $1,533,333.33 $766,666.67 $30,666.67 $1,564,000.00 $797,333.33
01/31/98 $766,666.67 $3,833.33 $770,500.00
02/28/98 $766,666.67 $7,666.67 $774,333.34
03/31/98 $766,666.67 $766,666.67 $11,500.00 $778,166.67 $778,166.67
04/30/98 $0.00 $0.00 $0.00 $0.00 $0.00
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE> 10
SCHEDULE C
Principal: $750,000
Interest: 6% from October 1, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Date Principal Required Interest Outstanding Required
Balance Principal Balance Balance for Payment
Installments Prepayment
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/97 $750,000.00 $250,000.00 $87,500.00 $837,500.00 $337,500.00
09/31/97 $500,000.00 $2,500.00 $502,500.00
10/31/97 $500,000.00 $5,000.00 $505,000.00
11/31/97 $500,000.00 $7,500.00 $507,500.00
12/31/97 $500,000.00 $250,000.00 $10,000.00 $510,000.00 $260,000.00
01/31/98 $250,000.00 $1,250.00 $251,250.00
02/28/98 $250,000.00 $2,500.00 $252,500.00
03/31/98 $250,000.00 $250,000.00 $3,750.00 $253,750.00 $253,750.00
04/30/98 $0.00 $0.00 $0.00 $0.00 $0.00
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
EXHIBIT "1"
ESCROW AGREEMENT
This Escrow Agreement is made and entered into this 19th day of December,
1996 by and between Biopure Corporation and Biopure Associates Limited
Partnership (collectively, "Biopure"), on the one hand, and Credit Francais
International, S.A. ("CFI"), on the other hand.
WHEREAS, Biopure and CFI have entered an Agreement of Settlement and
Mutual General Release dated December 19th, 1996 (the "Agreement") to confirm
the rescission of certain agreements described in paragraphs two and three of
the Agreement and to provide restitution to CFI and Biopure, subject to the
terms and conditions set forth in the Agreement and in this Escrow Agreement,
which is incorporated in and part of the Agreement;
WHEREAS, the Agreement is a compromise and settlement of all claims that
have been or might have been brought by and between Biopure and CFI, including,
without limitation, all claims which were awarded to CFI pursuant to the
Memorandum Opinion and Order of the United States District Court (Watson, J.)
dated June 28, 1994 in the consolidated actions, C.A. No 90-11775-T and C.A. No.
90-12688-T (hereafter, the "Consolidated Action");
WHEREAS, the Agreement provides that certain funds may be paid by Biopure
to CFI, in the amounts and on the dates set forth in paragraph five of the
Agreement, but that those amounts may be paid into escrow and thereafter
released to CFI or Biopure under certain circumstances;
NOW, THEREFORE, Biopure and CFI, in consideration of the mutual promises
contained in the Agreement and in this Escrow Agreement, further covenant and
agree as follows:
<PAGE> 12
2
1. Deposit of Funds Into Escrow. If as of August 31, 1997, and subsequent
dates on which payments become due, as set forth in paragraph five of the
Agreement, any motion to dismiss, motion for summary judgment or motion seeking
to dispose of the claims of Peter Fisher or Balfour Holding Inc. which has been
filed in the Consolidated Action by Biopure and/or CFI as set forth in paragraph
eight of the Agreement (a "Dispositive Motion") has not been ruled upon by the
District Court or, if any Dispositive Motion has been granted by the District
Court but an appeal of the decision granting the Dispositive Motion is pending
in the United States Court of Appeals for the First Circuit (the "First
Circuit"), then Biopure agrees to make the payments set forth in paragraph five
of the Agreement, as they become due, to an escrow account established as set
forth in paragraph two below. If as of August 31, 1997, any Dispositive Motion
has been denied by the District Court or has been granted by the District Court
but vacated, reversed or remanded by the First Circuit on appeal, then Biopure
has no obligation to make any payment whatsoever under the terms of paragraph
five of the Agreement or under the terms of this Escrow Agreement.
2. The Escrow Account. Biopure agrees to open and to make the deposits
required to be made pursuant to paragraph one above, if any, into an escrow
account to be opened and maintained at Fleet Bank, One Federal Street, Boston,
Massachusetts, or another entity mutually agreed to by the parties (the "Escrow
Account"), with Fleet Bank or the other entity mutually agreed to by the parties
acting as escrow agent (the "Escrow Agent"). Biopure and CFI agree that, unless
otherwise directed in a joint written instruction from Biopure and CFI, the
Escrow Agent shall invest the escrowed funds only in the Escrow Agent's
certificates of
<PAGE> 13
3
deposit having maturity fewer than 180 days, or U.S. government securities
having maturity fewer than 180 days.
3. Payment of the Escrow Agent's Fees. At the time the Escrow Account is
opened, Biopure and CFI agree to share in equal amounts any fees or compensation
required by the Escrow Agent for its normal services in connection with opening
the Escrow Account. Furthermore, unless and until a deposit is required to be
made into the Escrow Account pursuant to paragraph one, Biopure and CFI agree to
pay in equal amounts the expenses of the Escrow Agent, if any, incurred in
connection with the administration of the Escrow Account after it is opened. If
any deposit is required to be made into the Escrow Account pursuant to paragraph
one, then Biopure and CFI agree that the expenses of the Escrow Agent, if any,
incurred after that deposit may be paid out of the balance in the Escrow
Account, and any expenses incurred at the time the Escrow Account is closed may
be paid from the balance of the Escrow Account before it is paid to CFI or
Biopure pursuant to paragraphs six or seven below.
4. Modifications or Additional Documentation Required by the Escrow Agent.
Biopure and CFI agree to modify this Escrow Agreement pursuant to paragraph
twelve below in accordance with the reasonable, future requests of the Escrow
Agent, if any, or to execute any additional documentation reasonably required by
the Escrow Agent in connection with the Escrow Account or this Escrow Agreement.
5. Interest and Taxes. Biopure and CFI agree that any interest earned in
the Escrow Account shall be paid along with the principal balance of the Escrow
Account, to Biopure or CFI, as the case may be, in accordance with paragraphs
six or seven below. Biopure and
<PAGE> 14
4
CFI further agree that any taxes required to be paid on any taxable income
earned by the principal in the Escrow Account before the balance of the Escrow
Account is paid to CFI or Biopure pursuant to paragraphs six or seven below may
be reimbursed by the Escrow Agent from the balance of the Escrow Account to the
party which has paid the taxes or, if possible, paid by the Escrow Agent
directly. Biopure and CFI further agree that any taxes required to be paid on
any taxable income earned by the principal in the Escrow Account after the
balance of the Escrow Account has been paid to CFI or Biopure pursuant to
paragraphs six or seven shall be paid by the party to whom the balance of the
Escrow Account has been paid.
6. Release of Escrow Funds to CFI. If at any time after a payment is made
into the Escrow Account by Biopure, the District Court shall grant any
Dispositive Motion and the time to file an appeal of that decision shall have
expired without the filing of such an appeal, or if an appeal of the decision
granting any Dispositive Motion has been filed and the First Circuit shall
affirm the decision of the District Court granting any Dispositive Motion, then
within seven (7) days of the happening of either of those events, Biopure and
CFI shall jointly instruct the Escrow Agent in writing to release the total
balance of the Escrow Account, less any unpaid reasonable compensation of the
Escrow Agent, to CFI. The Escrow Agent shall release those funds to CFI within
ten business days after the joint notice has been received by the Escrow Agent.
