-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K6tUCdMTd+llCdJnqXpug7YWDdXdBli2QZRceOsSQHFnZHB70p8x0ws6MoE40/Rf ITnzUA44cmE1Ht8Lnra87Q== 0001035704-98-000127.txt : 19980218 0001035704-98-000127.hdr.sgml : 19980218 ACCESSION NUMBER: 0001035704-98-000127 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 46 FILED AS OF DATE: 19980217 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORTECH INC CENTRAL INDEX KEY: 0000728478 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 840894091 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-46445 FILM NUMBER: 98543867 BUSINESS ADDRESS: STREET 1: 6850 NORTH BROADWAY STREET 2: SUITE G CITY: DENVER STATE: CO ZIP: 80221 BUSINESS PHONE: 3036501200 S-4 1 FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1998 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- CORTECH, INC. (Exact name of registrant as specified in its charter) DELAWARE 8731 84-0894091 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
--------------------- CORTECH, INC. 6850 N. BROADWAY, SUITE G DENVER, COLORADO 80221 TELEPHONE: (303) 650-1200 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) KENNETH R. LYNN CHIEF EXECUTIVE OFFICER CORTECH, INC. 6850 N. BROADWAY, SUITE G DENVER, CO 80221 TELEPHONE: (303) 650-1200 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- Copies to: ALAN C. MENDELSON, ESQ. DAVID R. SNYDER, ESQ. CARRIE L. SCHIFF, ESQ. T. MICHAEL HIRD, ESQ. LISA S. DUMAW, ESQ. HAMILTON SOUTHWORTH III, ESQ. COOLEY GODWARD LLP PILLSBURY MADISON & SUTRO LLP 2595 CANYON BOULEVARD, SUITE 250 101 W. BROADWAY, SUITE 1800 BOULDER, CO 80302 SAN DIEGO, CA 92101 (303) 546-4000 (619) 234-5000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable following the effectiveness of this Registration Statement and the effective time of the proposed merger (the "Merger") of Cortech Merger Sub, Inc. with and into BioStar, Inc. ("BioStar"), as described in the Agreement and Plan of Merger and Reorganization, dated as of December 22, 1997, attached as Appendix A to the Joint Proxy Statement/Prospectus forming a part of this Registration Statement (the "Reorganization Agreement"). If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(a) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _______________ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _______________
================================================================================================================================= TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(2) - --------------------------------------------------------------------------------------------------------------------------------- Common Stock par value $0.002 per share(3)............................... 28,500,000 N/A $1,734 $100.00 =================================================================================================================================
(1) This Registration Statement relates to the maximum number of securities of the Registrant that may be issued in the proposed Merger. This number includes shares of the Registrant's Common Stock which may be issued upon conversion of shares of BioStar capital stock which may be issued after the effective date of this registration statement and prior to the consummation of the Merger pursuant to outstanding BioStar options and warrants. With respect to such options, promptly upon the effectiveness of the Merger the Registrant intends either to incorporate such options into existing plans for which registration statements on Form S-8 have been filed, to file amendments to such registration statements to incorporate such options or to file new registration statements on Form S-8 with respect to such options. (2) There is no established trading market for the shares of BioStar common stock and preferred stock which are to be converted into shares of Common Stock of the Registrant pursuant to the Merger described herein. In accordance with Rule 457(f)(2) under the Securities Act of 1933, as amended, given that BioStar has an accumulated capital deficit, the proposed maximum aggregate offering price has been calculated on the basis of one-third of the aggregate par value of the BioStar shares. One-third of such aggregate par value was $1,734 on February 13, 1997, the most recent practicable date for determination. (3) This Registration Statement also relates to the rights to purchase Series A Junior Participating Preferred Stock associated with the Common Stock of the Registrant. Until the occurrence of certain prescribed events, such rights are not exercisable, are evidenced by the certificate for the Registrant's Common Stock and will be transferred along with and only with the Registrant's Common Stock. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 CORTECH, INC. 6850 N. BROADWAY, SUITE G DENVER, COLORADO 80221 Dear Stockholder: Cortech, Inc., a Delaware corporation ("Cortech"), and BioStar, Inc., a Delaware corporation ("BioStar"), have entered into an Agreement and Plan of Merger and Reorganization (the "Reorganization Agreement") providing for the merger of a wholly owned subsidiary of Cortech with and into BioStar (the "Merger") and the issuance of shares of Cortech Common Stock to the BioStar stockholders. As a result of the Merger, BioStar would become a wholly owned subsidiary of Cortech. A special meeting of the stockholders of Cortech will be held at , Denver, Colorado on [ ,] 1998 at 9:00 a.m., local time (including any adjournments or postponements thereof, the "Cortech Special Meeting"). At the Cortech Special Meeting, you will be asked to consider and vote upon a proposal to adopt and approve the Reorganization Agreement and the transactions contemplated thereby (including the Merger and the related issuance of Cortech Common Stock to the BioStar stockholders) (the "Merger Proposal"). As a result of the Merger, each outstanding share of BioStar common stock and preferred stock would be converted into the right to receive shares of Cortech Common Stock and all outstanding options and warrants to acquire BioStar common stock or preferred stock would become options and warrants to acquire Cortech Common Stock. The number of shares of Cortech Common Stock to be issued in the Merger in exchange for the outstanding shares of BioStar common stock and preferred stock and in respect of outstanding options and warrants for BioStar capital stock would not exceed 28,500,000 shares (without giving effect to the reverse stock split described below) in the aggregate. The Merger and the Reorganization Agreement are described more fully in the accompanying Joint Proxy Statement/Prospectus. The Bylaws of Cortech and the rules of the Nasdaq National Market require that the Merger Proposal be approved by a majority of the shares of Cortech Common Stock having voting power present in person or by proxy at the Cortech Special Meeting. Consummation of the Merger is conditioned upon, among other things, the receipt of such stockholder approval. After careful consideration, the Board of Directors of Cortech (the "Cortech Board") has unanimously approved the Reorganization Agreement and the Merger and has concluded they are fair to, and in the best interests of, Cortech and its stockholders. The Cortech Board unanimously recommends that you vote in favor of the Merger Proposal. At the Cortech Special Meeting, you will also be asked to consider and vote upon a proposal to approve and adopt an amendment (the "Certificate of Amendment") to Cortech's Certificate of Incorporation effecting a one-for[ ] reverse stock split and changing the name of Cortech to "BioStar Holdings, Inc." (the "Cortech Certificate Proposal"). The Cortech Certificate Proposal, which is contingent upon the effectiveness of the Merger, requires the affirmative vote of the holders of a majority of the outstanding shares of Cortech Common Stock. Approval of the Cortech Certificate Proposal, however, is not a condition to the consummation of the Merger. The Cortech Board has unanimously approved the Certificate of Amendment and has unanimously recommended that you vote in favor of the Cortech Certificate Proposal. In the materials accompanying this letter you will find a Notice of Special Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the proposals to be voted upon at the Cortech Special Meeting and a proxy card. The Joint Proxy Statement/Prospectus more fully describes the Merger Proposal, the Cortech Certificate Proposal and the actions contemplated thereby. All stockholders are cordially invited to attend the Cortech Special Meeting in person. If you attend the Cortech Special Meeting, you may vote in person if you wish even though you have previously returned your completed proxy. WHETHER OR NOT YOU PLAN TO ATTEND THE CORTECH SPECIAL MEETING, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED, REGARDLESS OF HOW MANY SHARES YOU HOLD. APPROVAL OF THE CORTECH CERTIFICATE PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF CORTECH COMMON STOCK. THEREFORE, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. 3 On behalf of the Cortech Board, I thank you for your support and ask you to vote in favor of the Merger Proposal and the Cortech Certificate Proposal. Sincerely, Kenneth R. Lynn Chairman of the Board YOUR VOTE IS IMPORTANT -- PLEASE RETURN YOUR PROXY PROMPTLY 4 CORTECH, INC. 6850 N. BROADWAY, SUITE G DENVER, COLORADO 80221 --------------------- NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON [ ,] 1998 --------------------- TO THE STOCKHOLDERS OF CORTECH, INC.: NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Cortech, Inc., a Delaware corporation ("Cortech"), will be held on [ ,] 1998 at [9:00] a.m. local time at , Denver, Colorado (including any adjournments or postponements thereof, the "Cortech Special Meeting") to consider and vote upon the following proposals: 1. To adopt and approve the Agreement and Plan of Merger and Reorganization (the "Reorganization Agreement"), dated as of December 22, 1997, among Cortech, BioStar, Inc., a Delaware corporation ("BioStar"), and Cortech Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Cortech ("Merger Sub"), and the transactions contemplated thereby (including the merger of Merger Sub with and into BioStar (the "Merger") and the related issuance of Cortech Common Stock to the BioStar stockholders). Pursuant to the Merger, BioStar would become a wholly owned subsidiary of Cortech and the stockholders of BioStar would receive shares of Cortech Common Stock in exchange for their BioStar stock. A copy of the Reorganization Agreement is attached as Appendix A to the Joint Proxy Statement/Prospectus accompanying this Notice. 2. To adopt and approve an amendment to the Certificate of Incorporation of Cortech (the "Cortech Certificate of Amendment") which provides for (i) a change in the corporate name of Cortech to "BioStar Holdings, Inc." and (ii) a one-for-[ ] reverse split of outstanding shares of Cortech Common Stock. The Cortech Certificate of Amendment will be implemented only if the Merger is approved; however, approval of the Cortech Certificate of Amendment is not a condition to the closing of the Merger. 3. To transact such other business as may properly come before the Cortech Special Meeting. The proposed Merger, the Reorganization Agreement, the Cortech Certificate of Amendment and other related matters are more fully described in the attached Joint Proxy Statement/Prospectus. Stockholders of record at the close of business on [ ], 1998 are entitled to notice of, and to vote at, the Cortech Special Meeting. Commencing ten days prior to [ ], 1998, a list of stockholders entitled to vote at the Cortech Special Meeting shall be open to examination by any Cortech stockholder for any purpose germane to the Cortech Special Meeting at Cortech's offices at 6850 N. Broadway, Suite G, Denver, Colorado 80221. All stockholders are cordially invited to attend the Cortech Special Meeting in person. Whether or not you expect to attend, WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED. By Order of the Cortech Board of Directors Diarmuid Boran Secretary Denver, Colorado , 1998 5 BIOSTAR, INC. 6655 LOOKOUT ROAD BOULDER, COLORADO 80301 Dear Stockholder: BioStar, Inc., a Delaware corporation ("BioStar"), and Cortech, Inc., a Delaware corporation ("Cortech"), have entered into an Agreement and Plan of Merger and Reorganization (the "Reorganization Agreement") providing for the merger of a wholly owned subsidiary of Cortech with and into BioStar (the "Merger") and the issuance of shares of Cortech Common Stock to the BioStar stockholders. Subject to the approval of a charter amendment by Cortech's stockholders, after the Merger Cortech would change its name "BioStar Holdings, Inc." As a result of the Merger, BioStar would become a wholly owned subsidiary of Cortech. Pursuant to the Reorganization Agreement, a special meeting of the stockholders of BioStar (the "BioStar Special Meeting") will be held at on [ ], 1998 at 9:00 a.m., local time. At the BioStar Special Meeting you will be asked to consider and vote upon a proposal to adopt and approve the Reorganization Agreement and the Merger (the "Merger Proposal"). As a result of the Merger, each outstanding share of common stock and preferred stock of BioStar would be converted into the right to receive shares of common stock of Cortech and all outstanding options and warrants to acquire BioStar common stock or preferred stock would become options and warrants to acquire Cortech Common Stock. The number of shares of Cortech Common Stock to be issued in the Merger in exchange for the outstanding shares of BioStar common stock and preferred stock and in respect of outstanding options and warrants for BioStar capital stock would not exceed 28,500,000 shares (prior to the effect of a one-for-[--] reverse stock split which is being proposed for approval at a meeting of Cortech's stockholders). The Merger is described more fully in the accompanying Joint Proxy Statement/Prospectus. After careful consideration, the Board of Directors of BioStar (the "BioStar Board") has unanimously approved the Reorganization Agreement and the Merger, and has concluded they are fair to, and in the best interests of, BioStar and its stockholders. The BioStar Board unanimously recommends a vote in favor of the adoption and approval of the Reorganization Agreement and approval of the Merger. At the BioStar Special Meeting, you will also be asked to consider and vote upon a proposal to approve and adopt an amendment to the BioStar Restated Certificate of Incorporation (the "BioStar Certificate Proposal") which provides that the holders of BioStar preferred stock will only receive the consideration for their shares set forth in the Reorganization Agreement. Consummation of the Merger is contingent upon approval of the BioStar Certificate Proposal. The BioStar Board unanimously recommends a vote in favor of the adoption and approval of the BioStar Certificate Proposal. In the materials accompanying this letter you will find a Notice of Special Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the proposals to be voted upon at the BioStar Special Meeting and a proxy card. The Joint Proxy Statement/Prospectus more fully describes the Merger, the Reorganization Agreement and the BioStar Certificate Proposal. All stockholders are cordially invited to attend the BioStar Special Meeting in person. If you attend the BioStar Special Meeting, you may vote in person if you wish even though you have previously returned your completed proxy. WHETHER OR NOT YOU PLAN TO ATTEND THE BIOSTAR SPECIAL MEETING, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. THEREFORE, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. PLEASE DO NOT SEND IN THE STOCK CERTIFICATE(S) REPRESENTING YOUR BIOSTAR COMMON STOCK OR PREFERRED STOCK AT THIS TIME. On behalf of the BioStar Board, we thank you for your support and ask you to vote in favor of the Merger Proposal and the BioStar Certificate Proposal. Sincerely, Teresa W. Ayers President/Chief Executive Officer YOUR VOTE IS IMPORTANT -- PLEASE RETURN YOUR PROXY PROMPTLY 6 BIOSTAR, INC. 6655 LOOKOUT ROAD BOULDER, COLORADO 80301 --------------------- NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON [ ], 1998 --------------------- TO THE STOCKHOLDERS OF BIOSTAR, INC.: NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "BioStar Special Meeting") of BioStar, Inc., a Delaware corporation ("BioStar"), will be held on [ ], 1998, at a.m., local time, at to consider and vote upon the following proposals: 1. To (i) adopt and approve the Agreement and Plan of Merger and Reorganization (the "Reorganization Agreement"), dated as of December 22, 1997, among BioStar, Cortech, Inc., a Delaware corporation ("Cortech"), and Cortech Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Cortech ("Merger Sub"), and (ii) approve the merger of Merger Sub with and into BioStar pursuant to which BioStar would become a wholly owned subsidiary of Cortech (the "Merger"). A copy of the Reorganization Agreement is attached as Appendix A to the Joint Proxy Statement/Prospectus accompanying this Notice. 2. To adopt and approve an amendment to the BioStar Restated Certificate of Incorporation which provides that the holders of BioStar preferred stock would only receive the consideration for their shares set forth in the Reorganization Agreement (the "BioStar Certificate Proposal"). 3. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. The proposed Merger, the Reorganization Agreement, the BioStar Certificate Proposal and other related matters are more fully described in the attached Joint Proxy Statement/Prospectus. Stockholders of record at the close of business on [ ], 1998 are entitled to notice of, and to vote at, the BioStar Special Meeting and any adjournments or postponements thereof. All stockholders are cordially invited to attend the BioStar Special Meeting in person. Whether or not you expect to attend, WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED. By Order of the BioStar Board Edward C. Pritchard Secretary Boulder, Colorado , 1998 7 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY OR THE SOLICITATION OF ANY PROXY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES OR THE SOLICITATION OF ANY PROXY, IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION FEBRUARY 13, 1998 CORTECH, INC. AND BIOSTAR, INC. JOINT PROXY STATEMENT FOR SPECIAL MEETINGS TO BE HELD ON [ ], 1998 --------------------- CORTECH, INC. PROSPECTUS FOR UP TO 28,500,000 SHARES OF COMMON STOCK PAR VALUE $0.002 PER SHARE This Joint Proxy Statement/Prospectus is being furnished to holders of common stock, $.002 par value per share ("Cortech Common Stock"), of Cortech, Inc., a Delaware corporation ("Cortech"), in connection with the solicitation of proxies by the Board of Directors of Cortech (the "Cortech Board") for use at a special meeting of the stockholders of Cortech to be held on [ ], 1998, as well as at any adjournments or postponements thereof (the "Cortech Special Meeting"). This Joint Proxy Statement/Prospectus is also being furnished to holders of common stock, $.0001 par value per share, and preferred stock, $.0001 par value per share (collectively, "BioStar Capital Stock"), of BioStar, Inc., a Delaware corporation ("BioStar"), in connection with the solicitation of proxies by the Board of Directors of BioStar (the "BioStar Board") for use at a special meeting of the stockholders of BioStar to be held on [ ], 1998, as well as at any adjournments or postponements thereof (the "BioStar Special Meeting"). The Cortech Special Meeting and the BioStar Special Meeting are being called to consider and vote upon a proposal (the "Merger Proposal") to adopt and approve the Agreement and Plan of Merger and Reorganization dated as of December 22, 1997 (the "Reorganization Agreement") among Cortech, BioStar and Cortech Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Cortech ("Merger Sub"), and the transactions contemplated thereby (including the merger of Merger Sub with and into BioStar (the "Merger") and (in the case of Cortech) the related issuance of Cortech Common Stock to the BioStar stockholders). The stockholders of Cortech and BioStar also will consider and vote upon other proposals at the Cortech Special Meeting and the BioStar Special Meeting, respectively. Such proposals are discussed more fully elsewhere in this Joint Proxy Statement/Prospectus. Upon consummation of the proposed Merger, BioStar will become a wholly owned subsidiary of Cortech, each outstanding share of BioStar Capital Stock will be converted into the right to receive shares of Cortech Common Stock and all outstanding options and warrants to acquire BioStar Capital Stock will become options and warrants to acquire Cortech Common Stock. The number of shares of Cortech Common Stock to be issued in