If any payments by Biopure under paragraph five of the Agreement have not become
due as of the time the balance of the Escrow Account is paid to CFI pursuant to
the terms of this paragraph, then Biopure agrees to make
<PAGE> 15
5
those payments in the amounts and on the dates set forth in paragraph five of
the Agreement directly to CFI.
7. Release of Escrow Funds to Biopure. If at any time after a payment is
made into the Escrow Account by Biopure, the District Court shall deny any
Dispositive Motion, or if an appeal of the decision granting any Dispositive
Motion has been filed and the First Circuit shall vacate, reverse or remand that
decision, then within seven (7) days of the happening of either of those events,
Biopure and CFI shall jointly instruct the Escrow Agent in writing to release
the total balance of the Escrow Account, less any unpaid reasonable compensation
of the Escrow Agent, to Biopure. The Escrow Agent shall release those funds to
Biopure within ten business days after the joint notice has been received by the
Escrow Agent. Biopure shall then have no further obligation to make any payment
under paragraph five of the Agreement or under this Escrow Agreement.
8. Resolution of Disputes. In the event that a dispute arises between
Biopure and CFI concerning the instructions to be given to the Escrow Agent
pursuant to paragraphs six or seven above, Biopure and CFI agree to submit that
dispute to the United States District Court for the District of Massachusetts
and Biopure and CFI hereby agree to submit to the jurisdiction of that Court to
resolve any such dispute.
9. No Liability of Escrow Agent. The Escrow Agent can incur no liability,
and cannot be sued in any action, in connection with the discharge of its duties
under this Escrow Agreement. The Escrow Agent's duties hereunder are purely
ministerial in nature and the Escrow Agent shall not be liable for any error of
judgment, fact or law, or any act done or omitted to be done. Biopure and CFI
jointly and severally, agree to
<PAGE> 16
indemnify and hold harmless the Escrow Agent from and against any suits,
actions, charges, liabilities, loss, expense, claims, judgments, obligations or
damages, including without limitation, reasonable attorneys' fees arising out of
or in connection with this Escrow Agreement.
10. Governing Law. This Escrow Agreement shall be effective as a sealed
instrument and shall be governed in all respects by and under the laws of the
Commonwealth of Massachusetts.
11. Counterparts. This Escrow Agreement may be executed in one or more
separate counterparts, each of which shall be an original and all of which
together shall constitute one and the same instrument.
12. Modifications. This Escrow Agreement cannot be modified except by the
written agreement of Biopure and CFI.
13. Binding Effect. This Escrow Agreement shall be binding upon the
respective parties hereto and their successors or assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a contract under SEAL in their names and on their behalves, as of
the date set forth above.
BIOPURE CORPORATION CREDIT FRANCAIS
INTERNATIONAL, S.A.
/s/ Carl W. Rausch /s/ Giles Duret
- ------------------ -------------------
BY: BY: Giles Duret
--------------- ---------------
Director
BIOPURE ASSOCIATES
LIMITED PARTNERSHIP
/s/ Carl W. Rausch
- ------------------
BY:
---------------
<PAGE> 1
EXHIBIT 10.32
BIOPURE CORPORATION
1999 OMNIBUS SECURITIES AND INCENTIVE PLAN
EFFECTIVE AS OF JUNE 24, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I PURPOSE...............................................................................1
ARTICLE II DEFINITIONS...........................................................................1
ARTICLE III EFFECTIVE DATE OF PLAN................................................................5
ARTICLE IV ADMINISTRATION........................................................................5
Section 4.1 Composition of Committee.................................................................5
Section 4.2 Powers...................................................................................5
Section 4.3 Additional Powers........................................................................6
Section 4.4 Committee Action.........................................................................6
ARTICLE V STOCK SUBJECT TO PLAN AND LIMITATIONS THEREON.........................................6
Section 5.1 Stock Grant and Award Limits.............................................................6
Section 5.2 Stock Offered............................................................................7
ARTICLE VI ELIGIBILITY FOR AWARDS; TERMINATION OF EMPLOYMENT OR DIRECTOR STATUS..................7
Section 6.1 Eligibility..............................................................................7
Section 6.2 Termination of Employment or Director Status.............................................7
ARTICLE VII OPTIONS...............................................................................8
Section 7.1 Option Period............................................................................8
Section 7.2 Limitations on Exercise of Option........................................................8
Section 7.3 Special Limitations on Incentive Stock Options...........................................8
Section 7.4 Option Agreement.........................................................................9
Section 7.5 Option Price and Payment.................................................................9
Section 7.6 Shareholder Rights and Privileges.......................................................10
Section 7.7 Options and Rights in Substitution for Stock Options Granted by Other Corporations......10
ARTICLE VIII RESTRICTED STOCK AWARDS..............................................................10
Section 8.1 Restriction Period to be Established by Committee.......................................10
Section 8.2 Other Terms and Conditions..............................................................10
Section 8.3 Payment for Restricted Stock............................................................11
Section 8.4 Restricted Stock Award Agreements.......................................................11
ARTICLE IX UNRESTRICTED STOCK AWARDS............................................................11
ARTICLE X PERFORMANCE UNIT AWARDS..............................................................11
Section 10.1 Terms and Conditions...................................................................11
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 10.2 Payments...............................................................................11
ARTICLE XI PERFORMANCE SHARE AWARDS.............................................................12
Section 11.1 Terms and Conditions...................................................................12
Section 11.2 Shareholder Rights and Privileges......................................................12
ARTICLE XII DISTRIBUTION EQUIVALENT RIGHTS.......................................................12
Section 12.1 Terms and Conditions...................................................................12
Section 12.2 Interest Equivalents...................................................................12
ARTICLE XIII RECAPITALIZATION OR REORGANIZATION...................................................12
Section 13.1 Adjustments to Common Stock............................................................12
Section 13.2 Recapitalization.......................................................................13
Section 13.3 Change of Control......................................................................13
Section 13.4 Other Events...........................................................................13
Section 13.5 Powers Not Affected....................................................................14
Section 13.6 No Adjustment for Certain Awards.......................................................14
ARTICLE XIV AMENDMENT AND TERMINATION OF PLAN....................................................14
ARTICLE XV MISCELLANEOUS........................................................................14
Section 15.1 No Right to Award......................................................................14
Section 15.2 No Rights Conferred....................................................................14
Section 15.3 Other Laws; Withholding................................................................15
Section 15.4 No Restriction on Corporate Action.....................................................15
Section 15.5 Restrictions on Transfer...............................................................15
Section 15.6 Section 162(m).........................................................................15
Section 15.7 Other Plans............................................................................16
Section 15.8 Limits of Liability....................................................................16
Section 15.9 Governing Law..........................................................................16
Section 15.10 Severability of Provisions............................................................16
Section 15.11 No Funding............................................................................16
Section 15.12 Headings..............................................................................16
</TABLE>
<PAGE> 4
BIOPURE CORPORATION
1999 OMNIBUS SECURITIES AND INCENTIVE PLAN
ARTICLE I
PURPOSE
The purpose of this Biopure Corporation 1999 Omnibus Securities and
Incentive Plan (the "Plan") is to benefit the shareholders of Biopure
Corporation, a Delaware corporation (the "Company"), by assisting the Company to
attract, retain and provide incentives to key management employees and directors
of the Company and its Affiliates, and to align the interests of such employees
and directors with those of the Company's shareholders. Accordingly, the Plan
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, as may be best suited to the circumstances of the
particular Employee or Director as provided herein.
ARTICLE II
DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
the context otherwise requires:
"Affiliate" shall mean any person or entity which, at the time of
reference, directly, or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with, the Company.
"Award" shall mean, individually or collectively, any Option, Restricted
Stock Award, Deferred Stock Award, Unrestricted Stock Award, Performance Share
Award, Performance Unit Award or Distribution Equivalent Right Award.
"Award Agreement" shall mean a written agreement between the Company and
the Holder with respect to an Award.
"Board" shall mean the Board of Directors of the Company.
"Cause" with reference to an Employee or a Director shall mean (a) an act
or acts of material personal dishonesty taken by, or committed at the request
of, an Employee or Director, intended to result in the personal enrichment of
the Employee or Director at the expense of the Company, or any of its
subsidiaries, (b) repeated willful violations by an Employee under the terms of
his or her employment or repeated willful failures by a Director to serve in
good faith as a Board member, in either case which have not been cured within
thirty (30) days after written notice has been given by the Board to the
Employee or Director, or (c) the conviction of an Employee or Director of a
felony.
<PAGE> 5
"Change of Control" shall mean (i) the consummation of (x) any
consolidation, reorganization, merger or share exchange of the Company in which
the Company is not the continuing or surviving corporation or pursuant to which
shares of the Company's Common Stock would be converted into cash, securities or
other property, other than a merger or share exchange of the Company in which
the holders of the Company's Common Stock immediately prior to the merger have
the same proportionate ownership of common stock of the surviving corporation
immediately after the merger or share exchange, or (y) any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions) of
all, or substantially all, of the assets of the Company, or (ii) the
shareholders of the Company shall approve any plan or proposal for liquidation
or dissolution of the Company, or (iii) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act, including any "group" (as
defined in Section 13(d)(3) of the Exchange Act) (other than the Holder or any
group controlled by the Holder)) shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of fifty percent (50%) or more of
the Company's outstanding Common Stock (other than pursuant to a plan or
arrangement entered into by such person and the Company and such person
discloses its intent to effect a change of the control or ownership of the
Company in any filing with the Securities and Exchange Commission), or (iv)
within any twenty-four (24) month period beginning on or after the Effective
Date, the persons who were directors of the Company immediately before the
beginning of such period (the "Incumbent Directors") shall cease (for any reason
other than death, disability or retirement) to constitute at least a majority of
the Board or the board of directors of any successor to the Company, provided
that, any director who was not a director as of the Effective Date shall be
deemed to be an Incumbent Director if such director was elected to the Board by,
or on the recommendation of or with the approval of, at least two-thirds of the
directors who then qualified as Incumbent Directors either actually or by prior
operation of this definition unless such election, recommendation or approval
was the result of any actual or threatened election contest of the type
contemplated by Regulation 14a-11 promulgated under the Exchange Act or any
successor provision.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to any section and any regulation under such
section.
"Committee" shall mean (i) prior to the effective date of an initial
public offering of shares of Common Stock, the full Board, and (ii) on and after
the effective date of an initial public offering of shares of Common Stock, not
less than three (3) members of the Board who are selected by the Board as
provided in Section 4.1.
"Common Stock" shall mean the Class A Common Stock, par value $0.01 per
share, of the Company.
"Company" shall mean Biopure Corporation, a Delaware corporation, and any
successor thereto.
"Director" shall mean a member of the Board or a member of the Board of
Directors of an Affiliate, in either case, who is not an Employee.
"Distribution Equivalent Right" shall mean an Award granted under Article
XII of the Plan which entitles the Holder to receive bookkeeping credits, cash
payments and/or Common Stock
<PAGE> 6
distributions equal in amount to the distributions that would have been made to
the Holder had the Holder held a specified number of shares of Common Stock
during the period that the Holder held the Distribution Equivalent Right.
"Distribution Equivalent Right Award Agreement" shall mean a written
agreement between the Company and a Holder with respect to a Distribution
Equivalent Right Award.
"Effective Date" shall mean June 24, 1999.
"Employee" shall mean any person employed by the Company or an Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean, as of any specified date, the mean of the
reported high and low sales prices of the Common Stock on the stock exchange
composite tape on that date, or if no prices are reported on that date, on the
last preceding date on which such prices of the Common Stock are so reported. If
the Common Stock is traded over-the-counter at the time a determination of its
fair market value is required to be made hereunder, its fair market value shall
be deemed to be equal to the average between the reported high and low or
closing bid and asked prices of Common Stock on the most recent date on which
Common Stock was publicly traded. In the event Common Stock is not publicly
traded at the time a determination of this value is required to be made
hereunder, the determination of its fair market value shall be made by the
Committee in such manner as it deems appropriate.
"Family Member" shall mean any child, stepchild, grandchild, parent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including
adoptive relationships, any person sharing the Holder's household (other than a
tenant or the Holder), a trust in which such persons have more than fifty
percent (50%) of the beneficial interest, a foundation in which such persons (or
the Holder) control the management of assets, and any other entity in which such
persons (or the Holder) own more than fifty percent (50%) of the voting
interests.
"Good Reason" shall mean: (a) the reduction of an Employee's Base Salary,
(b) the changing, without his or her consent, of an Employee's title, authority,
duties or responsibilities from those immediately prior to the Change of
Control, or (c) the material breach by the Company of any material terms of the
Employee's employment which has not been cured within thirty (30) days after a
notice has been given by the Employee to the Company.
"Holder" shall mean an Employee or a Director who has been granted an
Award.
"Incentive Stock Option" shall mean an Option which is an "incentive
stock option" within the meaning of Section 422 of the Code.
"Non-Qualified Stock Option" shall mean an Option which is not an
Incentive Stock Option.
<PAGE> 7
"Option" shall mean an Award granted under Article VII of the Plan of an
option to purchase shares of Common Stock and includes both Incentive Stock
Options and Non-Qualified Stock Options.
"Option Agreement" shall mean a written agreement between the Company and
a Holder with respect to an Option.
"Performance Share Award" shall mean an Award granted under Article XI of
the Plan under which, upon the satisfaction of predetermined individual or
Company performance goals and/or objectives, shares of Common Stock are paid to
the Holder.
"Performance Share Award Agreement" shall mean a written agreement
between the Company and a Holder with respect to a Performance Share Award.
"Performance Unit" shall mean a Unit awarded to a Holder pursuant to a
Performance Unit Award.
"Performance Unit Award" shall mean an Award granted under Article X of
the Plan under which, upon the satisfaction of predetermined individual or
Company performance goals and/or objectives, a cash payment shall be paid to the
Holder, based on the number of Units awarded to the Holder.
"Performance Unit Award Agreement" shall mean a written agreement between
the Company and a Holder with respect to a Performance Unit Award.
"Plan" shall mean this Biopure Corporation 1999 Omnibus Securities and
Incentive Plan, as amended from time to time.
"Restricted Stock Award" shall mean an Award granted under Article VIII
of the Plan of shares of Common Stock, the transferability of which by the
Holder shall be subject to Transfer Restrictions.
"Restricted Stock Award Agreement" shall mean a written agreement between
the Company and a Holder with respect to a Restricted Stock Award.
"Restriction Period" shall mean the period of time for which shares of
Common Stock subject to a Restricted Stock Award shall be subject to Transfer
Restrictions, as set forth in the applicable Restricted Stock Award Agreement.