the Merger in exchange for the outstanding shares of BioStar Capital Stock and in respect of outstanding options and warrants for BioStar Capital Stock will not exceed 28,500,000 shares in the aggregate (prior to the effect of a one-for[ ] reverse stock split which is being proposed for approval at the Cortech Special Meeting). The fraction of a share of Cortech Common Stock into which each share of BioStar Capital Stock will be converted pursuant to the Reorganization Agreement is referred to as the "Exchange Ratio". Although the Exchange Ratio will depend upon the capitalization of BioStar at the time of the Merger and the market price for Cortech Common Stock prior to the Merger, BioStar presently estimates that the Exchange Ratio will be approximately .5512 (based upon BioStar's capitalization as of the date of this Joint Proxy Statement/Prospectus and assuming a per share market price for Cortech Common Stock of $0.656 (the market price per share of Cortech Common Stock as of the date of the Reorganization Agreement) immediately prior to the Effective Time (as defined below)). See "The Reorganization Agreement -- Merger Consideration". The obligations of Cortech and BioStar to effect the Merger and otherwise consummate the transactions contemplated by the Reorganization Agreement are subject to the satisfaction or waiver of various conditions, 8 including (i) approval of the Merger Proposal by a majority of the shares of Cortech Common Stock having voting power present in person or by proxy at the Cortech Special Meeting and (ii) approval of the Merger Proposal by (a) holders of a majority of the outstanding shares of BioStar Capital Stock, voting together as a single class (on an as-converted basis), and (b) holders of a majority of the shares of each series of BioStar preferred stock, voting as separate classes. The Merger is expected to be consummated shortly after such approvals are obtained and the other conditions to the consummation of the Merger are satisfied or waived. It is currently anticipated that the Merger will be consummated in [ ], 1998. This Joint Proxy Statement/Prospectus also constitutes a prospectus of Cortech included as a part of a registration statement filed with the Securities and Exchange Commission relating to up to 28,500,000 shares of Cortech Common Stock issuable in connection with the Merger. All information contained herein concerning Cortech has been furnished by Cortech, and all information contained herein concerning BioStar has been furnished by BioStar. This Joint Proxy Statement/Prospectus does not cover any resales of the Cortech Common Stock issuable in the Merger. No person is authorized to make use of this Joint Proxy Statement/Prospectus in connection with any such resale. Holders of BioStar Capital Stock will be entitled to appraisal rights with respect to the proposed Merger by complying with the procedures set forth in Section 262 of the Delaware General Corporation Law. Holders of Cortech Common Stock have no appraisal rights in connection with the Merger. This Joint Proxy Statement/Prospectus and the accompanying forms of proxies are first being mailed to stockholders of Cortech and BioStar on or about , 1998. --------------------- THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS OF CORTECH AND BIOSTAR ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER "RISK FACTORS" BEGINNING AT PAGE 14. --------------------- THE SHARES OF CORTECH COMMON STOCK TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------- The date of this Joint Proxy Statement/Prospectus is , 1998. 9 TABLE OF CONTENTS
PAGE ---- AVAILABLE INFORMATION SUMMARY..................................................... 1 The Companies............................................. 1 Cortech, Inc. ......................................... 1 BioStar, Inc. ......................................... 1 Cortech Merger Sub, Inc. .............................. 2 The Cortech Special Meeting............................... 2 Time, Date, Place and Purpose.......................... 2 Record Date and Vote Required.......................... 2 The BioStar Special Meeting............................... 3 Time, Date, Place and Purpose.......................... 3 Record Date and Vote Required.......................... 3 The Merger................................................ 4 General................................................ 4 Effective Time of the Merger; Closing Date............. 4 Stock Ownership Following the Merger................... 5 Exchange of BioStar Stock Certificates................. 5 Cortech's Reasons for the Merger....................... 5 Recommendation of the Cortech Board.................... 6 Opinion of Financial Advisor to Cortech................ 6 BioStar's Reasons for the Merger....................... 6 Recommendation of the BioStar Board.................... 6 Non-Solicitation....................................... 6 Conduct of Business.................................... 6 Composition of the Cortech Board and Officers.......... 7 Conditions to the Merger............................... 7 Termination............................................ 7 Expenses and Termination Fees.......................... 8 Interests of Certain Persons in the Merger............. 9 Registration Rights.................................... 9 Comparison of Stockholder Rights....................... 9 Certain Federal Income Tax Consequences................ 9 Accounting Treatment................................... 9 Appraisal Rights....................................... 10 Risk Factors.............................................. 10 Markets and Market Prices................................. 10 Cortech Certificate Proposal.............................. 10 Selected Historical Financial Information................. 11 Summary Selected Unaudited Consolidated Pro Forma Financial Data......................................... 12 Comparative Per Share Data................................ 13 RISK FACTORS................................................ 14 Risks Related to the Merger............................... 14 Risks Related to the Business and Operations of Cortech and BioStar............................................ 15 INTRODUCTION................................................ 30 THE CORTECH SPECIAL MEETING................................. 30 Purpose of the Cortech Special Meeting.................... 30 Date, Time and Place of Meeting........................... 30
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PAGE ---- Record Date; Voting Rights and Outstanding Shares......... 30 Solicitation of Proxies; Expenses......................... 30 Quorum; Vote Required..................................... 31 Effect of Abstentions and Broker Nonvotes................. 31 Voting and Revocability of Proxies........................ 31 THE BIOSTAR SPECIAL MEETING................................. 33 Purpose of the BioStar Special Meeting.................... 33 Date, Time and Place of Meeting........................... 33 Record Date; Voting Rights and Outstanding Shares......... 33 Solicitation of Proxies; Expenses......................... 33 Quorum; Vote Required..................................... 33 Effect of Abstentions..................................... 34 Voting and Revocability of Proxies........................ 34 CORTECH STOCK PRICE AND DIVIDEND INFORMATION................ 34 APPROVAL OF THE MERGER AND RELATED TRANSACTIONS............. 35 Background of the Merger.................................. 35 Cortech's Reasons for the Merger.......................... 37 Cortech Board Recommendation.............................. 39 BioStar's Reasons for Merger.............................. 39 Opinion of Financial Advisor to Cortech................... 40 Interests of Certain Persons in the Merger................ 45 Voting Agreements......................................... 46 Affiliate Agreements...................................... 47 Certain Federal Income Tax Consequences................... 47 Anticipated Accounting Treatment.......................... 49 Regulatory Matters........................................ 49 Rights of Dissenting Stockholders......................... 50 Resale of Cortech Common Stock............................ 51 Effect under Cortech Rights Plan.......................... 51 THE REORGANIZATION AGREEMENT................................ 52 General................................................... 52 Merger Consideration...................................... 52 No Fractional Shares...................................... 53 Stock Options and Warrants................................ 53 Stock Ownership Following the Merger...................... 53 Conversion of Shares; Procedures for Exchange of Certificates........................................... 53 Effect on Certificates.................................... 54 Corporate Matters; Composition of the Cortech Board and Officers............................................... 54 Conditions to the Merger.................................. 54 Representations and Warranties............................ 57 Covenants................................................. 58 Termination............................................... 63 Expenses and Termination Fees............................. 64 PROPOSAL TO AMEND THE CORTECH CERTIFICATE OF INCORPORATION............................................. 66 Corporate Name Change..................................... 66 Reverse Split............................................. 66 Effects of the Reverse Split.............................. 67 Federal Income Tax Consequences........................... 68 Exchange of Shares........................................ 68 Required Vote............................................. 69 Board Recommendation...................................... 69
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PAGE ---- AMENDMENT OF BIOSTAR CERTIFICATE OF INCORPORATION........... 70 Effect of Amendment....................................... 70 Required Vote............................................. 70 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION............................................... 71 Unaudited Pro Forma Combined Consolidated Balance Sheet... 72 Unaudited Pro Forma Condensed Consolidated Statements of Operations............................................. 73 CORTECH BUSINESS............................................ 74 Overview.................................................. 74 Cortech's Work with Protease Inhibitors................... 74 Cortech's Work with Bradykinin Antagonists................ 76 Product Development Risks................................. 78 Patents, Trade Secrets and Licenses....................... 78 CP-0127 Development Corporation........................... 79 Marketing Strategy........................................ 80 Manufacturing............................................. 80 Competition............................................... 80 Government Regulation..................................... 81 Third-Party Reimbursement................................. 83 Human Resources........................................... 83 Properties................................................ 83 Legal Proceedings......................................... 83 CORTECH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 84 General................................................... 84 Results of Operations..................................... 84 Liquidity and Capital Resources........................... 85 Other Matters............................................. 86 CORTECH MANAGEMENT AND EXECUTIVE COMPENSATION............... 87 Compensation of Directors................................. 87 Compensation of Executive Officers........................ 88 Stock Option Grants and Exercises......................... 88 CORTECH PRINCIPAL STOCKHOLDERS.............................. 90 BIOSTAR BUSINESS............................................ 92 Overview.................................................. 92 Industry Overview......................................... 93 Strategy.................................................. 94 Thin Film Technologies.................................... 94 Products and Markets...................................... 96 Sales and Marketing....................................... 101 Manufacturing............................................. 102 Strategic Relationships................................... 102 Research and Development.................................. 104 Competition............................................... 105 Patents, Trade Secrets and Trademarks..................... 106 Regulation................................................ 106 Reimbursement............................................. 109 Technical and Business Advisors........................... 109 Human Resources........................................... 110 Facilities................................................ 110 Legal Proceedings......................................... 110
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PAGE ---- BIOSTAR MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 111 General................................................... 111 Results of Operations..................................... 111 Liquidity and Capital Resources........................... 113 Other Matters............................................. 113 BIOSTAR MANAGEMENT AND EXECUTIVE COMPENSATION............... 114 Compensation of Directors................................. 115 Compensation of Executive Officers........................ 116 Stock Option Grants and Exercises......................... 117 Employment Agreements..................................... 118 BIOSTAR PRINCIPAL STOCKHOLDERS.............................. 119 CERTAIN TRANSACTIONS........................................ 122 DESCRIPTION OF CORTECH CAPITAL STOCK........................ 124 Authorized Capital Stock.................................. 124 Cortech Common Stock...................................... 124 Cortech Preferred Stock................................... 124 Cortech Options........................................... 124 Warrants.................................................. 125 Certain Anti-takeover Provisions.......................... 125 Stockholder Rights Plan................................... 125 Registration Rights....................................... 126 COMPARISON OF STOCKHOLDERS' RIGHTS.......................... 127 Class Votes............................................... 127 Classified Board of Directors............................. 127 Removal of Directors...................................... 127 Limitation on Directors' Liability; Indemnification of Directors and Officers................................. 128 Amendments to the Certificate of Incorporation............ 128 Power to Call Special Stockholders' Meeting; Action By Consent................................................ 128 Inspection of Stockholders' List.......................... 129 Dividends and Repurchases of Shares....................... 129 Amendment of Bylaws....................................... 129 Approval of Certain Corporate Transactions................ 129 Certain Business Combination.............................. 129 Appraisal Rights.......................................... 130 Dissolution............................................... 130 Registration Rights....................................... 130 STOCKHOLDER PROPOSALS....................................... 131 EXPERTS..................................................... 131 LEGAL MATTERS............................................... 131 REPRESENTATIVES OF INDEPENDENT PUBLIC ACCOUNTANTS........... 131 INDEX TO FINANCIAL STATEMENTS............................... F-1 APPENDIX A -- Agreement and Plan of Merger and Reorganization............................................ A-1 APPENDIX B -- Proposed Amendments to Cortech Certificate of Incorporation............................................. B-1 APPENDIX C -- Opinion of Cowen & Company ................... C-1 APPENDIX D -- Section 262 of the Delaware General Corporation Law........................................... D-1
iv 13 AVAILABLE INFORMATION Cortech is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). The reports, proxy statements and other information filed by Cortech with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the Commission's regional offices at CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material may also be obtained from the Commission at prescribed rates by writing to the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Under the rules and regulations of the Commission, the vote on the Merger Proposal by holders of BioStar Capital Stock constitutes an offering of the Cortech Common Stock to be issued in connection with the Merger. Accordingly, Cortech has filed with the Commission a Registration Statement on Form S-4 (herein, together with all amendments and exhibits thereto, referred to as the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to such Cortech Common Stock. This Joint Proxy Statement/Prospectus does not contain all of the information set forth in the Registration Statement, certain portions of which have been omitted pursuant to the rules and regulations of the Commission and to which portions reference is hereby made. Statements contained in this Joint Proxy Statement/Prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. For further information with respect to Cortech, BioStar, the Merger, the securities offered hereby and related matters, reference is made to the Registration Statement. The Registration Statement and the exhibits thereto may be inspected, without charge, at the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies may be obtained from the Commission at prescribed rates. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. --------------------- This Joint Proxy Statement/Prospectus is being furnished to Cortech's stockholders in connection with the solicitation of proxies by the Cortech Board for use at the Cortech Special Meeting and to BioStar's stockholders in connection with the solicitation of proxies by the BioStar Board for use at the BioStar Special Meeting. Each copy of this Joint Proxy Statement/Prospectus mailed to the Cortech stockholders is accompanied by a form of proxy for use at the Cortech Special Meeting and each copy of this Joint Proxy Statement/Prospectus mailed to the BioStar stockholders is accompanied by a form of proxy for use at the BioStar Special Meeting. This Joint Proxy Statement/Prospectus is also being furnished by Cortech to holders of BioStar Capital Stock as a prospectus in connection with the shares of Cortech Common Stock to be issued upon consummation of the Merger. 14 NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING AND THE SOLICITATION MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CORTECH, MERGER SUB OR BIOSTAR. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY INFERENCE THAT THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF EITHER CORTECH OR BIOSTAR SINCE THE DATE HEREOF. --------------------- This Joint Proxy Statement/Prospectus contains trademarks of Cortech and BioStar as well as trademarks of other companies. 