"Ten Percent Shareholder" shall mean an Employee who, at the time an
Option is granted to him or her, owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any parent
corporation or subsidiary corporation thereof (both as defined in Section 424 of
the Code), within the meaning of Section 422(b)(6) of the Code.
"Total and Permanent Disability" shall mean the inability of an
individual to provide meaningful service for the Company due to a medically
determinable physical or mental impairment, which service is reasonably
consistent with the individual's past service for the
<PAGE> 8
Company, training and experience. Such determination of total and permanent
disability shall be made by the Committee. Notwithstanding the foregoing, if an
individual qualifies for Federal Social Security disability benefits or for
payments under a long-term disability income Plan of the Company or the
Affiliate which employs such individual, based upon his physical or mental
condition, such individual shall be deemed to suffer from a Total and Permanent
Disability hereunder.
"Transfer Restrictions" shall mean restrictions on the transferability of
shares of Common Stock awarded to an Employee or a Director under the Plan
pursuant to a Restricted Stock Award Agreement.
"Units" shall mean bookkeeping units, each of which represents such
monetary amount as shall be designated by the Committee in each Performance Unit
Award Agreement.
"Unrestricted Stock Award" shall mean an Award granted under Article IX
of the Plan of shares of Common Stock which are not subject to Transfer
Restrictions.
"Unrestricted Stock Award Agreement" shall mean a written agreement
between the Company and a Holder with respect to an Unrestricted Stock Award.
ARTICLE III
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the Effective Date, provided that the
Plan is approved by the shareholders of the Company within twelve (12) months of
such date.
ARTICLE IV
ADMINISTRATION
Section 4.1 Composition of Committee. The Plan shall be administered by
the Committee, which shall be (i) appointed by the Board, and (ii) constituted
so as to permit applicable Awards under the Plan to constitute
"performance-based compensation" for purposes of Section 162(m) of the Code and
applicable interpretive authority thereunder. If a member of the Committee shall
be eligible to receive an Award under the Plan, such Committee member shall have
no authority hereunder with respect to his or her own Award.
Section 4.2 Powers. Subject to the provisions of the Plan, the Committee
shall have the sole authority, in its discretion, to determine which individuals
shall receive an Award, the time or times when such Award shall be made, what
type of Award shall be granted and the number of shares of Common Stock which
may be issued under such Award, as applicable. In making such determinations the
Committee may take into account the nature of the services rendered by the
respective individuals, their present and potential contribution to the
Company's (or the Affiliate's) success and such other factors as the Committee
in its discretion shall deem relevant.
Section 4.3 Additional Powers. The Committee shall have such additional
powers as are delegated to it under the other provisions of the Plan. Subject to
the express provisions of the Plan, the Committee is authorized to construe the
Plan and the respective Award Agreements executed hereunder, to prescribe such
rules and regulations relating to the Plan as it may deem
<PAGE> 9
advisable to carry out the intent of the Plan, and to determine the terms,
restrictions and provisions of each Award, including such terms, restrictions
and provisions as shall be requisite in the judgment of the Committee to cause
designated Options to qualify as Incentive Stock Options, and to make all other
determinations necessary or advisable for administering the Plan. The Committee
may correct any defect or supply any omission or reconcile any inconsistency in
any Award Agreement in the manner and to the extent it shall deem expedient to
carry it into effect. The determinations of the Committee on the matters
referred to in this Article IV shall be conclusive.
Section 4.4 Committee Action. In the absence of specific rules to the
contrary, action by the Committee shall require the consent of a majority of the
members of the Committee, expressed either orally at a meeting of the Committee
or in writing in the absence of a meeting.
ARTICLE V
STOCK SUBJECT TO PLAN AND LIMITATIONS THEREON
Section 5.1 Stock Grant and Award Limits. The Committee may from time to
time grant Awards to one or more Employees and/or Directors determined by it to
be eligible for participation in the Plan in accordance with the provisions of
Article VI. Subject to Article XV, (i) the aggregate number of shares of Common
Stock that may be issued under the Plan shall not exceed two million eight
hundred thousand (2,800,000) shares, and (ii) the aggregate number of shares of
Common Stock that may be issued under the Plan as Incentive Stock Options, shall
not exceed two million eight hundred thousand (2,800,000) shares. Shares shall
be deemed to have been issued under the Plan solely to the extent actually
issued and delivered pursuant to an Award. To the extent that an Award lapses or
the rights of its Holder terminate, any shares of Common Stock subject to such
Award shall again be available for the grant of a new Award. Notwithstanding any
provision in the Plan to the contrary, the maximum number of shares of Common
Stock that may be subject to Awards of Options under Article VII granted to any
one Employee or Director during any calendar year shall be one hundred thousand
(100,000) shares (subject to adjustment in the same manner as provided in
Article XIII with respect to shares of Common Stock subject to Awards then
outstanding). The limitation set forth in the preceding sentence shall be
applied in a manner which shall permit compensation generated in connection with
the exercise of Options to constitute "performance-based" compensation for
purposes of Section 162(m) of the Code, including, but not limited to, counting
against such maximum number of shares, to the extent required under Section
162(m) of the Code and applicable interpretive authority thereunder, any shares
subject to Options that are canceled or repriced.
Section 5.2 Stock Offered. The stock to be offered pursuant to the grant
of an Award may be authorized but unissued Common Stock, Common Stock purchased
on the open market or Common Stock previously issued and outstanding and
reacquired by the Company.
<PAGE> 10
ARTICLE VI
ELIGIBILITY FOR AWARDS; TERMINATION OF
EMPLOYMENT OR DIRECTOR STATUS
Section 6.1 Eligibility. Awards made under the Plan may be granted
solely to persons who, at the time of grant, are Employees or Directors. An
Award may be granted on more than one occasion to the same Employee or Director,
and, subject to the limitations set forth in the Plan, such Award may include, a
Non-Qualified Stock Option, a Restricted Stock Award, a Deferred Stock Award, an
Unrestricted Stock Award, a Distribution Equivalent Right Award, any combination
thereof or, solely for Employees, an Incentive Stock Option.
Section 6.2 Termination of Employment or Director Status. Except to the
extent inconsistent with the terms of the applicable Award Agreement, the
following terms and conditions shall apply with respect to the termination of a
Holder's employment with, or status as a Director of, the Company or an
Affiliate, as applicable, for any reason, including, without limitation,
retirement upon or after attaining age sixty-five (65), Total and Permanent
Disability or death:
(a) The Holder's rights, if any, to exercise any then exercisable
Non-Qualified Stock Options shall terminate:
(1) If such termination is for a reason other than the
Holder's retirement upon or after attaining age sixty-five (65),
Total and Permanent Disability or death, not more than ninety (90)
days after the date of such termination of employment or six (6)
months after the date of such termination Director status;
(2) If such termination is on account of the Holder's
retirement upon or after attaining age sixty-five (65) or on
account of the Holder's Total and Permanent Disability, one (1)
year after the date of such termination of employment or Director
status; or
(3) If such termination is on account of the Holder's
death, one (1) year after the date of the Holder's death.
Upon such applicable date the Holder (and such Holder's estate,
designated beneficiary or other legal representative) shall forfeit any
rights or interests in or with respect to any such Non-Qualified Stock
Options.
(b) The Holder's rights, if any, to exercise any then exercisable
Incentive Stock Option shall terminate:
(1) If such termination is for a reason other than the
Holder's Total and Permanent Disability or death, not more than
ninety (90) days after the date of such termination of employment;
<PAGE> 11
(2) If such termination is on account of the Holder's Total
and Permanent Disability, one (1) year after the date of such
termination of employment; or
(3) If such termination is on account of the Holder's
death, one (1) year after the date of the Holder's death.
Upon such applicable date the Holder (and such Holder's estate,
designated beneficiary or other legal representative) shall forfeit any
rights or interests in or with respect to any such Incentive Stock
Options.
(c) If a Holder's employment with, or status as a Director of, the
Company or an Affiliate, as applicable, terminates for any reason prior
to the actual or deemed satisfaction and/or lapse of the restrictions,
terms and conditions applicable to an Award of Restricted Stock and/or
Deferred Stock such Restricted Stock and/or Deferred Stock shall
immediately be cancelled, and the Holder (and such Holder's estate,
designated beneficiary or other legal representative) shall forfeit any
rights or interests in and with respect to any such Restricted Stock
and/or Deferred Stock. The immediately preceding sentence to the contrary
notwithstanding, the Committee, in its sole discretion, may determine,
prior to or within thirty (30) days after the date of such termination of
employment or Director status, that all or a portion of any such Holder's
Restricted Stock and/or Deferred Stock shall not be so cancelled and
forfeited.
ARTICLE VII
OPTIONS
Section 7.1 Option Period. The term of each Option shall be as specified
in the Option Agreement.
Section 7.2 Limitations on Exercise of Option. An Option shall be
exercisable in whole or in such installments and at such times as specified in
the Option Agreement.
Section 7.3 Special Limitations on Incentive Stock Options. To the extent
that the aggregate Fair Market Value (determined at the time the respective
Incentive Stock Option is granted) of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by an individual
during any calendar year under all plans of the Company and any parent
corporation or subsidiary corporation thereof (both as defined in Section 424 of
the Code) which provide for the grant of Incentive Stock Options exceeds One
Hundred Thousand Dollars ($100,000)(or such other individual limit as may be in
effect under the Code on the date of grant), such Incentive Stock Options shall
be treated as Non-Qualified Stock Options. The Committee shall determine, in
accordance with applicable provisions of the Code, Treasury Regulations and
other administrative pronouncements, which of a Holder's Options, which were
intended by the Committee to be Incentive Stock Options when granted to the
Holder, will not constitute Incentive Stock Options because of such limitation
and shall notify the Holder of such determination as soon as practicable after
such determination. No Incentive Stock Option shall be granted to an Employee
if, at the time the Option is granted, such Employee is a Ten Percent
Shareholder, unless (i) at the time such Incentive Stock Option is
<PAGE> 12
granted the Option price is at least one hundred ten percent (110%) of the Fair
Market Value of the Common Stock subject to the Option, and (ii) such Incentive
Stock Option by its terms is not exercisable after the expiration of five (5)
years from the date of grant.
Section 7.4 Option Agreement. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, but not limited to, provisions to qualify an Option as an Incentive
Stock Option. An Option Agreement may provide for the payment of the Option
price, in whole or in part, by the delivery of a number of shares of Common
Stock (plus cash if necessary) having a Fair Market Value equal to such Option
price. Each Option Agreement shall, solely to the extent inconsistent with the
provisions of Section 6.2, specify the effect of termination of employment or
Director status on the exercisability of the Option. Moreover, an Option
Agreement may provide for a "cashless exercise" of the Option by establishing
procedures whereby the Holder, by a properly-executed written notice, directs
(i) an immediate market sale or margin loan respecting all or a part of the
shares of Common Stock to which he is entitled upon exercise pursuant to an
extension of credit by the Company to the Holder of the Option price, (ii) the
delivery of the shares of Common Stock from the Company directly to a brokerage
firm and (iii) the delivery of the Option price from sale or margin loan
proceeds from the brokerage firm directly to the Company. An Option Agreement
may also include provisions relating to (i) subject to the provisions hereof,
accelerated vesting of Options, (ii) tax matters (including provisions covering
any applicable Employee wage withholding requirements and requiring additional
"gross-up" payments to Holders to meet any excise taxes or other additional
income tax liability imposed as a result of a payment upon a Change of Control
resulting from the operation of the Plan or of such Option Agreement) and (iii)
any other matters not inconsistent with the terms and provisions of the Plan
that the Committee shall in its sole discretion determine. The terms and
conditions of the respective Option Agreements need not be identical.
Section 7.5 Option Price and Payment. The price at which a share of
Common Stock may be purchased upon exercise of an Option shall be determined by
the Committee, but such Option price (i) in the case of an Option that is an
Incentive Stock Option, shall not be less than the Fair Market Value of a share
of Common Stock on the date such Option is granted, and (ii) shall be subject to
adjustment as provided in Article XIII. The Option or portion thereof may be
exercised by delivery of an irrevocable notice of exercise to the Company. The
Option price for the Option or portion thereof shall be paid in full in the
manner prescribed by the Committee. Separate stock certificates shall be issued
by the Company for those shares of Common Stock acquired pursuant to the
exercise of an Incentive Stock Option and for those shares of Common Stock
acquired pursuant to the exercise of a Non-Qualified Stock Option.
Section 7.6 Shareholder Rights and Privileges. The Holder of an Option
shall be entitled to all the privileges and rights of a shareholder of the
Company solely with respect to such shares of Common Stock as have been
purchased under the Option and for which certificates of stock have been
registered in the Holder's name.
<PAGE> 13
Section 7.7 Options and Rights in Substitution for Stock Options Granted
by Other Corporations. Options may be granted under the Plan from time to time
in substitution for stock options held by individuals employed by entities who
become Employees as a result of a merger or consolidation of the employing
entity with the Company or any Affiliate, or the acquisition by the Company or
an Affiliate of the assets of the employing entity, or the acquisition by the
Company or an Affiliate of stock of the employing entity with the result that
such employing entity becomes an Affiliate.
ARTICLE VIII
RESTRICTED STOCK AWARDS
Section 8.1 Restriction Period to be Established by Committee. At the
time a Restricted Stock Award is made, the Committee shall establish the
Restriction Period applicable to such Award. Each Restricted Stock Award may
have a different Restriction Period, in the discretion of the Committee. The
Restriction Period applicable to a particular Restricted Stock Award shall not
be changed except as permitted by Section 8.2 or Article XIV.
Section 8.2 Other Terms and Conditions. Common Stock awarded pursuant to
a Restricted Stock Award shall be represented by a stock certificate registered
in the name of the Holder of such Restricted Stock Award. If provided for under
the Restricted Stock Award Agreement, the Holder shall have the right to vote
Common Stock subject thereto and to enjoy all other shareholder rights, except
that (i) the Holder shall not be entitled to delivery of the stock certificate
until the Restriction Period shall have expired, (ii) the Company shall retain
custody of the stock during the Restriction Period, (iii) the Holder may not
sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the stock
during the Restriction Period, (iv) the Holder shall be entitled to receive
dividends on the Common Stock during the Restriction Period and (v) a breach of
the terms and conditions established by the Committee pursuant to the Restricted
Stock Award Agreement shall cause a forfeiture of the Restricted Stock Award. At
the time of such Award, the Committee may, in its sole discretion, prescribe
additional terms and conditions or restrictions relating to Restricted Stock
Awards, including, but not limited to, rules pertaining to the effect of
termination of employment or Director status prior to expiration of the
Restriction Period, solely to the extent inconsistent with the provisions of
Section 6.2. Such additional terms, conditions or restrictions shall, to the
extent inconsistent with the provisions of Section 6.2, be set forth in a
Restricted Stock Award Agreement made in conjunction with the Award. Such
Restricted Stock Award Agreement may also include provisions relating to (i)
subject to the provisions hereof, accelerated vesting of Awards, including but
not limited to accelerated vesting upon the occurrence of a Change of Control,
(ii) tax matters (including provisions covering any applicable Employee wage
withholding requirements and requiring additional "gross-up" payments to Holders
to meet any excise taxes or other additional income tax liability imposed as a
result of a Change of Control payment resulting from the operation of the Plan
or of such Restricted Stock Award Agreement) and (iii) any other matters not
inconsistent with the terms and provisions of the Plan that the Committee shall
in its sole discretion determine. The terms and conditions of the respective
Restricted Stock Agreements need not be identical.