15 SUMMARY The following is a summary of certain information contained elsewhere in this Joint Proxy Statement/Prospectus. This summary is not, and is not intended to be, complete by itself. This Joint Proxy Statement/Prospectus contains forward-looking statements that involve risks and uncertainties. Cortech's, BioStar's and the combined company's actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Joint Proxy Statement/Prospectus. This summary is qualified in its entirety by reference to the more detailed information contained elsewhere in this Joint Proxy Statement/Prospectus, the appendices attached hereto and the documents referred to herein. Stockholders of Cortech and BioStar are urged to review carefully all of the information contained in this Joint Proxy Statement/Prospectus, the Reorganization Agreement attached hereto as Appendix A and the other appendices attached hereto. THE COMPANIES CORTECH, INC. Cortech is a biopharmaceutical company whose principal focus has been the discovery and development of novel therapeutics for the treatment of inflammatory disorders. Specifically, Cortech has directed its research and development efforts towards protease inhibitors and bradykinin antagonists. These efforts have produced certain intellectual property rights. In response to disappointing test results and its loss of collaborative partner support, Cortech has implemented a series of reductions in force over the past three-and-one-half years which has reduced the number of full-time, regular employees from more than 200 to fewer than 15 and effectively discontinued all internal efforts to advance its research and development activities. In addition, Cortech is currently de-commissioning its laboratories, has sold most of its scientific and technical equipment and, unless BioStar opts to retain such assets, plans to sell most of its office furniture and equipment and, where possible, its leasehold improvements. As a result of these actions, Cortech no longer has the staff or operative facilities required to re-commence internal research and development activities. Cortech has retained a core group of professionals who, among other things, are actively engaged in ongoing efforts to realize appropriate value from Cortech's tangible and intangible assets. It is uncertain, however, whether Cortech will be able to retain employees with sufficient knowledge and experience to realize appropriate value from Cortech's intangible assets. In light of the above, Cortech's management has focused on evaluating various strategic alternatives. As a result, Cortech entered into the Reorganization Agreement with BioStar on December 22, 1997. Cortech was incorporated in 1982 in Colorado and reincorporated in Delaware in August 1991. The principal executive offices of Cortech are located at 6850 N. Broadway, Suite G, Denver, Colorado 80221 (the "Cortech Principal Offices"). Cortech's telephone number is (303) 650-1200. BIOSTAR, INC. BioStar develops, manufactures and markets point-of-care diagnostic tests using its proprietary, highly-sensitive, thin film technologies. BioStar's current products employ its Optical ImmunoAssay (OIA(R)) technology, a thin film, platform technology developed for the rapid detection of a variety of medical conditions. BioStar's OIA tests help caregivers, in a cost-effective and efficient manner, to identify causes of illness and select appropriate patient therapy by providing information during the initial patient encounter. Internally and through collaborative arrangements, BioStar is developing additional thin film technologies which are intended to broaden the range of applications for its existing products and to enable the introduction of new products. BioStar was incorporated in Delaware in May 1992. The principal executive offices of BioStar are located at 6655 Lookout Road, Boulder, Colorado 80301 (the "BioStar Principal Offices"). BioStar's telephone number is (303) 530-3888. 1 16 CORTECH MERGER SUB, INC. Merger Sub is a corporation recently organized as a wholly owned subsidiary of Cortech for the purpose of effecting the Merger. Merger Sub has no material assets and has not engaged in any activities except in connection with the Merger. The principal executive offices of Merger Sub are located at 6850 N. Broadway, Suite G, Denver, Colorado 80221. Merger Sub's telephone number is (303) 650-1200. THE CORTECH SPECIAL MEETING TIME, DATE, PLACE AND PURPOSE The Cortech Special Meeting will be held at on [ ], 1998, at a.m. local time. The purpose of the Cortech Special Meeting is to vote upon proposals to (i) approve and adopt the Reorganization Agreement, attached hereto as Appendix A, and the transactions contemplated thereby (including the Merger and the related issuance of Cortech Common Stock to the BioStar stockholders) (the "Merger Proposal") and (ii) approve an amendment (the "Cortech Certificate of Amendment") of the Certificate of Incorporation of Cortech, attached hereto as Appendix B, which provides for a change in Cortech's corporate name to "BioStar Holdings, Inc." and a one-for-[ ] reverse stock split (collectively, the "Cortech Certificate Proposal"). Approval of the Cortech Certificate Proposal is not a condition to consummation of the Merger and would be implemented only if the Merger is consummated. Holders of Cortech Common Stock may also consider and vote upon such other matters as may be properly brought before the Cortech Special Meeting or any postponements or adjournments thereof. RECORD DATE AND VOTE REQUIRED Only Cortech stockholders of record at the close of business on [ ,] 1998 (the "Cortech Record Date") are entitled to vote at the Cortech Special Meeting. Approval of the Merger Proposal will require approval by a majority of the shares of Cortech Common Stock having voting power present in person or by proxy at the Cortech Special Meeting (the "Required Cortech Stockholder Vote"). Approval of the Cortech Certificate Proposal will require approval by the holders of a majority of the outstanding shares of Cortech Common Stock entitled to vote at the Cortech Special Meeting. Certain directors, an officer and other affiliates of Cortech, who together hold approximately 2.3% of the Cortech Common Stock outstanding as of the Cortech Record Date, have entered into voting agreements with BioStar (the "Cortech Voting Agreements") pursuant to which such directors, officer and other affiliates of Cortech have agreed to vote in favor of the Merger Proposal and the Cortech Certificate Proposal and have granted BioStar an irrevocable proxy to vote their shares of Cortech Common Stock in favor of the Merger Proposal and the Cortech Certificate Proposal. See "Approval of the Merger and Related Transactions -- Voting Agreements". This Joint Proxy Statement/Prospectus and accompanying Notice of Special Meeting of Stockholders are being mailed to all of the holders of record of Cortech Common Stock as of the Record Date and constitute notice of the Cortech Special Meeting in conformity with the requirements of the Delaware General Corporation Law (the "DGCL"). 2 17 THE BIOSTAR SPECIAL MEETING TIME, DATE, PLACE AND PURPOSE The BioStar Special Meeting will be held at on [ ,] 1998, at a.m. local time. The purpose of the BioStar's Special Meeting is to vote upon (i) a proposal to approve and adopt the Merger Proposal (excluding action specific to Cortech such as the related issuance of Cortech Common Stock) and (ii) a proposal to approve and adopt an amendment (the "BioStar Certificate of Amendment") of the Restated Certificate of Incorporation of BioStar, attached to the Reorganization Agreement as Exhibit B, which provides that the holders of BioStar preferred stock will only receive the consideration for their shares as set forth in the Reorganization Agreement (the "BioStar Certificate Proposal"). Consummation of the Merger is conditioned upon approval of the BioStar Certificate Proposal. BioStar stockholders may also consider and vote upon such other matters as may be properly brought before the BioStar Special Meeting or any postponements or adjournments thereof. RECORD DATE AND VOTE REQUIRED Only BioStar stockholders of record at the close of business on , 1998 (the "BioStar Record Date") are entitled to vote at the BioStar Special Meeting. The Merger Proposal and the BioStar Certificate Proposal each will require approval by the affirmative vote of the holders of a majority of the outstanding shares of BioStar common stock and BioStar preferred stock (voting on an as-converted basis), voting together as a single class, and the affirmative vote of the holders of a majority of the shares of each series of BioStar preferred stock voting as separate classes (the "Required BioStar Stockholder Vote"). Certain directors, officers and other affiliates of BioStar, who together hold approximately 65% of the BioStar common stock and preferred stock voting together as a single class (the "Voting Agreement Stockholders"), and 100% of the Series A Preferred Stock, 100% of the Series B Preferred Stock, 100% of the Series C Preferred Stock, at least 50% of the Series D Preferred Stock and at least 38% of the Series E Preferred Stock outstanding as of the BioStar Record Date, have entered into voting agreements with Cortech (the "BioStar Voting Agreements") pursuant to which such Voting Agreement Stockholders have agreed to vote in favor of the Merger Proposal and the BioStar Certificate Proposal and have granted Cortech an irrevocable proxy to vote their shares of BioStar Capital Stock in favor of the Merger Proposal and the BioStar Certificate Proposal. See "Approval of the Merger and Related Transactions -- Voting Agreements". This Joint Proxy Statement/Prospectus and accompanying Notice of Special Meeting of Stockholders were mailed to all BioStar stockholders of record as of the BioStar Record Date and constitute notice of the BioStar Special Meeting in conformity with the requirements of the DGCL. 3 18 THE MERGER GENERAL At the Effective Time (as defined below), Merger Sub will merge with and into BioStar, the separate existence of Merger Sub will cease and BioStar will become a wholly owned subsidiary of Cortech. It is currently anticipated that the Effective Time will occur during [ ] 1998. In addition, the Reorganization Agreement provides that, subject to the terms and conditions thereof, at the Effective Time the following will occur: Conversion of BioStar Capital Stock. Subject to the provisions contained in the Reorganization Agreement relating to the payment of cash in lieu of fractional shares and shares with respect to which appraisal rights have properly been exercised, each share of BioStar common stock and preferred stock (collectively, "BioStar Capital Stock") then outstanding will be converted into the right to receive a number of shares of Cortech Common Stock equal to the "Exchange Ratio." The Exchange Ratio is equal to a fraction the numerator of which is 28,500,000 and the denominator of which is the number of shares of BioStar Capital Stock outstanding plus the number of shares of BioStar Capital Stock issuable upon exercise of all (x) outstanding BioStar Warrants (defined below) and (y) outstanding BioStar Options (defined below), in each case as of immediately prior to the Effective Time. Although the Exchange Ratio will depend upon the capitalization of BioStar at the Effective Time and the market price for Cortech Common Stock prior to the Effective Time, BioStar presently estimates that the Exchange Ratio will be approximately .5512 (based upon BioStar's capitalization as of the date of this Joint Proxy Statement/Prospectus and assuming a per share market price for Cortech Common Stock of $0.656 (the per share market price of Cortech Common Stock as of the date of the Reorganization Agreement) immediately prior to the Effective Time). See "The Reorganization Agreement -- Merger Consideration". The number of shares of Cortech Common Stock to be issued in the Merger in exchange for the outstanding shares of BioStar Capital Stock (and in respect of outstanding options and warrants for BioStar Capital Stock) will not exceed 28,500,000 shares in the aggregate (prior to the effect of the one-for-[ ] reverse stock split to be considered at the Cortech Special Meeting). BioStar Stock Options. Each unexpired and unexercised option to purchase shares of BioStar common stock granted under the 1995 Equity Incentive Plan ("BioStar Options") will be assumed by Cortech. Each BioStar Option so assumed by Cortech will continue to have, and be subject to, substantially the same terms and conditions set forth in the documents governing such BioStar Options immediately prior to the Effective Time (subject to appropriate adjustments to the exercise price and number of shares subject thereto based upon the Exchange Ratio). As promptly as possible after the consummation of the Merger, Cortech will file a Registration Statement on Form S-8 to register the shares of Cortech Common Stock issuable upon exercise of the BioStar Options. See "The Reorganization Agreement -- Options". BioStar Warrants. Unless otherwise provided by the terms of each outstanding warrant to purchase securities of BioStar which are not exercised prior to the Merger and which do not expire if not exercised prior to the Merger (the "BioStar Warrants"), all rights with respect to BioStar Capital Stock underlying the BioStar Warrants will be converted into and become rights with respect to Cortech Common Stock, and Cortech will assume each such BioStar Warrant in accordance with its terms (subject to appropriate adjustments to the exercise price and number of shares subject thereto based upon the Exchange Ratio). See "The Reorganization Agreement -- Warrants". EFFECTIVE TIME OF THE MERGER; CLOSING DATE The Merger will become effective upon the filing of a Certificate of Merger with the Secretary of State of the State of Delaware or at such later time as may be specified in the Certificate of Merger (the "Effective Time"). The consummation of the transactions contemplated by the Reorganization Agreement will take place on a date to be agreed upon by Cortech and BioStar (the "Closing Date"), which will be no later than the tenth business day after the satisfaction or waiver of all of the conditions to closing of the Merger set forth in the Reorganization Agreement. Assuming that all of the conditions to the Merger are satisfied or waived, it 4 19 is anticipated that the Merger will be consummated in [ ] 1998. See "The Reorganization Agreement -- Conditions to the Merger". STOCK OWNERSHIP FOLLOWING THE MERGER A maximum of 28,500,000 shares of Cortech Common Stock will be issued or issuable to holders of BioStar Capital Stock, BioStar Options and BioStar Warrants (prior to the effect of the one-for-[ ] reverse stock split to be considered at the Cortech Special Meeting). Based upon the number of shares of Cortech Common Stock issued and outstanding as of the Cortech Record Date, and after giving effect to the additional shares of Cortech Common Stock that are proposed to be issued or issuable pursuant to the Merger, the former holders of BioStar Capital Stock would hold approximately 60% of Cortech's total issued and outstanding shares (assuming exercise of all BioStar Options and BioStar Warrants). EXCHANGE OF BIOSTAR STOCK CERTIFICATES As soon as reasonably practicable after the Effective Time, an exchange agent to be selected by Cortech (the "Exchange Agent") will mail to the holders of BioStar Capital Stock (i) a letter of transmittal (the "Letter of Transmittal") with respect to the surrender of valid certificates representing shares of BioStar Capital Stock ("BioStar Stock Certificates") in exchange for certificates representing Cortech Common Stock and (ii) instructions for use of the Letter of Transmittal. BIOSTAR STOCKHOLDERS SHOULD NOT SURRENDER THEIR BIOSTAR STOCK CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL. See "The Reorganization Agreement -- Conversion of Shares; Procedures for Exchange of Certificates". CORTECH'S REASONS FOR THE MERGER In approving the Reorganization Agreement and the Merger, the Cortech Board considered a number of factors, including that: (i) the combination of Cortech's cash resources and status as a public company with BioStar's products, platform technology and organization would offer Cortech's stockholders an opportunity to realize appropriate value from their investment in Cortech; (ii) the combination would afford Cortech's existing technology an enhanced opportunity to be (a) recognized as valuable and (b) advanced in externally funded development, thereby permitting Cortech stockholders an opportunity to realize any benefits therefrom; (iii) as compared with a voluntary corporate liquidation, (a) the combination would permit Cortech's stockholders an opportunity to share in potential value which would otherwise be lost in a liquidation (such as value potentially to be derived from Cortech's public company status as well as the potential going concern value of other intangible and tangible Cortech assets) and (b) Cortech's stockholders would not have to face risks as to whether or not reserves allocated to cover residual liabilities in connection with any liquidation would prove to be adequate; (iv) after reviewing numerous potential strategic transactions, and balanced against Cortech's diminishing prospects and status as a stand-alone entity (due, primarily, to continued incremental depletion of cash assets, the impairment of Cortech's ability (through a series of corporate downsizings) to undertake internal research and development and the resulting/growing potential for technological stagnation), management and the Cortech Board determined that an alternative transaction of comparable or superior terms for Cortech's stockholders likely would not become available to Cortech within the reasonably foreseeable future (if ever); and (v) BioStar possesses a variety of assets and resources that would bring value to a combined entity and thereby potentially benefit Cortech's stockholders, including: (a) a capable management team with the demonstrated ability to lead the development and commercialization of products; (b) a business plan for continued efforts to develop and commercialize products; and (c) current product revenues which will, at least partially, offset continuing research and development expenses (and thereby extend the cash resources of a combined company). See "Approval of the Merger and Related Transactions -- Cortech's Reasons for the Merger" and "The Cortech Special Meeting -- Board Recommendation". 5 20 RECOMMENDATION OF THE CORTECH BOARD The Cortech Board has unanimously approved the Reorganization Agreement and the Merger and has unanimously recommended a vote FOR approval of the Merger Proposal. The Cortech Board also has unanimously approved the Cortech Certificate of Amendment and has unanimously recommended a vote FOR approval of the Cortech Certificate Proposal. OPINION OF FINANCIAL ADVISOR TO CORTECH Cowen & Company ("Cowen") delivered its opinion dated December 22, 1997 (the "Cowen Opinion") to the Cortech Board that, as of the date of such opinion and subject to the various considerations set forth therein, the financial terms of the Merger are fair from a financial point of view to Cortech. The full text of the Cowen Opinion, which sets forth, among other things, assumptions made, matters considered and limitations on the scope of the review undertaken in connection with the Cowen Opinion, is attached hereto as Appendix C and is incorporated herein by reference. Holders of Cortech Common Stock are urged to, and should, read the Cowen Opinion in its entirety. See "Approval of the Merger and Related Transactions-Opinion of Financial Advisor to Cortech". BIOSTAR'S REASONS FOR THE MERGER The BioStar Board considered a wide variety of information and a number of factors in connection with its evaluation of the proposed Merger and the Reorganization Agreement, and determined that the Merger provides an opportunity that serves the best interests of BioStar and its stockholders. The BioStar Board believes that the Merger may result in a number of benefits to BioStar and its stockholders, including, among other benefits, the following: (i) providing BioStar with substantially greater resources, including cash and a publicly-traded security; (ii) providing BioStar's stockholders with liquidity; and (iii) providing BioStar with access to the intangible assets associated with Cortech's business. See "Approval of the Merger and Related Transactions -- BioStar Reasons for the Merger," and "The BioStar Special Meeting -- Board Recommendation". RECOMMENDATION OF THE BIOSTAR BOARD The BioStar Board has unanimously approved the Reorganization Agreement and the Merger and has unanimously recommended a vote FOR the Merger Proposal. The BioStar Board also has unanimously recommended a vote FOR the BioStar Certificate Proposal. NON-SOLICITATION Pursuant to the Reorganization Agreement, Cortech and BioStar each have agreed not to directly or indirectly solicit or initiate discussions or negotiations relating to a transaction (other than the Merger) involving a merger, consolidation, sale or similar transaction involving a significant portion of the stock or assets of Cortech or BioStar, respectively. However, Cortech and BioStar may each furnish information and enter into discussions or negotiations in response to a bona fide, unsolicited acquisition proposal if and only to the extent that the board of directors of the company receiving the proposal determines in good faith (i) after consultation with its financial advisor, that the acquisition proposal is reasonably likely to result in an offer superior to the one proposed in the Reorganization Agreement and (ii) after consultation with its outside counsel, that such actions are required in order for such board of directors to comply with its fiduciary obligations. See "The Reorganization Agreement -- Non-Solicitation". CONDUCT OF BUSINESS Pursuant to the Reorganization Agreement, BioStar and Cortech have made certain covenants regarding the conduct of their respective businesses during the period from the date of the execution of the Reorganization Agreement through the Effective Time, including, without limitation, covenants to: (i) conduct their respective business and operations (a) in the ordinary