<PAGE> 14
Section 8.3 Payment for Restricted Stock. The Committee shall determine
the amount and form of any payment for Common Stock received pursuant to a
Restricted Stock Award, provided that in the absence of such a determination, a
Holder shall not be required to make any payment for Common Stock received
pursuant to a Restricted Stock Award, except to the extent otherwise required by
law.
Section 8.4 Restricted Stock Award Agreements. At the time any Award is
made under this Article VIII, the Company and the Holder shall enter into a
Restricted Stock Award Agreement setting forth each of the matters contemplated
hereby and such other matters as the Committee may determine to be appropriate.
ARTICLE IX
UNRESTRICTED STOCK AWARDS
Pursuant to the terms of the applicable Unrestricted Stock Award
Agreement, a Holder may be awarded (or sold at a discount) shares of Common
Stock which are not subject to Transfer Restrictions, in consideration for past
services rendered thereby to the Company or an Affiliate or for other valid
consideration.
ARTICLE X
PERFORMANCE UNIT AWARDS
Section 10.1 Terms and Conditions. The Committee shall set forth in the
applicable Performance Unit Award Agreement the performance goals and objectives
(and the period of time to which such goals and objectives shall apply) which
the Holder and/or the Company would be required to satisfy before becoming
entitled to payment pursuant to Section 10.2, the number of Units awarded to the
Holder and the dollar value assigned to each such Unit.
Section 10.2 Payments. The Holder of a Performance Unit shall be entitled
to receive a cash payment equal to the dollar value assigned to such Unit under
the applicable Performance Unit Award Agreement if the Holder and/or the Company
satisfy (or partially satisfy, if applicable under the applicable Performance
Unit Award Agreement) the performance goals and objectives set forth in such
Performance Unit Award Agreement.
ARTICLE XI
PERFORMANCE SHARE AWARDS
Section 11.1 Terms and Conditions. The Committee shall set forth in the
applicable Performance Share Award Agreement the performance goals and
objectives (and the period of time to which such goals and objectives shall
apply) which the Holder and/or the Company would be required to satisfy before
becoming entitled to the receipt of shares of Common Stock pursuant to such
Holder's Performance Share Award and the number of shares of Common Stock
subject to such Performance Share Award.
Section 11.2 Shareholder Rights and Privileges. The Holder of a
Performance Share Award shall have no rights as a shareholder of the Company
until such time, if any, as the Holder actually receives shares of Common Stock
pursuant to the Performance Share Award.
<PAGE> 15
ARTICLE XII
DISTRIBUTION EQUIVALENT RIGHTS
Section 12.1 Terms and Conditions. The Committee shall set forth in the
applicable Distribution Equivalent Rights Award Agreement the terms and
conditions, if any, including whether the Holder is to receive credits currently
in cash, is to have such credits reinvested (at Fair Market Value determined as
of the date of reinvestment) in additional shares of Common Stock or is to be
entitled to choose among such alternatives. Distribution Equivalent Rights
Awards may be settled in cash or in shares of Common Stock, as set forth in the
Applicable Distribution Equivalent Rights Award Agreement. A Distribution
Equivalent Rights Award may, but need not be, awarded as a component of another
Award, where, if so awarded, such Distribution Equivalent Rights Award shall
expire or be forfeited by the Holder under the same conditions as under such
other Award.
Section 12.2 Interest Equivalents. The Distribution Equivalent Rights
Award Agreement for a Distribution Equivalent Rights Award may provide for the
crediting of interest on a Distribution Rights Award to be settled in cash at a
future date, at a rate set forth in the applicable Distribution Equivalent
Rights Award Agreement, on the amount of cash payable thereunder.
ARTICLE XIII
RECAPITALIZATION OR REORGANIZATION
Section 13.1 Adjustments to Common Stock. The shares with respect to
which Awards may be granted are shares of Common Stock as presently constituted;
provided, however, that if, and whenever, prior to the expiration or
distribution to the Holder of an Award theretofore granted, the Company shall
effect a subdivision or consolidation of shares of Common Stock or the payment
of a stock dividend on Common Stock without receipt of consideration by the
Company, the number of shares of Common Stock with respect to which such Award
may thereafter be exercised or satisfied, as applicable, (i) in the event of an
increase in the number of outstanding shares, shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares, shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased.
Section 13.2 Recapitalization. If the Company recapitalizes or otherwise
changes its capital structure, thereafter upon any exercise or satisfaction, as
applicable, of a previously granted Award, the Holder shall be entitled to
receive (or entitled to purchase, if applicable) under such Award, in lieu of
the number of shares of Common Stock then covered by such Award, the number and
class of shares of stock and securities to which the Holder would have been
entitled pursuant to the terms of the recapitalization if, immediately prior to
such recapitalization, the Holder had been the holder of record of the number of
shares of Common Stock then covered by such Award.
Section 13.3 Change of Control. Except to the extent otherwise provided
in the applicable Award Agreement, in the event of the occurrence of a Change of
Control, and within one year following the change in control (a) an Employee's
employment is terminated
<PAGE> 16
by the Company without Cause or by the Employee with Good Reason or (b) a
Director is removed from the Board without the approving vote of a majority of
the directors in office immediately prior to the Change of Control, outstanding
Awards of the Employee or Director, as the case may be, shall immediately vest
and become exercisable and/or required employment or Board membership periods
with the Company or an Affiliate and/or performance goals and/or objectives
shall be deemed to have been fully satisfied, as applicable. The Committee, in
its discretion by unanimous action, may determine that upon the occurrence of a
Change of Control, each Award outstanding hereunder shall terminate within a
specified number of days after notice to the Holder, and such Holder shall
receive, (i) with respect to Awards which are Performance Units or Distribution
Equivalent Rights (which Distribution Equivalent Rights, pursuant to the
applicable Distribution Equivalent Rights Award Agreement, are to be settled in
cash), cash in an amount equal to the amount of cash that would otherwise have
been payable thereunder assuming that all of the applicable performance goals
and objectives set forth in the applicable Performance Units Award Agreement had
been fully satisfied, and (ii) with respect to each share of Common Stock
subject to such Award, cash in an amount equal to the excess of (A) the greater
of (I) the Fair Market Value of such share of Common Stock immediately prior to
the occurrence of such Change of Control or (II) the value of the consideration
to be received in connection with such Change of Control for one share of Common
Stock, over (B) the exercise price per share, if applicable, of one share of
Common Stock. If the consideration offered to shareholders of the Company in any
transaction described in this Section 13.3 consists of anything other than cash,
the Committee shall determine the fair cash equivalent of the portion of the
non-cash consideration offered. The provisions contained in this Section 13.3
shall not terminate any rights of the Holder to further payments pursuant to any
other agreement with the Company following the occurrence of a Change of
Control.
Section 13.4 Other Events. In the event of changes to the outstanding
Common Stock by reason of recapitalization, reorganization, mergers,
consolidations, combinations, exchanges or other relevant changes in
capitalization occurring after the date of the grant of any Award and not
otherwise provided for under this Article XIII, any outstanding Awards and any
Award Agreements evidencing such Awards shall be subject to adjustment by the
Committee in its discretion as to the number and price of shares of Common Stock
or other consideration subject to such Awards. In the event of any such change
to the outstanding Common Stock, the aggregate number of shares available under
the Plan may be appropriately adjusted by the Committee, the determination of
which shall be conclusive.
Section 13.5 Powers Not Affected. The existence of the Plan and the
Awards granted hereunder shall not affect in any way the right or power of the
Board or of the shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change of the Company's capital
structure or business, any merger or consolidation of the Company, any issue of
debt or equity securities ahead of or affecting Common Stock or the rights
thereof, the dissolution or liquidation of the Company or any sale, lease,
exchange or other disposition of all or any part of its assets or business or
any other corporate act or proceeding.
Section 13.6 No Adjustment for Certain Awards. Except as hereinabove
expressly provided, the issuance by the Company of shares of stock of any class
or securities convertible
<PAGE> 17
into shares of stock of any class, for cash, property, labor or services, upon
direct sale, upon the exercise of rights or warrants to subscribe therefor or
upon conversion of shares or obligations of the Company convertible into such
shares or other securities, and in any case whether or not for fair value, shall
not affect previously granted Awards, and no adjustment by reason thereof shall
be made with respect to the number of shares of Common Stock subject to Awards
theretofore granted or the purchase price per share, if applicable.
ARTICLE XIV
AMENDMENT AND TERMINATION OF PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Awards have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part hereof from
time to time; provided, however, that no change in any Award theretofore granted
may be made which would materially and adversely impair the rights of a Holder
without the consent of the Holder (unless such change is required in order to
cause the benefits under the Plan to qualify as performance-based compensation
within the meaning of Section 162(m) of the Code and applicable interpretive
authority thereunder).
ARTICLE XV
MISCELLANEOUS
Section 15.1 No Right to Award. Neither the adoption of the Plan by the
Company nor any action of the Board or the Committee shall be deemed to give an
Employee or Director any right to an Award except as may be evidenced by an
Award Agreement duly executed on behalf of the Company, and then solely to the
extent and on the terms and conditions expressly set forth therein.
Section 15.2 No Rights Conferred. Nothing contained in the Plan shall (i)
confer upon any Employee any right with respect to continuation of employment
with the Company or any Affiliate, (ii) interfere in any way with the right of
the Company or any Affiliate to terminate the employment of an Employee at any
time, (iii) confer upon any Director any right with respect to continuation of
such Director's membership on the Board, or (iv) interfere in any way with the
right of the Company or an Affiliate to terminate a Director's membership on the
Board at any time.
Section 15.3 Other Laws; Withholding. The Company shall not be obligated
to issue any Common Stock pursuant to any Award granted under the Plan at any
time when the shares covered by such Award have not been registered under the
Securities Act of 1933 and such other state and federal laws, rules or
regulations as the Company or the Committee deems applicable and, in the opinion
of legal counsel of the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance and
sale of such shares. No fractional shares of Common Stock shall be delivered,
nor shall any cash in lieu of fractional shares be paid. The Company shall have
the right to deduct in cash (whether under this Plan or otherwise) in connection
with all Awards any taxes required by law to be withheld and to require any
payments required to enable it to satisfy its withholding obligations. In the
case of any Award satisfied in the form of shares of Common Stock, no
<PAGE> 18
shares shall be issued unless and until arrangements satisfactory to the Company
shall have been made to satisfy any tax withholding obligations applicable with
respect to such Award. Subject to such terms and conditions as the Committee may
impose, the Company shall have the right to retain, or the Committee may,
subject to such terms and conditions as it may establish from time to time,
permit Holders to elect to tender Common Stock (including Common Stock issuable
in respect of an Award) to satisfy, in whole or in part, the amount required to
be withheld.
Section 15.4 No Restriction on Corporate Action. Nothing contained in the
Plan shall be construed to prevent the Company or any Affiliate from taking any
corporate action which is deemed by the Company or such Affiliate to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No Employee,
Director, beneficiary or other person shall have any claim against the Company
or any Affiliate as a result of any such action.
Section 15.5 Restrictions on Transfer. No Award under the Plan or any
Award Agreement and no rights or interests herein or therein, shall or may be
assigned, transferred, sold, exchanged, encumbered, pledged or otherwise
hypothecated or disposed of by a Holder except (i) by will or by the laws of
descent and distribution, or (ii) except for an Incentive Stock Option, by gift
to any Family Member of the Holder. An award may be exercisable during the
lifetime of the Holder only by such Holder or by the Holder's guardian or legal
representative unless it has been transferred by gift to a Family Member of the
Holder, in which case it shall be exercisable solely by such transferee.
Notwithstanding any such transfer, the Holder shall continue to be subject to
the withholding requirements provided for under Section 15.3 hereof.
Section 15.6 Section 162(m). It is intended that the Plan shall comply
fully with and meet all the requirements of Section 162(m) of the Code so that
Awards hereunder which are made to Holders who are "covered employees" (as
defined in Section 162(m) of the Code) shall constitute "performance-based"
compensation within the meaning of Section 162(m) of the Code. The performance
criteria to be utilized under the Plan for such purposes shall consist of
objective tests based on one or more of the following: earnings or earnings per
share, cash flow, customer satisfaction, revenues, financial return ratios (such
as return on equity and/or return on assets), market performance, shareholder
return and/or value, operating profits, EBITDA, net profits, profit returns and
margins, stock price, credit quality, sales growth, market share, comparisons to
peer companies (on a company-wide or divisional basis), working capital and/or
individual or aggregate employee performance. If any provision of the Plan would
disqualify the Plan or would not otherwise permit the Plan to comply with
Section 162(m) as so intended, such provision shall be construed or deemed
amended to conform to the requirements or provisions of Section 162(m);
provided, however, that no such construction or amendment shall have an adverse
effect on the economic value to a Holder of any Award previously granted
hereunder.
Section 15.7 Other Plans. No Award, payment or amount received hereunder
shall be taken into account in computing an Employee's salary or compensation
for the purposes of determining any benefits under any pension, retirement, life
insurance or other benefit plan of
<PAGE> 19
the Company or any Affiliate, unless such other plan specifically provides for
the inclusion of such Award, payment or amount received.
Section 15.8 Limits of Liability. Any liability of the Company with
respect to an Award shall be based solely upon the contractual obligations
created under the Plan and the Award Agreement. Neither the Company nor any
member of the Committee shall have any liability to any party for any action
taken or not taken, in good faith, in connection with or under the Plan.
Section 15.9 Governing Law. Except as otherwise provided herein, the Plan
shall be construed in accordance with the laws of the State of Delaware.
Section 15.10 Severability of Provisions. If any provision of the Plan is
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of the Plan, and the Plan shall be construed and
enforced as if such invalid or unenforceable provision had not been included in
the Plan.