course and in accordance with operating parameters previously discussed among Cortech and BioStar with regard to Cortech and in 6 21 accordance with past practices with regard to BioStar and (b) in compliance with all applicable legal requirements and material contracts; (ii) use all reasonable efforts to preserve their respective business organizations and the services of their current officers and employees and maintain their respective relations and goodwill with suppliers, customers, landlords, creditors, licensors, licensees, employees and other persons; (iii) maintain insurance policies; (iv) provide all reasonable notices, assurances and support required by any material contract relating to proprietary assets; and (v) cause their officers to report regularly concerning the status of their respective business to the other party. See "The Reorganization Agreement -- Covenants -- Conduct of BioStar's Business" and "-- Conduct of Cortech's Business". COMPOSITION OF THE CORTECH BOARD AND OFFICERS Cortech has agreed to use all reasonable efforts to have the Cortech Board consist of five persons from and after the Effective Time to serve until the next election of directors (for each director's respective class), three of whom have been specified by BioStar. Promptly following the Effective Time, it is expected that the Cortech Board will be composed of Teresa W. Ayers, with a term expiring in 2000, Alexander E. Barkas, Ph.D., with a term expiring in 1999, Thomas A. Bologna, with a term expiring in 2000, Bert Fingerhut, with a term expiring in 1999, and Kenneth R. Lynn, with a term expiring in 1998. Ms. Ayers and Messrs. Barkas and Bologna have been specified by BioStar. See "Cortech Management and Executive Compensation" and "BioStar Management and Executive Compensation". Promptly following the Effective Time, the BioStar executive officers will become the executive officers of Cortech. CONDITIONS TO THE MERGER The obligations of Cortech and Merger Sub to effect the Merger and otherwise consummate the transactions contemplated by the Reorganization Agreement are subject to the satisfaction or waiver of certain conditions relating to, among other things: (i) the accuracy of the representations and warranties of BioStar contained in the Reorganization Agreement (subject to certain materiality limitations); (ii) the performance in all material respects by BioStar of certain covenants and obligations contained in the Reorganization Agreement; (iii) the approval of the Merger Proposal by BioStar's stockholders and Cortech's stockholders and the approval of the BioStar Certificate Proposal by BioStar's stockholders; (iv) fewer than 10% of the outstanding shares of BioStar Capital Stock having asserted appraisal rights under the DGCL; (v) receipt of certain consents; (vi) receipt of certain certificates and legal opinions; (vii) the absence of any material adverse change to BioStar; (viii) the absence of restraining orders, injunctions and other orders preventing the consummation of the Merger; (ix) the absence of certain litigation or administrative actions or proceedings; (x) delivery of affiliate agreements by certain directors and officers of BioStar; and (xi) the Cowen Opinion not having been withdrawn as of the date of this Joint Proxy Statement/Prospectus. The obligation of BioStar to effect the Merger and otherwise consummate the transactions contemplated by the Reorganization Agreement is subject to the satisfaction of certain conditions relating to, among other things: (i) the accuracy of the representations and warranties of Cortech contained in the Reorganization Agreement (subject to certain materiality limitations); (ii) the performance in all material respects by Cortech of certain covenants and obligations contained in the Reorganization Agreement; (iii) the approval of the Merger Proposal by BioStar's stockholders and Cortech's stockholders and the approval of the BioStar Certificate Proposal by BioStar's stockholders; (iv) receipt of certain legal opinions and certificates; (v) the absence of any material adverse change to Cortech; (vi) the absence of restraining orders, injunctions and other orders preventing the consummation of the Merger; (vii) the taking of all actions necessary by Cortech to cause the Cortech Board to consist of five persons, three of whom have been specified by BioStar; (viii) the absence of certain litigation or administrative actions or proceedings; and (ix) receipt of certain consents. See "The Reorganization Agreement -- Conditions to the Merger". TERMINATION The Reorganization Agreement may be terminated prior to the Effective Time, whether before or after approval of the Merger Proposal by the stockholders of Cortech and BioStar: (i) by mutual written consent of Cortech and BioStar; (ii) subject to certain exceptions, by either Cortech or BioStar if the Merger shall not 7 22 have been consummated by May 31, 1998; (iii) by either Cortech or BioStar in connection with certain legal or governmental actions having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger; (iv) by Cortech or BioStar if the BioStar Special Meeting shall have been held and the Merger Proposal and the BioStar Certificate Proposal shall not have been approved by BioStar's stockholders; (v) by Cortech or BioStar if the Cortech Special Meeting shall have been held and the Merger Proposal shall not have been approved by Cortech's stockholders; (vi) by BioStar if (a) the Cortech Board withdraws or amends in a way adverse to BioStar its unanimous recommendation in favor of the Merger and approval of the Reorganization Agreement, (b) Cortech shall have failed to include in this Joint Proxy Statement/Prospectus such recommendation of its board, (c) the Cortech Board fails to reaffirm its unanimous recommendation within five business days of BioStar's request, (d) the Cortech Board shall have approved, endorsed or recommended a proposal (other than the Merger) for, or entered into a letter of intent or contract relating to, the acquisition of Cortech, (e) Cortech shall have failed to timely hold the Cortech Special Meeting, (f) subject to certain limitations, a tender or exchange offer for Cortech's securities shall have been commenced and Cortech does not within five days recommend rejection of such tender or exchange offer or (g) a proposal (other than the Merger) to acquire Cortech is publicly announced and Cortech does not issue a press release announcing its opposition to the proposal within five days or otherwise fails actively to oppose such proposal (any such event, a "Cortech Triggering Event"); (vii) by Cortech if (a) the BioStar Board withdraws or amends in a way adverse to Cortech its unanimous recommendation in favor of the Merger and approval of the Reorganization Agreement, (b) BioStar shall have failed to include in this Joint Proxy Statement/Prospectus such recommendation of its board, (c) the BioStar Board fails to reaffirm its unanimous recommendation within five business days of Cortech's request, (d) the BioStar Board shall have approved, endorsed or recommended a proposal (other than the Merger) for, or entered into a letter of intent or contract relating to, the acquisition of BioStar, (e) BioStar shall have failed to timely hold the BioStar Special Meeting, (f) subject to certain limitations, a tender or exchange offer for BioStar's securities shall have been commenced and BioStar does not within five business days recommend rejection of such tender or exchange offer or (g) a proposal (other than the Merger) to acquire BioStar is publicly announced and BioStar does not issue a press release announcing its opposition to the proposal within five business days or otherwise fails actively to oppose such proposal (any such event, a "BioStar Triggering Event"); (viii) by Cortech, subject to certain limitations, if any of BioStar's representations and warranties contained in the Reorganization Agreement shall be or shall have become materially inaccurate, if any of BioStar's covenants in the Reorganization Agreement shall have been breached or if Cowen withdraws its fairness opinion on or before the date of this Joint Proxy Statement/Prospectus; (ix) by BioStar, subject to certain limitations, if any of Cortech's representations and warranties contained in the Reorganization Agreement shall be or shall have become materially inaccurate or if any of Cortech's covenants contained in the Reorganization Agreement shall have been breached. See "The Reorganization Agreement -- Termination". EXPENSES AND TERMINATION FEES Pursuant to the Reorganization Agreement, except as set forth below, all fees and expenses incurred in connection with the Reorganization Agreement and the transactions contemplated by the Reorganization Agreement shall be paid by the party incurring such expenses, whether or not the Merger is consummated; provided, however, that Cortech and BioStar shall share equally all fees and expenses, other than attorney's fees, incurred in connection with the printing, filing and mailing of this Joint Proxy Statement/Prospectus and the Registration Statement of which this Joint Proxy Statement/Prospectus is a part. In the event that the Reorganization Agreement is terminated by Cortech (i) following the occurrence of a BioStar Triggering Event or (ii) due to a breach of the Reorganization Agreement by BioStar, then BioStar shall pay Cortech a termination fee of $500,000 plus the amount of professional fees and expenses (not to exceed $150,000) incurred by Cortech in connection with the Merger. Similarly, in the event that the Reorganization Agreement is terminated by BioStar (i) following the occurrence of a Cortech Triggering Event or (ii) due to a breach of the Reorganization Agreement by Cortech, then Cortech shall pay BioStar a termination fee of $500,000 plus the amount of professional fees and expenses (not to exceed $150,000) incurred by BioStar in connection with the Merger. See "The Reorganization Agreement -- Expenses and Termination Fees". 8 23 INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the recommendations of the Cortech Board and the BioStar Board with respect to the Reorganization Agreement and transactions contemplated thereby, Cortech and BioStar stockholders should be aware that certain members of Cortech's management and the Cortech Board and BioStar's management and the BioStar Board have interests in the Merger that are in addition to the interests of each corporation's stockholders generally. These interests arise from, among other things, certain employment agreements, severance plans, management incentive and retention programs, indemnification arrangements and other matters. For a discussion and quantification of these interests, see "Approval of the Merger and Related Transactions -- Interests of Certain Persons in the Merger". REGISTRATION RIGHTS Cortech will assume BioStar's obligations to persons who have registration rights with BioStar under the BioStar Restated Investors' Rights Agreement (the "Investors' Rights Agreement"); however, such agreement provides that such persons may not request any registration until the earlier of (i) 90 days after the effective date of a registration statement for the first public offering of securities of Cortech following the Effective Time and (ii) the first anniversary of the Effective Time. For a discussion of these registration rights, see "Comparison of Stockholder Rights". COMPARISON OF STOCKHOLDER RIGHTS In the event that the Merger is consummated, holders of BioStar Capital Stock will become holders of shares of Cortech Common Stock. The rights of stockholders of Cortech differ from the rights of BioStar stockholders with respect to certain matters. For a summary of these differences, see "Comparison of Stockholders' Rights". CERTAIN FEDERAL INCOME TAX CONSEQUENCES The Merger is expected to be a tax-free reorganization for federal income tax purposes, so that no gain or loss will be recognized by the BioStar stockholders on the exchange of BioStar Capital Stock for Cortech Common Stock, except to the extent that BioStar stockholders receive cash pursuant to the exercise of appraisal rights or in lieu of fractional shares. The Reorganization Agreement does not require the parties to obtain a ruling from the Internal Revenue Service as to the tax consequences of the Merger. As a condition to the closing of the Merger, BioStar and Cortech are to receive opinions from their respective counsel that, based on certain assumptions and certifications, the Merger will be treated as a tax-free reorganization for federal income tax purposes. BIOSTAR STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER. See "Approval of the Merger and Related Transactions -- Certain Federal Income Tax Consequences". ACCOUNTING TREATMENT Although as a legal matter Cortech is acquiring BioStar, the Merger will be accounted for as a "purchase" of Cortech by BioStar for accounting and financial reporting purposes. Accordingly, BioStar's historical financial statements will be the financial statements of the post-merger combined company. Under the purchase method of accounting, Cortech's results of operations will be combined with those of BioStar from and after the Effective Time, and Cortech's specific tangible and identifiable intangible assets and liabilities will be recorded on BioStar's books at their respective fair values at the Effective Time. A determination of the fair value of Cortech's specific tangible and identifiable intangible assets and liabilities will be made in order to allocate the purchase price to the assets acquired and the liabilities assumed. See "Approval of the Merger and Related Transactions -- Anticipated Accounting Treatment". 9 24 APPRAISAL RIGHTS Holders of BioStar Capital Stock are generally entitled to appraisal rights with respect to the Merger under the DCGL. If the Merger Proposal is approved by the Required BioStar Stockholder Vote and is not terminated in accordance with the Reorganization Agreement, BioStar's stockholders who do not vote for the Merger Proposal and who comply with all applicable provisions of the DCGL will have the right to exercise appraisal rights and receive the "fair value" of their shares of BioStar Capital Stock in cash. A dissenting stockholder of BioStar must follow the appropriate procedures under the DGCL or suffer the termination or waiver of such appraisal rights. For a more detailed description of the procedures applicable to the exercise of appraisal rights, see "Approval of the Merger and Related Transactions -- Rights of Dissenting Stockholders". The full text of the pertinent statutory provisions of the DCGL relating to the proper exercise of such appraisal rights is attached hereto as Appendix D and should be read carefully and in its entirety. Holders of Cortech Common Stock will not be entitled to exercise appraisal rights under the DGCL with respect to the Merger. RISK FACTORS The Merger and an investment in securities of Cortech involve certain risks and uncertainties, including risks related to the respective businesses of Cortech and BioStar and other risks and uncertainties discussed under "Risk Factors" and elsewhere in this Joint Proxy Statement/Prospectus. See "Risk Factors". MARKETS AND MARKET PRICES Cortech Common Stock is listed on the Nasdaq National Market under the symbol "CRTQ". On December 19, 1997, the last trading day before the announcement by Cortech and BioStar that they had entered into the Reorganization Agreement, the closing sale price of Cortech Common Stock as reported on the Nasdaq National Market was $0.594 per share. On February 12, 1998, the closing sale price of Cortech Common Stock as reported on the Nasdaq National Market was $0.61 per share. There can be no assurance as to the actual market price of Cortech Common Stock prior to, at or at any time following the Effective Time. Following the Merger, assuming necessary stockholder approval of the Cortech Certificate Proposal, Cortech will change its corporate name to "BioStar Holdings, Inc." Cortech will apply to have the Cortech Common Stock, including the Cortech Common Stock issuable upon the consummation of the Merger in exchange for BioStar Capital Stock, approved for quotation by Nasdaq under the symbol "BSTR". Cortech's continued listing on the Nasdaq National Market is dependent upon Cortech achieving a minimum bid price of $1.00 per share of Cortech Common Stock. See "Risk Factors -- Potentional Loss of Nasdaq National Market Listing." BioStar is privately held and no established trading market exists for BioStar Capital Stock. Accordingly, information with respect to the market price of Cortech Common Stock on an historical and equivalent per share basis has been omitted. CORTECH CERTIFICATE PROPOSAL The Cortech Certificate Proposal, which would be implemented only if the Merger is consummated, provides for a change in Cortech's corporate name to "BioStar Holdings, Inc." and a one-for-[ ] reverse stock split. The primary objective of the Cortech Board with respect to such reverse stock split is to increase the per share market price of Cortech Common Stock. A significant collateral effect will be to increase the number of authorized but unissued shares of Cortech Common Stock. See "Proposal to Amend the Cortech Certificate of Incorporation". 10 25 SELECTED HISTORICAL FINANCIAL INFORMATION The following tables set forth certain selected historical financial data of Cortech and BioStar. This data is derived from and should be read in conjunction with, and is qualified in its entirety by, the financial statements, including the notes thereto, of Cortech and BioStar appearing elsewhere in this Joint Proxy Statement/Prospectus. See "Cortech Financial Statements" and "BioStar Financial Statements". CORTECH
AT OR FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------- 1997 1996 1995 1994 1993 ------- ------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) HISTORICAL STATEMENT OF OPERATIONS DATA: Revenues.................................... $ 3,451 $ 7,422 $ 5,140 $ 1,470 $ 3,472 Losses from operations...................... $(7,717) $(7,531) $(18,106) $(28,489) $(15,432) Net loss.................................... $(6,778) $(6,339) $(16,421) $(26,738) $(14,183) Basic net loss per share.................... $ (0.37) $ (0.35) $ (0.92) $ (1.52) $ (0.95) HISTORICAL BALANCE SHEET DATA: Total assets................................ $16,445 $25,483 $ 28,643 $ 45,553 $ 68,763 ======= ======= ======== ======== ======== Stockholders' equity........................ $15,383 $22,125 $ 26,977 $ 43,073 $ 66,354 ======= ======= ======== ======== ========
BIOSTAR
AT OR FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------- 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) HISTORICAL STATEMENT OF OPERATIONS DATA: Revenues....................................... $15,858 $12,367 $ 9,591 $ 3,990 $ 1,272 Losses from operations......................... $(1,143) $(3,172) $(4,624) $(7,096) $(6,341) Net loss....................................... $(1,933) $(3,823) $(4,803) $(6,969) $(6,174) Basic and diluted net loss per share........... $ (1.00) $ (2.23) $ (2.55) $ (5.39) $(18.13) HISTORICAL BALANCE SHEET DATA: Total assets................................... $ 6,329 $ 5,782 $ 6,916 $ 7,387 $ 5,930 Total short term and long term debt............ $ 8,499 $ 7,248 $ 5,249 $ 1,149 $ 593 Stockholders' equity (deficit)................. $(5,613) $(3,773) $ (16) $ 4,869 $ 4,274
11 26 SUMMARY SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following table sets forth unaudited pro forma condensed consolidated financial data for Cortech and BioStar which gives effect to the Merger, accounted for as a purchase of Cortech by BioStar for accounting and financial reporting purposes, as if it had been consummated as of January 1, 1997 for income statement data and as of December 31, 1997 for balance sheet data. See "Approval of the Merger and Related Transactions -- Anticipated Accounting Treatment." The pro forma data is not necessarily indicative of the results that would have been achieved had such transaction been consummated on such dates and should not be construed as representative of future operations. This presentation is subject to the assumptions set forth in the notes to the Unaudited Pro Forma Condensed Consolidated Financial Information appearing elsewhere in this Joint Proxy Statement/Prospectus. The information presented should be read in conjunction with such pro forma financial information and the notes thereto, and the historical financial statements including the notes thereto, of Cortech and BioStar, respectively, appearing elsewhere in this Joint Proxy Statement/Prospectus. See "Unaudited Pro Forma Condensed Consolidated Financial Information", "Cortech Financial Statements" and "BioStar Financial Statements".
AT OR FOR THE YEAR ENDED DECEMBER 31, 1997 ----------------------------------- (IN THOUSANDS EXCEPT PER SHARE DATA) UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues.................................................. $19,309 Loss from operations...................................... $(8,860) Net loss.................................................. $(8,118) Basic and diluted net loss per share...................... $ (0.18) Shares used in basic and diluted net loss per share calculation............................................ 44,619 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DATA: Total assets.............................................. $22,287 Total short term and long term debt....................... $ 2,434 Stockholders' equity...................................... $13,342
12 27 COMPARATIVE PER SHARE DATA The following table sets forth certain historical per share data of Cortech and BioStar, as well as unaudited pro forma per share data of Cortech and BioStar based on the assumption that the Merger was effective on January 1, 1997 for income statement data and on December 31, 1997 for balance sheet data. The pro forma data is not necessarily indicative of the results that would have been achieved had such transaction been consummated on such dates and should not be construed as representative of future operations. The pro forma presentation is subject to the assumptions set forth in the notes to the unaudited pro forma condensed consolidated financial information appearing elsewhere in this Joint Proxy Statement/Prospectus. The information presented should be read in conjunction with such unaudited pro forma condensed consolidated financial information and notes thereto, and the historical financial statements and notes thereto, of Cortech and BioStar, respectively, included elsewhere in this Joint Proxy Statement/Prospectus. No cash dividends have ever been declared or paid on Cortech Common Stock or BioStar Capital Stock. See "Unaudited Pro Forma Condensed Consolidated Financial Information", "Cortech Financial Statements" and "BioStar Financial Statements".
AT OR FOR THE YEAR ENDED DECEMBER 31, 1997 ----------------- HISTORICAL -- CORTECH: Basic and diluted net loss per common share................. $(0.37) Book value per common share................................. $ 0.83 HISTORICAL -- BIOSTAR: Basic and diluted net loss per common share................. $(1.00) Book value per common share................................. $(2.86) PRO FORMA COMBINED PER CORTECH SHARE: Basic and diluted net loss per common share................. $(0.18) Book value per common share................................. $ 0.30 PRO FORMA EQUIVALENT PER BIOSTAR SHARE (1): Basic and diluted net loss per common share................. $(0.10) Book value per common share................................. $ 0.17
- --------------- (1) Reflects the Pro Forma Combined Per Cortech Share amounts multiplied by the estimated Exchange Ratio of .5512 of a share of Cortech Common Stock for each share of BioStar Capital Stock. Such Exchange Ratio assumes a per share market price of $.656 for Cortech Common Stock (based upon BioStar's capitalization as of the date of this Joint Proxy Statement/Prospectus and the per share market price of Cortech Common Stock as of the date of the Reorganization Agreement) immediately prior to the Effective Time. See "The Reorganization Agreement -- Merger Consideration". 13 28 RISK FACTORS The following factors should be considered carefully in evaluating the proposals to be voted upon by the stockholders of Cortech and BioStar and in evaluating an investment in the Cortech Common Stock offered hereby. For periods following the Merger, references to the products, businesses, results of operations or financial condition of Cortech or the combined company should be considered to refer to Cortech and its subsidiaries, including BioStar, unless the context otherwise requires. RISKS RELATED TO THE MERGER Dependence Upon BioStar Business, Operations and Management. Following the Merger, the combined company's business, operations and management will consist almost entirely of the business, operations and management of BioStar as existing prior to the Merger. Cortech stockholders should be aware that the Merger represents the investment of substantially all of Cortech's existing cash resources into a new and different line of business, and that the combined company's future performance will be almost entirely dependent upon (and subject to the risks relating to) BioStar's business, strategy, operations, management and personnel. Although Cortech and BioStar believe that the combined company will be able to realize value from Cortech's tangible and intangible assets after the Merger, there can be no assurance that the combined company will be able to do so. In addition, there can be no assurance that stockholders of Cortech and BioStar would not achieve greater returns on their investment if Cortech and BioStar were to remain independent companies. Potential Loss of Nasdaq National Market Listing. Trading in Cortech Common Stock is presently quoted on the Nasdaq National Market. Cortech has been advised by Nasdaq that the continued quotation of Cortech Common Stock on the Nasdaq National Market is in jeopardy due to a bid price for Cortech Common Stock of less than $1.00 per share. The reverse stock split included as part of the Cortech Certificate Proposal (the "Reverse Split") is intended to increase the post-Merger per share bid price of Cortech Common Stock in order to satisfy Nasdaq's related requirement. In the event that the Merger Proposal is approved but the Cortech Certificate Proposal is not implemented following the Cortech Special Meeting (for example, because the Cortech Certificate Proposal is not approved at the Cortech Special Meeting), Cortech would propose a reverse stock split of Cortech Common Stock for approval at an Annual Meeting of the Cortech Stockholders to be held as soon as reasonably practicable following the Cortech Special Meeting. There can be no assurances that Cortech will be able to maintain its Nasdaq National Market listing (whether as a result of failure to meet the minimum bid price requirement or other requirements imposed by the Nasdaq National Market). The absence of the quotation of trading in Cortech Common Stock on the Nasdaq National Marketwould have an adverse effect on the market for, and the market price of, Cortech Common Stock. See "Proposal to Amend the Cortech Certificate of Incorporation -- Reverse Split". Availability of Additional Shares. The Reverse Split will have the effect of increasing the number of authorized but unissued shares of Cortech Common Stock. This would permit Cortech to use such shares in connection with Cortech's employee benefit plans, the options, warrants and rights formerly relating to BioStar Capital Stock which will be assumed by Cortech in the Merger and possible future issuances. At the Cortech Record Date, there were issued and outstanding [ ] shares of Cortech Common Stock and options and warrants to acquire an additional [ ] shares of Cortech Common Stock. The number of shares of Cortech Common Stock to be issued in connection with the Merger will not exceed 28,500,000 shares (pre-Reverse Split). Accordingly, only [ ] of the 50,000,000 shares of Cortech Common Stock authorized would be available for possible future issuances absent the Reverse Split. See "Proposal to Amend the Cortech Certificate of Incorporation -- Reverse Split". Shares Eligible for Future Sale. In excess of 80% of Cortech's currently outstanding shares (as of January 30, 1998) are freely tradable (subject to volume limitations applicable to affiliates). If the Merger is consummated, Cortech will issue to securityholders of BioStar an aggregate maximum of 28,500,000 shares of Cortech Common Stock. Substantial sales of shares of Cortech Common Stock could occur after the Merger. Immediately upon consummation of the Merger, all of the shares issuable in the Merger will be freely-tradable (subject to volume limitations and other restrictions of Rule 145 under the Securities Act for persons who were affiliates of BioStar prior to the Merger or who are affiliates of the combined company following the 14 29 Merger). However, holders of approximately 23,139,053 of such shares have agreed not to, directly or indirectly, sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any such shares for a period ending 180 days from the Effective Time (the "lock-up period") without the prior written consent of Cortech. Based on the number of BioStar Options outstanding as of January 31, 1998 and Cortech's intent to file a registration statement with respect to the underlying shares of Cortech Common Stock promptly following the Merger, an additional 2,403,050 shares could be sold upon the exercise of BioStar Options promptly following the Effective Time. Also, holders of 25,324,452 shares of BioStar's Capital Stock have certain rights to require that BioStar file a registration statement with the Securities and Exchange Commission with respect to their shares. See "Comparison of Stockholders' Rights". Future sales of a substantial number of such shares of Cortech Common Stock could adversely affect or cause substantial fluctuations in the market price of Cortech Common Stock. RISKS RELATED TO THE BUSINESS AND OPERATIONS OF CORTECH AND BIOSTAR History of Operating Losses; No Assurance of Future Profitability. Each of Cortech and BioStar has incurred operating losses in each year since their respective dates of inception. For the fiscal year ended December 31, 1997, Cortech had a net loss of $6.8 million, and through such date has an accumulated deficit of $84.6 million. For the fiscal year ended December 31, 1997, BioStar had a net loss of $1.9 million, and through such date has an accumulated deficit of $25.8 million. Each of Cortech's and BioStar's losses have resulted principally from costs incurred in research and development and from selling, general and administrative costs associated with their respective operations. Cortech's costs have exceeded its revenues, which have come from research and development funding and interest income from investment of excess cash. BioStar's costs also have exceeded its revenues, which, to date, have principally been derived from sales of diagnostic products, funding from government research grants and payments from collaborators. After the Merger, the combined company will continue to incur operating losses as a result of increases in its expenses for research and product development, clinical trials, regulatory approvals and expansion of sales and marketing capability. The amount of future operating losses and time required by the combined company to reach profitability, if ever, are highly uncertain. The combined company's ability to generate significant revenues and become profitable is dependent in large part on its ability to commercialize successfully new BioStar products, continue selling current products and generate revenues through strategic partnerships. There can be no assurance that the combined company will continue to generate revenue from BioStar's current products, successfully commercialize any of BioStar's current or future products or secure ongoing revenues from strategic partners. See "Cortech Management's Discussion and Analysis of Financial Condition and Results of Operations" and "BioStar Management's Discussion and Analysis of Financial Condition and Results of Operations". No Assurance of Successful or Timely Development of Additional Diagnostic Products. The combined company's business strategy will involve the development of additional diagnostic products. The combined company's success in developing new diagnostic products will depend on its ability to achieve scientific and technological advances and to translate these advances into commercially competitive products on a timely basis. Development of new products requires significant research, development and testing efforts. There can be no assurance that future diagnostic products will be successfully developed or commercialized on a timely basis, if at all. The combined company will have limited resources to devote to the development of products and, consequently, a delay in the development of one product or the use of resources for product development efforts that prove unsuccessful may delay or jeopardize the development of other products. The combined company will also depend on collaborative partners successfully and timely performing research and development activities on behalf of or together with the combined company. The combined company's development efforts may be adversely affected by a number of factors, many of which will be beyond the combined company's control, including technological difficulties, proprietary technologies of others, possible changes in government regulation of diagnostic products and the availability of sources of funding. Even if future diagnostic products become commercially viable, there can be no assurance that such products will receive FDA clearance. Furthermore, the combined company may experience significant delays in the commercial introduction of such products. Any delay in the development, introduction and marketing of 15 30 future diagnostic products could result in such products being marketed at a time when their cost and performance characteristics would not enable them to compete effectively in their respective markets. If the combined company is unable, for technological or other reasons, to complete the development and introduction of any new product or if any new product is not approved or cleared for marketing or does not achieve a significant level of market acceptance, the combined company's results of operation could be materially and adversely affected. See "BioStar Business -- Products and Markets" and "-- Regulation". No Assurance of Successful or Timely Development of Therapeutic Products. Following the Merger, it is anticipated that the combined company will focus its resources on the development, production and marketing of diagnostic products. Since Cortech's therapeutic compounds are at an early stage of development and will require significant additional research, development and preclinical and extensive clinical testing prior to submission of any regulatory application for commercial use, Cortech's current business must be evaluated in light of the uncertainties and complications present in a development stage biopharmaceutical company. Due to the high costs associated with the research and development of its technology, Cortech is currently seeking either to sell its rights to its technology or to obtain financing from a corporate partner for further development of such technology. Neither Cortech nor BioStar intends that the combined company will undertake further development of Cortech's technology without a collaborative partner. Presently, there are no agreements, understandings or active, substantive negotiations between Cortech and any third party to purchase any of Cortech's technology rights or fund further development of such technology. There can be no assurance that the combined company will be able to effect any transaction involving a sale of technology rights or establish such a collaboration on favorable terms, if at all. Even if a collaborative partner is found to fund the combined company's research and development activities with respect to potential therapeutic products, there can be no assurance that such activities will be successfully completed, that the compounds under development will prove safe and effective in clinical trials, that required regulatory approvals will be obtained, that products will be manufactured at an acceptable cost and with appropriate quantity and quality or that any approved products can be successfully marketed or will be accepted by patients, health care providers and thirdparty payors. See "Cortech Business -- Cortech's Work with Protease Inhibitors", "-- Cortech's Work with Bradykinin Antagonists", "-- Regulation" and "-- Reimbursement". Dependence on Collaborative Relationships and Third Parties for Diagnostic Product Development and Commercialization. BioStar has entered into licensing and research and development agreements with collaborative partners from which it derived a significant percentage of its revenues in 1997. Contract revenues consist of milestone payments, grant revenues, funded feasibility, product development costs and licensing fees. Pursuant to these agreements, BioStar's collaborative partners have significant responsibilities for the costs of development, promotion, regulatory approval and/or sale of BioStar's products. For example, BioStar's grants from the National Institutes of Health ("NIH") are government funded and, as a result, are subject to the continued availability of funding for medical research in the federal budget. The combined company will continue to rely on collaborative partners for the development of products and technologies. The amount and timing of resources that any of these partners devotes to these activities will generally be based on progress by the combined company in its product development efforts. In addition, several of these agreements may be terminated by the partner upon prior notice without cause. There can be no assurance that any of these partners will perform its contractual obligations or that it will not terminate its agreement. The failure to adapt BioStar products to different formats and instruments, or otherwise to commercialize such products would have a material adverse effect on the combined company's business, financial condition and results of operations. Additionally, the combined company's strategy for future development, clinical testing, manufacturing and commercialization of BioStar products is largely dependent upon the establishment of collaborations with corporate partners and other third parties. There can be no assurance that the combined company will be able to negotiate such collaborative arrangements on acceptable terms, if at all, or that current or future collaborative arrangements will be successful. To the extent that the combined company is not able to establish such arrangements, it would experience increased capital requirements to undertake such activities at 16 31 its own expense. The combined company also may encounter significant delays in introducing diagnostic products into certain markets or find that the development, manufacture or sale of diagnostic products in such markets is adversely affected by the absence or lack of success of any such collaborations. With respect to any products manufactured by third parties, there can be no assurance that any such third-party manufacturer would perform acceptably or that failures by third parties would not delay clinical trials or the submission of products for regulatory approval or impair the combined company's ability to deliver products on a timely basis. The combined company also will be dependent on the efforts of such third parties to market or promote its products. See "Cortech Business -- Cortech's Work with Protease Inhibitors", "-- Cortech's Work with Bradykinin Antagonists" and "BioStar Business -- Strategic Partners". Dependence on Collaborative Relationships and Third Parties for Therapeutic Product Commercialization. Drug discovery and development programs are capital intensive. Since management anticipates that it will focus its capital resources on diagnostic products and believes that raising funds in the public capital markets to use to develop therapeutic products may remain unattractive for the combined company for the foreseeable future, the combined company's strategy for the development, clinical testing, manufacture and commercialization of potential therapeutic products largely depends upon collaborations with corporate partners and other third parties. There can be no assurance that the combined company will be able to negotiate any such collaborative arrangements on acceptable terms, if at all. To the extent that the combined company is not able to establish such arrangements, it would require more capital to undertake such activities at its own expense. The combined company may also encounter significant delays in introducing its products into certain markets or find that the development, manufacture and sale of its products in such markets is adversely affected by the absence or lack of success of any such collaborations. There can be no assurance that any third party collaborator will perform acceptably or that failures by such third parties would not delay clinical trials or the submission of products for regulatory approval or impair the combined company's ability effectively to commercialize any therapeutic products. See "Cortech Business -- Cortech's Work with Protease Inhibitors" and "-- Cortech's Work with Bradykinin Antagonists". Seasonality of Products; Quarterly Fluctuations in Results of Operations. BioStar's operating results have historically been subject to quarterly fluctuations. For as long as the majority of BioStar's product sales are sales of its group A streptoccocus ("GAS") tests, BioStar's revenues will be seasonal, concurrent with the time of the year in which respiratory infections and viruses are prevalent. In addition, two of BioStar's products in development are also directed at respiratory infections (pneumonia and influenza). Consequently, BioStar's revenues are, and BioStar and Cortech expect that the combined company's revenues will be, concentrated in the first and fourth quarters of each fiscal year. This seasonal variation could have negative effects on the trading price of Cortech Common Stock. Cortech and BioStar believe that future operating results of the combined company will also be subject to quarterly fluctuations due to a variety of other factors, including whether and when new products are successfully developed and introduced by the combined company or its competitors, market acceptance of current or new products, regulatory delays, product recalls, competition and pricing pressures from competitive products, manufacturing delays, shipment problems and changes in the mix of products sold. In addition, the combined company's operating results will be adversely affected if its products do not gain substantial market acceptance or if its product development efforts are unsuccessful or subject to delays. See "BioStar Business". Concentration of Sales of Diagnostic Products. In 1997, at least 80% of BioStar's product sales revenues were derived from sales of GAS products. For the foreseeable future, Cortech and BioStar expect that the combined company's revenues and profitability will substantially depend on sales of GAS products. Competitive pressures could erode the combined company's profit margins for its GAS products. A decrease in the competitiveness or market acceptance of BioStar's GAS products could have a material adverse effect on BioStar's business, financial condition and results of operations. See "BioStar Business -- Products and Markets". Dependence on Externally Sourced Products for Growth. BioStar currently sells four diagnostic products under license from Wyntek Diagnostics, Inc. ("Wyntek"), and BioStar may seek to expand its relationship with Wyntek to include additional products. Termination of the Wyntek agreement could have a material adverse effect on the combined company's business, financial condition and results of operations. In addition 17 32 to the Wyntek arrangement, the combined company's growth strategy includes sales of externally sourced products. There can be no assurance that the combined company will be able to identify suitable products or, once identified, be able to enter into agreements to in-license such products on acceptable terms, if at all. See "BioStar Business -- Products and