Section 15.11 No Funding. The Plan shall be unfunded. The Company shall
not be required to establish any special or separate fund or to make any other
segregation of funds or assets to ensure the payment of any Award.
Section 15.12 Headings. Headings used throughout the Plan are for
convenience only and shall not be given legal significance.
<PAGE> 1
EXHIBIT 10.36
BIOPURE CORPORATION
INCENTIVE COMPENSATION AND COMPANY STOCK PURCHASE PLAN
BUSINESS PURPOSE OF PLAN
- - The Company hopes to experience significant growth during the next
several years. In order to execute the business plan during this time
period, it will be necessary to retain and attract top caliber personnel.
The Company believes it is in the Company's best long-term interests that
its management hold the Company's common stock. This Plan will enable the
Company to provide management with an opportunity to acquire or increase
stock ownership in the Company.
ELEMENTS OF PLAN
- - The Company will award bonus payments or a deferred bonus arrangement to
certain key employees, consultants, and directors for their contributions
and efforts to the Company.
- - The Company will withhold payroll taxes from these bonus payments.
- - These employees, consultants, and directors have been and continue to be
very critical to the success of the Company.
- - The Company would like these key critical employees, consultants, and
directors to become stockholders and/or increase their ownership position
in the Company. This ownership position will give these individuals the
"owners' edge."
- - These key individuals may exercise their options and/or have the right,
but not the obligation, to purchase shares of Biopure "non-lapse"
restricted Common Stock.
- - The key employees, consultants, or directors listed in Exhibit I will be
given the choice of either (1) retaining their current options or (2)
having their current options terminated and purchasing shares of Biopure
Common Stock.
- - The valuation for the stock will be set at $.90 per share due to the
"non-lapse" restriction outlined below.
- - The recipient should elect Section 83(b) treatment for the tax
consequences of the stock purchase and incur the full impact of the tax
liability in the year of purchase.
- - Certain of these shares of stock purchased will be subject to a
repurchase provision during the first four years after purchase. Shares
subject to repurchase by the Company in the event of termination of an
employee's employment with the Company (or of a consultant's or
director's relationship with the Company) will be at the $.90 purchase
price plus an interest factor equivalent to the prime rate per year.
- - In addition, a "non-lapse" restriction will be placed on the total number
of shares of stock for the life of the stock. The Company would have a
first right of refusal to repurchase the stock at a price equal to the
then fair market value of the stock minus the difference between the
market value of the stock at the time of original issue ($3.60 per share)
and the price paid by the employee,
<PAGE> 2
consultant, or director ($.90 per share). The discount amount will
escalate by the prime rate per annum. This repurchase right could also
triggered by a merger, consolidation, sale of assets or liquidation of
the Company.
- - The Company will enter into loan agreements with employees, consultants
or directors equivalent to 50% of the tax payment/liability incurred by
the employees, consultants or directors so that they will be able to make
the stock purchase. The Company, if possible, will aid employees,
consultants or directors in obtaining and co-signing bank loans
equivalent to the remaining 50% of the tax payment/liability.
-2-
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
WHEREAS, Biopure Corporation (the "Company") proposes to file a
registration statement on Form S-1 and amendments thereto pursuant to the
Securities Act of 1933, as amended, in connection with a public offering (the
"Public Offering") of the Company's Class A Common Stock; and
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that the Company and the
undersigned directors and officers of the Company, individually as a director
and/or as an officer of the Company, hereby make, constitute and appoint each of
Carl W. Rausch, Daniel R. Davis and Jane Kober their true and lawful
attorney-in-fact for each of them and in each of their names, places and steads
to sign and cause to be filed with the Securities and Exchange Commission said
registration statement, including prospectuses, and any appropriate amendments
thereto, to be a accompanied by any necessary exhibits.
The Company hereby authorizes said persons or any one of them to execute
said registration statement and amendments thereto on its behalf as
attorney-in-fact for it and its authorized officers, and to file the same as
aforesaid.
The undersigned directors and officers of the Company hereby authorize
said persons or any one of them to sign said registration statement on their
behalf as attorney-in-fact and to amend, or remedy any deficiencies with respect
to, said registration statement by appropriate amendment or amendments and to
file the same as aforesaid, hereby giving and granting to said attorneys full
power and authority to do so and perform all and every act and hereby ratifying
and confirming all that said attorneys may or shall do, or cause to be done, by
virtue hereof.
DONE this the 21st day of June, 1999.
/s/ Paul A. Looney
-------------------
Paul A. Looney
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<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
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0
3
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<FN>
OTHER EXPENSES ARE FOR R&D INCURRED IN DEVELOPING PRODUCT FOR MARKET. COMMON
STOCK AND OTHER STOCKHOLDERS' EQUITY RESTATED FOR REVERSE 2 FOR 3 STOCK SPLIT.
</FN>
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<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
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0
25
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<FN>
OTHER EXPENSES ARE FOR R&D INCURRED IN DEVELOPING PRODUCT FOR MARKET. COMMON
STOCK AND OTHER STOCKHOLDERS' EQUITY RESTATED FOR REVERSE 2 FOR 3 STOCK SPLIT
AND RECLASSIFICATION OF COMMON STOCK TO BE REPURCHASED.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
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0
53
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<OTHER-SE> 21,289
<TOTAL-LIABILITY-AND-EQUITY> 44,848
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<TOTAL-REVENUES> 1,131
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,047)
<EPS-BASIC> (2.41)
<EPS-DILUTED> 0
<FN>
OTHER EXPENSES ARE FOR R&D INCURRED IN DEVELOPING PRODUCT FOR MARKET. COMMON
STOCK AND OTHER STOCKHOLDERS' EQUITY RESTATED FOR REVERSE 2 FOR 3 STOCK SPLIT
AND RECLASSIFICATION OF COMMON STOCK TO BE REPURCHASED.
</FN>
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<ARTICLE> 5
<RESTATED>
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<CURRENCY> US DOLLAR
<S> <C>
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<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
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0
53
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<NET-INCOME> (6,716)
<EPS-BASIC> (0.54)
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<FN>
<F1>OTHER EXPENSES ARE FOR R&D INCURRED IN DEVELOPING PRODUCT FOR MARKET COMMON
STOCK AND OTHER STOCKHOLDERS' EQUITY RESTATED FOR REVERSE 2 FOR 3 STOCK SPLIT
AND RECLASSIFICATION OF COMMON STOCK TO BE REPURCHASED. </FN>
</TABLE>
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<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
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0
68
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<FN>
OTHER EXPENSES ARE FOR R&D INCURRED IN DEVELOPING PRODUCT FOR MARKET. COMMON
STOCK AND OTHER STOCKHOLDERS' EQUITY RESTATED FOR REVERSE 2 FOR 3 STOCK SPLIT
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</FN>
</TABLE>
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0
53
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<FN>
OTHER EXPENSES ARE FOR R&D INCURRED IN DEVELOPING PRODUCT FOR MARKET. COMMON
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</FN>
</TABLE>
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<ARTICLE> 5
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<S> <C>
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0
75
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<FN>
OTHER EXPENSES ARE FOR R&D INCURRED IN DEVELOPING PRODUCT FOR MARKET. COMMON
STOCK AND OTHER STOCKHOLDERS' EQUITY RESTATED FOR REVERSE 2 FOR 3 STOCK SPLIT
AND RELCASSIFICATION OF COMMON STOCK TO BE REPURCHASED.
</FN>
</TABLE>