Markets". Reliance on Sales Force for Sales of Diagnostic Products. BioStar has marketed and sold its products in the clinical and physician office markets in the United States through a "flex" representative sales force. The costs associated with hiring and training flex sales representatives are substantial, and the orientation and training period for flex sales representatives can be as long as three months. In the past, BioStar has experienced significant employee turnover in its flex representative sales force and incurred substantial costs as a result. There can be no assurances that the combined company will not experience substantial turnover in the its sales force in the future. Such substantial turnover could have a material adverse effect on the combined company's business, financial condition and results of operations. In addition, in order to effectively distribute the higher volume and greater breadth of products that will be necessary for the combined company's success, the combined company may need to expand the efforts of its sales force. Failure to do so could materially and adversely affect the combined company's business, financial condition and results of operations. See "BioStar Business -- Sales and Marketing". Dependence on Distribution Partners for Sales of Diagnostic Products. In the United States hospital and reference laboratory markets, BioStar has marketed and sold its products through the efforts of Murex Diagnostics, Inc. ("Murex"), one of BioStar's distributors. If the Murex distribution agreement is terminated and the combined company is unable to enter into a replacement agreement, or if the combined company elects to distribute new products directly, it would have to invest in additional sales and marketing resources, possibly including additional field sales personnel, which would significantly increase expenses. Loss of effective distribution capability in the hospital and reference laboratory markets could have a material adverse effect on the combined company's sales of diagnostic products unless suitable alternatives can be arranged. There can be no assurance that the combined company would be able to enter into replacement distribution or marketing agreements on favorable terms, if at all, or that if the combined company elected to replace distributors, it would be able to do so successfully. See "BioStar Business -- Sales and Marketing". Risks Regarding Potential Future Acquisitions. The combined company's growth strategy is dependent upon a number of factors, including its ability to acquire complementary companies, products or technologies. Acquisitions involve a number of risks such as short-term negative effects on the combined company's reported operating results, diversion of management's attention, unanticipated problems or legal liabilities, and the integration of potentially dissimilar operations, some or all of which could have a material adverse effect on the combined company's business, financial condition and results of operations. See "BioStar Business -- Strategy". No Assurance of Market Acceptance of Point-of-Care Diagnostic Products. The majority of diagnostic testing is currently performed at large clinical laboratories rather than point-of-care sites. There can be no assurance that the combined company will be successful in developing and penetrating the point-of-care market for diagnostic testing. To date, BioStar has penetrated only a small portion of the point-of-care market. Market acceptance of the combined company's point-of-care products will depend on the combined company's ability to demonstrate the accuracy and value of its products and to persuade caregivers to perform the combined company's tests in the caregivers' own facilities rather than send those tests to clinical laboratories. In addition, market acceptance of new products will depend on a number of factors, including the receipt and timing of regulatory approvals or clearances, the availability of third-party reimbursement and the establishment and demonstration in the medical community of the clinical safety, efficacy and cost-effectiveness of diagnostic products and their advantages over existing technologies and products. There can be no assurance that the combined company will be able to market potential diagnostic products successfully, even if they perform successfully in clinical trials. Furthermore, there can be no assurance that caregivers, laboratories or the medical community in general will accept and utilize the point-of-care testing system in general or existing diagnostic products or products that may be developed in particular. See "BioStar Business -- Industry Overview," "-- Products and Markets," "-- Regulation" and "-- Reimbursement". 18 33 Dependence on Suppliers. The components of BioStar's OIA tests are chemical and packaging supplies that are generally available from several suppliers, except certain antibodies, absorbent papers which BioStar purchases from single suppliers. BioStar mitigates the risk of a loss of supply by maintaining a sufficient supply of such antibodies to ensure an uninterrupted supply for at least six months. Although BioStar believes that it can substitute a new supplier with respect to any of these components in a timely manner, there can be no assurances that the combined company will be able to substitute a new supplier in a timely manner and failure to do so could have a material adverse effect on the combined company's business, financial condition and results of operations. Limited Manufacturing Experience with Diagnostic Products and Detection Technologies in Development. Although BioStar has manufactured over ten million diagnostic tests based on its OIA technology, certain of BioStar's diagnostic products in development incorporate new surfaces and detection technologies with which BioStar has no manufacturing experience. Assuming successful development and receipt of required regulatory approvals, significant work may be required to scale up production for each new product prior to such product's commercialization. There can be no assurance that such work can be completed in a timely manner and that such new products can be manufactured cost-effectively, to regulatory standards or in sufficient volume. Uncertainties Related to Therapeutic Product Development and Clinical Trials. Before it can obtain regulatory approval for the commercial sale of any of any therapeutic products, the combined company must demonstrate, through preclinical studies and clinical trials, that the product is safe and effective for use in each target indication. The results from preclinical studies and early clinical trials may not be predictive of results that will be obtained in large-scale testing. Indeed, Cortech discontinued planned development of its lead bradykinin antagonist, Bradycor, after unsuccessful Phase II clinical trials and suspended development of a lead HNE inhibitor, CE-1037, which was also in Phase II clinical trials. There can be no assurance that the combined company will conduct future clinical trials or that those trials will demonstrate the safety or efficacy of any products or will result in marketable products. See "Cortech Business -- Product Development Risks". Reliance on Third Parties to Manufacture Therapeutic Products. The manufacture of sufficient quantities of new drugs can be an expensive, time-consuming and complex process, and it may require the use of materials with limited availability or require dependence on sole-source suppliers. If the manufacturing of compounds were ever required, the combined company would rely on corporate partners or other third parties for manufacturing services. There can be no assurance that such third-party arrangements could be established on a timely or commercially reasonable basis, if at all. If such arrangements were established, the combined company would depend on such third parties to perform their obligations effectively and on a timely basis. There can be no assurance that such parties would perform acceptably, and any failures by third parties may delay clinical trial development or the submission of therapeutic products for regulatory approval, impair the combined company's ability to deliver therapeutic products on a timely basis or otherwise impair the combined company's competitive position which could have a material adverse effect on the combined company's business, financial condition and results of operations. If the combined company could not find a suitable manufacturing partner or contractor, it might be required to incur substantial financial obligations to construct or acquire manufacturing facilities. See "Cortech Business -- Manufacturing". Reliance on Third Parties to Market Therapeutic Products. In the event that any of the combined company's therapeutic compounds are ever approved for marketing, the combined company would rely primarily upon arrangements with other pharmaceutical or biotechnology companies to market such products. Comprehensive sales and technical support services would be necessary to market the combined company's therapeutic products. Neither Cortech nor BioStar anticipates that the combined company will establish significant capabilities in these areas in the foreseeable future, if ever. To the extent the combined company enters into co-marketing, co-promotion or similar arrangements, any revenues received by the combined company would be dependent on the efforts of third parties, and there can be no assurance that such efforts would be successful. See "Cortech Business -- Marketing Strategy". Regulation of Diagnostics Products. The testing, manufacture and sale of BioStar's diagnostic products has been, and the testing, manufacturing and sale of the combined company's products will be, subject to 19 34 regulation by numerous governmental authorities, principally the Food and Drug Administration ("FDA") and corresponding state and foreign regulatory agencies. Pursuant to the Federal Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, the FDA regulates the preclinical and clinical testing, manufacture, labeling, distribution and promotion of medical devices. The combined company will not be able to commence marketing or commercial sales in the United States of new products under development until it receives clearance from the FDA. In addition, various foreign countries in which BioStar's products are, or the combined company's products may be, sold impose local regulatory requirements. The testing for, preparation of and subsequent FDA and foreign regulatory review of required filings can be a lengthy, expensive and uncertain process. Noncompliance with applicable requirements can result in, among other consequences, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant premarket clearance or premarket approval for devices, withdrawal of marketing clearances or approvals, and criminal prosecution. The FDA also has the authority to request recall, repair, replacement or refund of the cost of any device manufactured or distributed by the combined company. In the United States, medical devices are classified into one of three classes (i.e., Class I, II or III) on the basis of the controls deemed necessary by the FDA to ensure their safety and effectiveness. Class I devices are subject to general controls (e.g., labeling, premarket notification and adherence to current Good Manufacturing Practices ("cGMP") and Class II devices are subject to general and special controls (e.g., performance standards, post-market surveillance, patient registries and FDA guidelines). Generally, Class III devices are those that must receive premarket approval by the FDA to ensure their safety and effectiveness (e.g., life-sustaining, life-supporting and implantable devices or new devices that have been found not to be substantially equivalent to legally marketed devices). The majority of BioStar's products and products under development are, and the combined company's diagnostic products are expected to be, classified as Class I or Class II devices. Before a new device can be introduced in the market, the manufacturer must generally obtain FDA clearance or approval through either clearance of a 510(k) premarket notification or approval of a product marketing application ("PMA"). A PMA must be filed if a proposed device is a new device not substantially equivalent to a legally marketed Class I or Class II device, or if it is a preamendment Class III device for which the FDA has called for PMAs. A PMA must be supported by valid scientific evidence to demonstrate the safety and effectiveness of the device, typically including the results of clinical investigations, bench tests and laboratory and, where applicable, animal studies. The PMA must also contain a complete description of the device and its components and a detailed description of the methods, facilities and controls used to manufacture the device. In addition, the submission must include the proposed labeling, advertising literature and any training materials. The PMA approval process can be expensive, uncertain and lengthy, and a number of devices for which FDA approval has been sought by other companies have never been approved for marketing. A 510(k) clearance will be granted if the submitted information establishes that the proposed device is "substantially equivalent" to a legally marketed Class I or Class II medical device or a preamendment Class III medical device for which the FDA has not called for PMAs. The FDA recently has been requiring more rigorous demonstration of substantial equivalence than in the past, including in some cases, requiring submission of clinical data. It generally takes from four to 12 months from submission to obtain 510(k) premarket clearance but may take longer. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed device or that additional information is needed before a substantial equivalence determination can be made. A "not substantially equivalent" determination, or a request for additional information, could prevent or delay the market introduction of new products that fall into this category. For any devices that are cleared through the 510(k) process, modifications or enhancements that could significantly affect safety or effectiveness, or constitute a major change in the intended use of the device, will require new 510(k) submissions. Although all of BioStar's internally developed products currently on the market have received 510(k) clearances and all products currently under development are expected to be subject to the 510(k) clearance process, there can be no assurance that the FDA will not require the combined company to submit a PMA for any products in development or any future products. If a PMA is 20 35 required, introduction of such products likely will be significantly delayed, which could have a material adverse effect on the combined company's business, financial condition or results of operations. There can be no assurance that the combined company will be able to obtain necessary regulatory approvals or clearances for its products on a timely basis, if at all, and delays in receipt of or failure to receive such approvals or clearances, the loss of previously received approvals or clearances, limitations on intended use imposed as a condition of such approvals or clearances or failure to comply with existing or future regulatory requirements could have a material adverse effect on the combined company's business, financial condition and results of operations. Before the manufacturer of a device can submit the device for FDA approval or clearance, it generally must conduct a clinical investigation of the device. Although clinical investigations of most devices are subject to the investigational device exemption ("IDE") requirements, clinical investigations of in vitro diagnostic tests, such as all of BioStar's products and products currently under development, are exempt from the IDE requirements, including the requirement to obtain the FDA's prior approval, provided the testing is noninvasive, do not require an invasive sampling procedure that presents a significant risk, does not intentionally introduce energy into the subject and are not used as a diagnostic procedure without confirmation by another medically established test or procedure. In addition, patient informed consents and approvals from the Internal Review Board of the clinic sites must be obtained as appropriate. The in vitro diagnostic test must be labeled "for research use only" ("RUO") or "for investigative use only" ("IUO"), and distribution controls must be established to assure that in vitro diagnostic tests distributed for research or clinical investigation are used only for those purposes. The combined company intends to conduct clinical investigations of diagnostic products under development, which will entail distributing them in the United States on an IUO basis. There can be no assurance that the FDA would agree that the combined company's IUO distribution of its in vitro diagnostic products under development will meet the requirements for IDE exemption. Furthermore, failure by the combined company or the recipients of its products under development to maintain compliance with the IDE exemption requirements could result in enforcement action by the FDA, including, among other things, the loss of the IDE exemption or the imposition of other restrictions on the combined company's distribution of diagnostic products under development, which would adversely affect the combined company's ability to conduct the clinical investigations necessary to support marketing clearance or approval. Any devices manufactured or distributed by the combined company pursuant to FDA clearance are subject to extensive and continuing regulation by the FDA and certain state agencies. Manufacturers of medical devices for marketing in the United States are required to adhere to applicable regulations setting forth detailed cGMP requirements, which include testing, control and documentation requirements. Manufacturers must also comply with Medical Device Report ("MDR") requirements that a manufacturer report to the FDA any incident in which its product may have caused or contributed to a death or serious injury, or in which its product malfunctioned and, if the malfunction were to recur, it would be likely to cause or contribute to a death or serious injury. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. Current FDA enforcement policy prohibits the marketing of approved medical devices for unapproved uses. BioStar is, and the combined company will be, subject to routine inspection by the FDA and certain state agencies for compliance with cGMP requirements, MDR requirements and other applicable regulations. The FDA has recently finalized changes to the cGMP requirements, including the addition of design controls that will likely increase the cost of compliance. Changes in existing requirements or adoption of new requirements could have a material adverse effect on the combined company's business, financial condition and results of operations. There can be no assurance that the combined company will not incur significant costs to comply with laws and regulations in the future, or that laws and regulation will not have a material adverse effect upon the combined company's business, financial condition and results of operations. Distribution of diagnostic products outside the United States is, and will be, subject to extensive government regulation. These regulations, including the requirements for approvals or clearance to market, the time required for regulatory review and the sanctions imposed for violations, vary from country to country. 21 36 There can be no assurance that the combined company will obtain regulatory approvals in such countries or that it will not be required to incur significant costs in obtaining or maintaining its foreign regulatory approvals. In addition, the export by the combined company of certain of its products that have not yet been cleared for domestic commercial distribution may be subject to FDA export restrictions. Failure to obtain necessary regulatory approvals, the restriction, suspension or revocation of existing approvals or any other failure to comply with regulatory requirements could have a material adverse effect on the combined company's business, financial condition and results of operations. The combined company's customers which use diagnostic tests for clinical purposes in the United States are also regulated under the Clinical Laboratory Improvement Amendments of 1988 ("CLIA"). CLIA is intended to ensure the quality and reliability of all medical testing in laboratories in the United States by requiring that any health care facility in which testing is performed meet specified standards in the areas of personnel qualification, administration, participation in proficiency testing, patient test management, quality control, quality assurance and inspections. The regulations have established three levels of regulatory control based on test complexity -- "waived," "moderately complex" and "highly complex". BioStar's current OIA tests and ACCEAVA Mono tests are categorized as "moderately complex" tests for clinical use in the United States. Under the CLIA regulations, all laboratories performing high or moderately complex tests are required to obtain either a registration certificate or certification of accreditation from the Health Care Financial Administration ("HCFA"). As a result of the CLIA requirements, physician office laboratories and small volume test sites may be dissuaded from initiating, continuing or expanding patient testing, particularly if the tests are classified as moderately or highly complex tests. There can be no assurance that the CLIA regulations and future administrative interpretations of CLIA will not have an adverse impact on the potential market for the combined company's products. BioStar's ACCEAVA hCG and ACCEAVA Strep A products are categorized as CLIA "waived". Laboratories performing CLIA "waived" tests face less stringent registration and certification requirements. See "BioStar Business -- Products and Markets". BioStar and Cortech are, and the combined company will be, subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. There can be no assurance that the combined company will not incur significant costs to comply with laws and regulations in the future or that such laws or regulations will not have a material adverse effect upon the combined company's business, financial condition and results of operations. See "BioStar Business -- Regulation". Uncertain Availability of Third Party Reimbursement for Diagnostic Products. In the United States, health care providers that purchase diagnostic products, such as hospitals and physicians, generally rely on third party payors, principally private health insurance plans, federal Medicare and state Medicaid, to reimburse all or part of the cost of the procedure. Such third party payors can affect the pricing or the relative attractiveness of BioStar products by regulating the maximum amount of reimbursement provided by such payors for testing services. Each BioStar test has been assigned a payment code by the HCFA, which determines the amount of reimbursement that third party payors will reimburse for using BioStar's diagnostic tests. Moreover, certain health care providers are moving towards a managed care system in which such providers contract to provide comprehensive health care for a fixed cost per patient. There may be future changes in third party reimbursement methodology. The combined company could be adversely affected by changes in reimbursement policies of governmental or private health insurance payors for procedures in which diagnostic products are used. Third party payors are increasingly scrutinizing and challenging the prices charged for medical products and services. Decreases in reimbursement amounts for tests performed using the combined company's diagnostic products may decrease amounts physicians and other practitioners are able to charge patients, which in turn may adversely affect the combined company's ability to sell diagnostic products on a profitable basis. Failure by physicians and other users to obtain reimbursement from third party payors, or changes in government and private third party payors' policies regarding reimbursement of tests utilizing diagnostic products, could have a material adverse effect on the combined company's business, financial condition or results of operation. Given the efforts to control and reduce health care costs in the United States in recent years, there can be no assurance that currently available levels of reimbursement will continue to be available in the future for BioStar's existing products or products under development. 22 37 Market acceptance of BioStar products in international markets is dependent, in part, upon the availability of reimbursement within prevailing health care payment systems. Reimbursement and health care payment systems in international markets vary significantly by country, and include both government sponsored health care and private insurance. Cortech and BioStar each believe that the overall escalating cost of medical products and services has led, and will continue to lead, to increased pressures on the health care industry, both foreign and domestic, to reduce the cost of products and services, including diagnostic products offered by BioStar and to be offered by the combined company. There can be no assurance that third party reimbursement and coverage will be available or adequate in either U.S. or foreign markets, that current reimbursement amounts will not be decreased in the future, or that future legislation, regulation or reimbursement policies of third party payors will not adversely affect the demand for diagnostic products or the combined company's ability to sell diagnostic products on a profitable basis. See "BioStar Business -- Regulation" and "-- Reimbursement". Regulation of the Pharmaceutical Industry. The FDA is the primary agency regulating the research, development, manufacture, sale and marketing of drugs in the United States. From the time at which a promising compound is identified, regulations dictate its development, approval, marketing and sale. Product development and approval within this regulatory framework takes a number of years and involves the expenditure of substantial resources. Many products that initially appear promising are never approved because they do not meet the safety and efficacy requirements of the FDA. Regulatory requirements may change at any stage of the combined company's product development efforts and may affect approval, delay an application or require additional expenditures by the combined company. If approval is obtained, failure to comply with ongoing regulatory requirements, or new information that negatively impacts the safety or effectiveness of the approved drug, could cause the FDA to withdraw approval to market the product. The time period between when a promising new compound is identified and when human testing is initiated is generally referred to as the preclinical development period. A series of pharmacologic studies are also performed during preclinical development to identify the essential characteristics of the compound's behavior. In addition, both in vitro and in vivo animal toxicity studies are required to characterize the toxicity profile of the compound. Preclinical studies are regulated by the FDA under a series of regulations called the Good Laboratory Practice ("GLP") regulations. Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring those studies to be repeated. During this time, a manufacturing process which is capable of producing the compound in an adequately pure and well characterized form for human use is developed. Production of compounds for use in humans is governed by a series of FDA regulations known as GMP regulations, which regulate all aspects of the manufacturing process. The entire body of preclinical development work is summarized in a submission to the FDA called a Notice of Claimed Exemption for Investigational New Drug ("IND"). FDA regulations allow human clinical trials to begin 30 days following the submission of the IND, unless the FDA requests additional information, clarification or additional time to review the IND. There is no assurance that the submission of an IND will allow a company to commence clinical trials. Once trials have started, the company or the FDA may decide to stop the trials because of concerns about the safety of the product or the adequacy of the trial design. Such action can substantially delay individual trials as well as the entire development program for that compound and, in some cases, may require abandonment of a product. Clinical testing of new compounds in humans is designed to establish both safety and efficacy in treating a specific disease or condition. These studies are usually conducted in three phases of testing. In Phase I, a small number of healthy subjects or patients with the specific condition being targeted are given the new compound to determine the pharmacokinetic and pharmacologic actions of the drug in humans, the side effects associated with increasing doses and, if possible, to gain early evidence of effectiveness. In Phase II, small numbers of patients with the targeted disease are given the compound to test its efficacy in treating the targeted disease, to determine the common short-term side effects and risks associated with the drug and to establish effective dose levels. Phase III studies are larger studies designed to confirm the compound's efficacy and safety for the targeted disease and to provide an adequate basis for physician labeling. 23 38 When a drug is being developed for a condition that is life- or organ-threatening, or for which there is no alternative therapy, the FDA may, in certain cases, grant an accelerated approval process. However, there is no assurance any of the combined company's therapeutic products would be eligible for this accelerated approval process. Once adequate data have been obtained in clinical testing to demonstrate that the compound is both safe and effective for the intended use, all of the data available is submitted to the FDA in a New Drug Application ("NDA"). The FDA reviews this application and, once it decides that adequate data are available which show that the new compound is both safe and effective, approves the drug for marketing. The approval process may take several years and is a function of a number of variables including the quality of the submission and data presented, the potential contribution that the compound will make in improving the treatment of the disease in question, and the extent of agreement between the sponsor and the FDA on the product labeling. There can be no assurance that any new drug will successfully proceed through this approval process or that it will be approved in any specific period of time. The FDA may, during its review of an NDA, ask for additional data and may also require postmarketing testing, including potentially expensive Phase IV studies. In addition, postmarketing surveillance to monitor the safety and effectiveness of the drug must be done by the sponsor. The FDA may in some circumstances impose additional restrictions on the use and or promotion of the drug which may be difficult and expensive to administer. Before marketing approval is granted, the facility in which the drug product is manufactured must be inspected by the FDA and deemed to be adequate for the manufacture, holding and distribution of drugs in compliance with GMP requirements. Manufacturers must continue to expend time, money and effort in the areas of production, quality control, labeling, advertising and promotion of drug product to ensure full compliance with GMP requirements. Failure to comply with applicable requirements can lead to FDA demands that production and shipment cease, that products be recalled or to enforcement actions that can include seizures, injunctions or criminal prosecution. Such failures or new information that negatively impact the safety and effectiveness of the drug that becomes available after approval may lead to FDA withdrawal of approval to market the product. There can be no assurances that any product developed by Cortech would prove to be safe and efficacious in clinical trials or would meet all of the applicable regulatory requirements necessary to obtain marketing approval. Moreover, if regulatory approval of a drug is granted, such approval may entail limitations on the indicated uses for which it may be marketed. In addition, a failure to comply with applicable regulatory requirements can, among other things, result in fines, suspension of regulatory approvals, product recalls, seizure of products, operation restrictions and criminal prosecutions. In addition, a marketed drug and its manufacturer are subject to continual review and later discovery of previously unknown problems with a product or manufacturer could lead to adverse consequences, including withdrawal of the product from the market. To market its therapeutic products abroad, the combined company also would be required to satisfy regulatory requirements implemented by foreign regulatory authorities. The foreign regulatory approval process includes all of the risks associated with FDA approval set forth above and may introduce additional requirements or risks. There can be no assurance that a foreign regulatory body would accept the data developed by the combined company for any of its potential therapeutic products. Approval by the FDA does not ensure approval in other countries, nor does approval by any other country ensure approval decisions by the FDA. In Europe, human pharmaceutical products are subject to extensive regulation concerning testing, manufacture, safety, efficacy, labeling, storage, record keeping, advertising and promotion. Effective in January 1995, the European Union enacted new regulations providing for a centralized licensing procedure, which is mandatory for certain kinds of products, and a decentralized (country by country) procedure for all other products. A license granted under the centralized procedure authorizes marketing of the product in all of the member states of the European Union. Under the decentralized procedure, a license granted in one member state can be extended to additional member states pursuant to a simplified application process. The 24 39 assessment of products filed under the centralized procedure is coordinated by the European Medicine Evaluation Agency ("EMEA"). See "Cortech Business -- Regulation". In addition to regulations enforced by the FDA, Cortech is also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, regulations promulgated by the United States Department of Agriculture, and other federal, state or local laws and regulations. Cortech's research and development involves the controlled use of hazardous materials, chemicals, viruses and various radioactive compounds. Although Cortech believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, Cortech could be held liable for any damages that result and any such liability could exceed the resources of Cortech. Competition in the Diagnostics Industry. Competition in the human medical diagnostics industry is, and is expected to remain, intense. The competitors range from development stage diagnostics companies to major domestic and international pharmaceutical companies. Many of these companies have financial, technical, marketing, sales, manufacturing, distribution and other resources significantly greater than those of the combined company. In addition, many of these companies have name recognition, established positions in the market and long standing relationships with customers and distributors. Moreover, the diagnostics industry has recently experienced a period of consolidation during which many of the large domestic and international pharmaceutical companies have been acquiring mid-sized diagnostics companies, further increasing the concentration of resources. There can be no assurance that technologies will not be introduced which could be directly competitive with or superior to BioStar's OIA technologies. BioStar's primary competitors for rapid, point-of-care immunodiagnostic tests and the markets in which they compete with BioStar are as follows: Abbott Laboratories (GAS and Chlamydia), Carter-Wallace, Inc./Wampole Labs. ("Carter-Wallace") (GAS and Chlamydia), SmithKline Beckman (GAS), Becton, Dickinson and Company ("Becton Dickinson") (GAS) and Quidel Corporation ("Quidel") (GAS). These companies are larger than BioStar and have substantial resources and market presence. BioStar competes with these companies on the basis of product performance and customer service. BioStar's OIA tests have been demonstrated to be more sensitive and/or specific than any of the rapid, point-of-care immunodiagnostic tests for GAS and chlamydia sold by these competitors. Additionally, BioStar believes that its sales and marketing organization is capable of providing more comprehensive customer support than competitors who use third party distributors. BioStar's primary laboratory-based competitor for highly sensitive immunodiagnostic tests is Gen-Probe Incorporated ("Gen-Probe"). Gen-Probe has GAS and chlamydia tests which are instrumented and used in high-volume laboratories. Gen-Probe is a subsidiary of a Japanese company which has substantial resources. BioStar competes with Gen-Probe on the basis of cost-effective outcomes, speed, ease-of-use and customer service. BioStar's products are as sensitive as Gen-Probe's tests and are more specific, but Gen-Probe's tests require several hours reaction time and are not point-of-care tests. Therefore, in populations where initial visit follow-up rates are low, BioStar's tests offer the potential of improved treatment outcomes. BioStar's OIA tests also compete with traditional agar culture tests for GAS, GBS and chlamydia. Agar culture tests consist of commodity-based supply materials. As a result, a variety of diagnostics companies market agar culture tests. Agar culture tests have historically been considered the standard against which diagnostic tests for GAS and GBS have been measured. BioStar competes with agar culture tests on the basis of ease-of-use, reaction speed and sensitivity. The market for the diagnostic tests that BioStar has under development and that BioStar has targeted for development is highly competitive and subject to rapid technological change. Other companies are devoting significant resources to developing new tests and dominating distribution channels. BioStar believes that for all of its immunodiagnostic assay products it competes on the basis of how quickly companies can (i) develop products and demonstrate clinical feasibility, (ii) complete clinical testing, (iii) obtain regulatory approval, (iv) obtain favorable reimbursement policies and (v) supply commercial quantities of the product to the market at a competitive price. The combined company's inability to compete favorably with respect to any of 25 40 these factors could have a material adverse effect on its business, financial condition and results of operations. See "BioStar Business -- Competition". Competition in the Pharmaceutical Industry. The drug development business which Cortech has pursued in recent years faces intense competition from pharmaceutical and other biotechnology companies, academic institutions, governmental agencies and other organizations which conduct research, seek patent protection and establish collaborative arrangements for product development and marketing. Many of the competitors for such business have substantially greater financial, technical and human resources than Cortech and have significant products which are in development or have been approved. Many of these competitors have significantly greater experience than Cortech in undertaking preclinical testing and human clinical trials of new pharmaceutical products and obtaining FDA approval for products. In addition, if Cortech ever commences commercial sales of products, it would also be competing with respect to manufacturing efficiency and marketing capabilities. Furthermore, these other companies and institutions would compete with Cortech in recruiting and retaining highly qualified scientific and management personnel. Many companies are focused on research in the same areas that Cortech has pursued in recent years. Human neutrophil elastase ("HNE") inhibitors have been the target of research and development efforts by a number of large pharmaceutical companies. While no company has succeeded in developing a small molecular weight HNE inhibitor to the point of filing an application for marketing approval, there can be no assurance that any of these programs will not achieve success in the future. Furthermore, at least four other companies have developed bradykinin antagonists and may be engaged in product development activities. Numerous companies are developing alternative strategies to treat inflammation. Since Cortech has ceased research operations, is decommissioning its laboratory facilities and reduced the number of full-time, regular employees from more than 200 to fewer than 15, Cortech has effectively discontinued all internal efforts to advance its therapeutic research and development activities. There can be no assurance that the combined company's competitors will not develop more effective or more affordable products or achieve earlier or more efficient product commercialization than the combined company. See "Cortech Business -- Competition". Future Capital Needs; Uncertainty of Additional Funding. Assuming no significant uses of cash in acquisition activities or other significant changes in BioStar's activities, the combined company will have sufficient cash to satisfy its funding needs for at least the next 24 months. However, both Cortech and BioStar have incurred negative cash flow from operations since their respective dates of inception, and neither Cortech nor BioStar expects the combined company to generate positive cash flow to fund its operations for the foreseeable future. If the combined company is not able to generate revenues from collaborations with strategic partners, it may need to raise additional capital to fund its research and development programs or acquisition activities. If the combined company needs additional financing to meet its requirements, there can be no assurance that it will be able to obtain such financing on terms satisfactory to it, if at all. If the combined company obtains funds through arrangements with strategic partners or others, as a condition of such funding the combined company may be required to relinquish rights with respect to the combined company's technologies, products or sales territories. Alternatively, any additional equity financing may be dilutive to existing stockholders, and debt financing, if available, may include restrictive covenants. If adequate funds are not available, the combined company would be required to limit its research and development activities, which could have a material adverse effect on the combined company's business, financial condition and results of operations. Uncertainty of Protection of Patents, Trade Secrets and Trademarks. The combined company's success will depend, in part, on its ability to obtain patents and license patent rights, to maintain trade secret protection and to operate without infringing on the proprietary rights of others. BioStar holds 15 United States patents which expire beginning in 1999 and ending in 2014 as well as 44 foreign patents covering a number of inventions which comprise the OIA technology, including the base OIA technology, optical surfaces for a variety of assays, manufacturing methods and new instruments. An additional five United States and 15 foreign patents are now pending. Cortech holds seven United States patents and currently has 14 United States patent applications pending which concern protease inhibitors. Cortech holds five United States patents 26 41 and currently has 14 United States patent applications pending which concern protease inhibitors. Cortech holds five United States patents, has four United States patents pending and three patent applications which have been allowed which concern bradykinin antagonists. Cortech's patents expire beginning in 2008 and ending in 2015. In addition, Cortech holds 26 foreign patents and has 40 foreign patents pending concerning protease inhibitors and bradykinin antagonists. Patent applications in the United States are maintained in secrecy until patents issue, and since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries, BioStar and Cortech cannot be certain that they were the first creator of inventions covered by pending patent applications or the first to file patent applications on such inventions. There can be no assurance that BioStar's or Cortech's pending patent applications will result in issued patents or that any of their issued patents will afford meaningful protection against a competitor. In addition, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States and, thus, there can be no assurance that foreign patent applications related to United States patents will issue. Furthermore, if these patent applications issue, some foreign countries provide significantly less patent protection than the United States. The status of patents involves complex legal and factual questions and the breadth of claims issued is uncertain. Accordingly, there can be no assurance that patent applications filed by Cortech or BioStar will result in patents being issued or that the Cortech or BioStar patents, or any patents that may be issued to the combined company in the future, will afford protection against competitors with similar technology. In addition, no assurances can be given that patents issued to the combined company will not be infringed upon or designed around by others, or that others will not obtain patents that the combined company would need to license or design around. If existing or future patents containing broad claims are upheld by the courts, the holders of such patents could require other companies to obtain licenses. If the combined company is found to be infringing third party patents, there can be no assurance that licenses that might be required for the combined company's products would be available on reasonable terms, if at all. In addition, a number of pharmaceutical and biopharmaceutical companies and research and academic institutions have filed patent applications or received patents in the combined company's fields. Some of these applications or patents may be competitive with the combined company's applications or may conflict in certain respects with claims made under the combined company's applications. Such conflict could result in a significant reduction of the coverage of the combined company's patents, if issued. In addition, if patents are issued to other companies that contain competitive or conflicting claims and such claims are ultimately determined to be valid, there can be no assurance that the combined company would be able to obtain licenses to these patents at a reasonable cost or be able to develop or obtain alternative technology. The combined company could incur substantial costs in defending itself or its licensees in litigation brought by others or prosecuting infringement claims against third parties. If the outcome of any such litigation is unfavorable to the combined company, the combined company's business could be adversely affected. To determine the priority of inventions, the combined company may have to participate in interference proceedings declared by the United States Patent Office, which could result in substantial cost to the combined company and could result in an adverse decision as to the priority of the combined company's inventions. In addition to patent protection, Cortech and BioStar rely on the law of unfair competition and trade secrets to protect their proprietary rights. It is Cortech's and BioStar's policies to require their employees, consultants, members of the Board, outside scientific collaborators and sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with Cortech or BioStar, respectively. These agreements provide that all confidential information developed or made known to the individual during the course of the individual's relationship with Cortech or BioStar, respectively, is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual shall be the exclusive property of Cortech or BioStar, respectively. There can be no assurance that these agreements will not be breached or will provide meaningful protection or adequate remedies in the event of unauthorized use of the combined company's trade secrets or disclosure of such information. Cortech and 27 42 BioStar each have taken appropriate physical security measures to protect their respective intellectual property. There can be no assurance that such security measures will be adequate. Cortech and BioStar have attempted, and the combined company will attempt, to protect trade secrets and other proprietary information through agreements with customers and suppliers, proprietary information agreements with employees and consultants and other security measures. Although the combined company intends to protect its rights vigorously, there can be no assurance that these measures will be successful. See "Cortech Business -- Patents, Trade Secrets and Licenses" and "BioStar Business -- Patents, Trade Secrets and Trademarks". Dependence on Key Personnel. Because of the specialized nature of the combined company's business, the success of the combined company will be highly dependent upon its ability to attract and retain qualified scientific and executive personnel. There can be no assurance that the combined company will be successful in attracting and retaining such skilled personnel, who are generally in high demand by pharmaceutical and biotechnology companies, universities and other research institutions. The loss of, or inability to attract, key scientific and executive personnel may have a material adverse effect on the combined company's business, financial condition and results of operations. See "Cortech Business -- Human Resources" and "BioStar Business -- Human Resources". Risks Regarding Product Liability and Insurance. The testing, manufacturing and marketing of medical diagnostic devices and therapeutic products entails an inherent risk of product liability claims. To date, neither Cortech nor BioStar has experienced any product liability claims, but any such claims arising in the future could have a material adverse effect on the combined company's business, financial condition and results of operations. Potential product liability claims may exceed the amount of the combined company's insurance coverage or may be excluded from coverage under the terms of the combined company's policy. Additionally, there can be no assurance that BioStar's existing insurance can be renewed by Cortech at a cost and level of coverage comparable to that presently in effect, if at all. In the event that the combined company is held liable for a claim against which it is not insured or for damages exceeding the limits of its insurance coverage, such claim could have a material adverse effect on the combined company's business, financial condition and results of operations. Risks Regarding Use of Hazardous Materials. Cortech has used a number of hazardous materials and is subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of such materials and certain wastes. Although Cortech believes that its procedures for handling and disposing of such materials has complied and continues to comply with the standards prescribed by state and federal regulations, there can be no assurances that the combined company will not incur significant costs to comply with such laws and regulations or incur significant liability in connection with, among other things, the de-commissioning of existing laboratory space and any future on-site research and development work nor can there be any assurance that future laws or regulation will not materially or adversely affect the combined company. No Assurance of Active Trading Market; Volatility of Cortech Stock Price. There can be no assurance that an active trading market for Cortech Common Stock will develop following the Merger, or if one does develop, that it will be maintained. In addition, the market for Cortech Common Stock is expected to be highly volatile. The trading price of Cortech Common Stock after the Merger could be subject to wide fluctuations in response to a variety of factors, including: (i) quarterly variations in operating and financial results; (ii) announcement of the initiation or results of a significant research and development collaboration; (iii) introduction of new product offerings by the combined company or its competitors; (iv) changes in prices of the combined company's or its competitors' products; (v) changes in the revenue and operating income and revenue and operating income growth rates for the combined company; (vi) changes in government regulation; and (vii) general conditions in the health care industry and the economy, as well as other events or factors. Statements or changes in opinions, ratings or earnings estimates by brokerage firms or industry analysts relating to the market in which the combined company does business, or relating to the combined company specifically, could result in immediate and adverse effects on the market price of Cortech's Common Stock. Such adverse effects could also affect the combined company and the market in which the combined company will do business after the Merger. In addition, the stock market has from time to time experienced extreme price and volume fluctuations which have particularly affected the market price for the securities of many companies in the health care industry and which often have been unrelated to the operating 28 43 performance of these companies. These broad market fluctuations may adversely affect the market price of Cortech Common Stock. In the past, following periods of volatility in the market price of a company's stock, securities class action lawsuits have been filed against the publicly-held company. There can be no assurance that such litigation will not occur in the future with respect to the combined company. Such litigation could result in substantial costs and a diversion of management's attention and resources, which could have a material adverse effect on the combined company's business and results of operations. Any adverse determination in such litigation could also subject the combined company to significant liabilities. Anti-takeover Effect of Delaware Law and Certain Charter Provisions. The Cortech Board has the authority to issue up to 2,000,000 shares of preferred stock and to fix the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by stockholders. In addition, the Cortech Board has adopted a stockholder rights plan (the "Rights Plan") pursuant to which the Cortech Board declared a dividend of one preferred share purchase right (a "Right") for each then outstanding share of Cortech Common Stock. When a person or group of affiliated persons (the "Acquiror") acquires 15% or more of the outstanding Cortech Common Stock, the holder of each Right (excluding the Acquiror) may exercise it and acquire a certain number of shares of Cortech Common Stock at a below market price. The rights of the holders of Cortech Common Stock are subject to and may be adversely affected by the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, may have the effect of delaying, deferring or preventing a change in control of the combined company, may discourage bids for Cortech Common Stock at a premium over the market price of such Common Stock and may adversely affect the market price of and the voting and other rights of the holders of Cortech Common Stock. In addition, certain provisions of the Cortech Certificate of Incorporation, the Cortech Bylaws and Delaware law applicable to the combined company could have the effect of discouraging certain attempts to acquire the combined company which could deprive the combined company's stockholders of opportunities to sell their shares at prices higher than prevailing market prices. See "Description of Cortech Capital Stock". Control by Directors, Executive Officers, Principal Stockholders and Affiliated Entities. Upon consummation of the Merger, the combined company's directors, executive officers, principal stockholders and entities affiliated with them will, in the aggregate, beneficially own approximately 38.89% of the outstanding Cortech Common Stock. These persons, if acting together, could substantially control all matters requiring approval by the stockholders of Cortech, including the election of directors and the approval of mergers or other business combination transactions. See "Cortech Principal Stockholders" and "BioStar Principal Stockholders". Absence of Dividends. Neither Cortech nor BioStar has ever declared or paid dividends on its capital stock. The combined company does not anticipate paying any dividends in the foreseeable future. The combined company intends to retain its earnings, if any, for the development of the business. Cautionary Statement Regarding Forward-Looking Information. Certain statements contained in this Joint Proxy Statement/Prospectus, such as those concerning BioStar's business strategy, products and revenues, capital requirements, governmental regulation and other statements regarding matters that are not historical facts, are forward-looking statements (as such term is defined in the Securities Act). Because such forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those discussed herein under "Risk Factors," "Cortech Management's Discussion and Analysis of Financial Condition and Results of Operations," "Cortech -- Business," "BioStar Management's Discussion and Analysis of Financial Condition and Results of Operations" and "BioStar -- Business". Cortech undertakes no obligation to publicly release the results of any revision of those forward-looking statements that may be made to reflect events and circumstances after the date hereof or to reflect the occurrence of unanticipated events. 29 44 INTRODUCTION This Joint Proxy Statement/Prospectus is furnished in connection with the solicitation of proxies by (i) the Cortech Board to be used at the Cortech Special Meeting and (ii) the BioStar Board to be used at the BioStar Special Meeting. This Joint Proxy Statement/Prospectus is also furnished by Cortech to BioStar stockholders in connection with the issuance of shares of Cortech Common Stock in connection with the Merger described herein. The information set forth herein concerning Cortech has been furnished by Cortech and the information set forth herein concerning BioStar has been furnished by BioStar. THE CORTECH SPECIAL MEETING PURPOSE OF THE CORTECH SPECIAL MEETING The purpose of the Cortech Special Meeting is to consider and vote upon (i) the approval and adoption of the Reorganization Agreement, attached hereto as Appendix A, and the transactions contemplated thereby (including, the Merger and the related issuance of Cortech Common Stock to the BioStar stockholders) (the "Merger Proposal") and (ii) the approval of an amendment to Cortech's Certificate of Incorporation to (a) change Cortech's corporate name to "BioStar Holdings, Inc." and (b) effect a one-for [ ] reverse stock split of the Cortech Common Stock (collectively, the "Cortech Certificate Proposal"). The Cortech Certificate Proposal will be implemented only if the Merger Proposal is approved. Approval of the Cortech Certificate Proposal is not a condition to the consummation of the Merger. Cortech stockholders will also consider and vote upon such other matters, if any, as may be properly brought before the Cortech Special Meeting. THE CORTECH BOARD HAS UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT, THE MERGER AND THE CORTECH CERTIFICATE PROPOSAL AND HAS UNANIMOUSLY RECOMMENDED A VOTE FOR APPROVAL OF THE MERGER PROPOSAL AND THE CORTECH CERTIFICATE PROPOSAL. DATE, TIME AND PLACE OF MEETING The Cortech Special Meeting will be held at on [ ], 1998, at [ a.m.], local time. RECORD DATE; VOTING RIGHTS AND OUTSTANDING SHARES Only holders of record of Cortech Common Stock at the close of business on[ ,] 1998 (the "Cortech Record Date") will be entitled to notice of and to vote at the Cortech Special Meeting. On that date, there were [ ] shares of Cortech Common Stock outstanding and entitled to vote. Except for the stockholders identified herein under "Cortech Principal Stockholders," as of the Cortech Record Date, to the knowledge of Cortech, no other person beneficially owned more than 5% of the outstanding Cortech Common Stock. See "Cortech Principal Stockholders". Each holder of record of Cortech Common Stock on the Cortech Record Date will be entitled to one vote for each share held on all matters to be voted upon at the Cortech Special Meeting. SOLICITATION OF PROXIES; EXPENSES The cost of the solicitation of proxies from holders of Cortech Common Stock and all related costs will be borne by Cortech. In addition, Cortech may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation materials to such beneficial owners. Original solicitation of proxies by mail may be supplemented by telephone, telegram or personal solicitation by directors, officers or other regular employees of Cortech or, at Cortech's request, D.F. King & Co., Inc. ("D.F. King"). No additional compensation will be paid to directors, officers or other regular employees for such 30 45 services, but D.F. King will be paid a fee, estimated to be up to approximately $60,000 plus reasonable expenses, to assist in the solicitation of proxies. QUORUM; VOTE REQUIRED The presence, in person or by properly executed proxy, of the holders of a majority of the issued and outstanding shares of Cortech Common Stock entitled to vote at the Cortech Special Meeting is necessary to constitute a quorum. Approval of the Merger Proposal by Cortech's stockholders is not required by the DGCL. Such approval is, however, required by the rules of the Nasdaq National Market because (i) the Merger would effect a change of control of Cortech and (ii) the number of shares of Cortech Common Stock to be issued or reserved for issuance in connection with the Merger would exceed 20% of the number of shares of Cortech Common Stock outstanding prior to the Merger. According to the Bylaws of Cortech and the rules of the Nasdaq National Market, approval of the Merger Proposal requires the approval of a majority of the shares of Cortech Common Stock having voting power present in person or by proxy at the Cortech Special Meeting. Approval of the Cortech Certificate Proposal requires the approval of a majority of the outstanding shares of Cortech Common Stock entitled to vote as of the Cortech Record Date. The officers and directors of Cortech, who own approximately 2.3% of the outstanding Cortech Common Stock as of the Cortech Record Date, have entered into Voting Agreements with BioStar and have delivered an irrevocable proxy to BioStar pursuant to which they have agreed, subject to certain limitations, to vote in favor of the Merger Proposal and the Cortech Certificate Proposal. EFFECT OF ABSTENTIONS AND BROKER NONVOTES If an executed Cortech proxy is returned and the stockholder has specifically abstained from voting on the Merger Proposal or the Cortech Certificate Proposal, the shares represented by such proxy will be considered present at the Cortech Special Meeting for purposes of determining a quorum, but will not be considered to have been voted in favor of such matter. Accordingly, abstentions will have the effect of a negative vote with respect to the Merger Proposal and the Cortech Certificate Proposal. Brokerage firms who hold shares in street name for customers have authority to vote those shares with respect to certain matters if they do not receive instructions from a beneficial owner. Brokers will not have the authority to vote Cortech Common Stock with respect to the Merger Proposal or the Cortech Certificate Proposal if they have not received instructions from the beneficial owners of such shares. Broker nonvotes will be considered present for purposes of determining a quorum, but will have no effect on the vote with respect to the Merger Proposal. Broker nonvotes will have the effect of a negative vote with respect to the Cortech Certificate Proposal. VOTING AND REVOCABILITY OF PROXIES All shares of Cortech Common Stock that are entitled to vote and are represented at the Cortech Special Meeting, either in person or by properly executed proxies received prior to or at the Cortech Special Meeting and not duly and timely revoked, will be voted at the Cortech Special Meeting in accordance with the instructions indicated on such proxies. If no such instructions are indicated, such proxies will be voted FOR approval of the Merger Proposal and FOR approval of the Cortech Certificate Proposal. If any other matters are properly presented for consideration at the Cortech Special Meeting (including, among other things, consideration of a motion to adjourn or postpone the Cortech Special Meeting to another time and/or place (including, without limitation, for the purpose of soliciting additional proxies)), the persons named in the enclosed form of proxy and voting thereunder will have the discretion to vote on such matters in accordance with their best judgment. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked by (i) filing with the Secretary of Cortech, at or before the taking of the vote 31 46 at the Cortech Special Meeting, a written notice of revocation bearing a later date than the proxy; (ii) duly executing a later-dated proxy relating to the same shares and delivering it to the Secretary of Cortech before the taking of the vote at the Cortech Special Meeting or (iii) attending the Cortech Special Meeting and voting in person (although attendance at the Cortech Special Meeting will not in and of itself constitute a revocation of proxy). Any written notice of revocation or subsequent proxy should be sent so as to be delivered to Cortech, Inc. at 6850 North Broadway, Suite G, Denver, Colorado 80221, Attention: Corporate Secretary, or hand-delivered to the Secretary at Cortech, in each case at or before the taking of the vote at the Cortech Special Meeting. 32 47 THE BIOSTAR SPECIAL MEETING PURPOSE OF THE BIOSTAR SPECIAL MEETING The purpose of the BioStar Special Meeting is to consider and vote upon (i) the approval and adoption of the Merger Proposal and (ii) the approval and adoption of the BioStar Certificate Proposal. THE BIOSTAR BOARD UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS A VOTE FOR ADOPTION AND APPROVAL OF THE MERGER PROPOSAL AND FOR APPROVAL OF THE BIOSTAR CERTIFICATE PROPOSAL. DATE, TIME AND PLACE OF MEETING The BioStar Special Meeting will be held at on [ ], 1998, at [ a.m.], local time. RECORD DATE; VOTING RIGHTS AND OUTSTANDING SHARES Only holders of record of BioStar Capital Stock at the close of business on , 1998 (the "BioStar Record Date") will be entitled to notice of and to vote at the BioStar Special Meeting. On that date, there were shares of BioStar Capital Stock outstanding and entitled to vote. Except for the stockholders identified herein under "BioStar Principal Stockholders," as of the BioStar Record Date, to the knowledge of BioStar, no other person beneficially owns more than 5% of the outstanding BioStar Capital Stock. See "BioStar Principal Stockholders". Each holder of record of BioStar Capital Stock on the BioStar Record Date will be entitled to one vote for each share held on all matters to be voted upon at the BioStar Special Meeting. SOLICITATION OF PROXIES; EXPENSES The cost of the solicitation of proxies from holders of BioStar Capital Stock and all related costs will be borne by BioStar. In addition, BioStar may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation materials to such beneficial owners. Original solicitation of proxies by mail may be supplemented by telephone, telegram or personal solicitation by directors, officers or other regular employees of BioStar. No additional compensation will be paid to directors, officers or other regular employees for such services. QUORUM; VOTE REQUIRED The presence, in person or by properly executed proxy, of the holders of a majority of the outstanding shares of BioStar Capital Stock entitled to vote at the BioStar Special Meeting is necessary to constitute a quorum. Approval of the Merger Proposal and the BioStar Certificate Proposal will each require approval by the affirmative vote of the holders of a majority of the outstanding shares of BioStar common stock and BioStar preferred stock (voting on an as-converted-to-common stock basis), voting together as a single class, and the affirmative vote of a majority of the shares of each series of BioStar preferred stock voting as separate classes. Pursuant to the BioStar Voting Agreements, certain directors, officers and other affiliates of BioStar, who together hold approximately 65% of the BioStar common stock and BioStar preferred stock voting as a single class, and 100% of the Series A Preferred Stock, 100% of the Series B Preferred Stock, 100% of the Series C Preferred Stock, at least 50% of the Series D Preferred Stock and at least 38% of the Series E Preferred Stock voting as separate classes, outstanding as of the BioStar Record Date, have agreed to vote in favor of the Merger Proposal and the BioStar Certificate Proposal. See "Approval of the Merger and Related Transactions -- Voting Agreements". 33 48 EFFECT OF ABSTENTIONS Abstentions may be specified on the Merger Proposal and the BioStar Certificate Proposal. If an executed BioStar proxy is returned and the stockholder has specifically abstained from voting on any matter, the shares represented by such proxy will be considered present at the BioStar Special Meeting for purposes of determining a quorum, but will not be considered to have been voted in favor of such matter. Abstentions will have the effect of a negative vote with respect to the Merger Proposal and the BioStar Certificate Proposal. VOTING AND REVOCABILITY OF PROXIES All shares of BioStar Capital Stock that are entitled to vote and are represented at the BioStar Special Meeting either in person or by properly executed proxies received prior to or at the BioStar Special Meeting and not duly and timely revoked will be voted at the BioStar Special Meeting in accordance with the instructions indicated on such proxies. If no such instructions are indicated, such proxies will be voted for the approval of the Merger Proposal and for approval of the BioStar Certificate Proposal. If any other matters are properly presented for consideration at the BioStar Special Meeting (or any adjournments or postponements thereof) including, among other things, consideration of a motion to adjourn or postpone the BioStar Special Meeting to another time and/or place (including, without limitation, for the purpose of soliciting additional proxies), the persons named in the enclosed forms of proxy and voting thereunder will have the discretion to vote on such matters in accordance with their best judgment. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked by (i) filing with the Secretary of BioStar at or before the taking of the vote at the BioStar Special Meeting, a written notice of revocation bearing a later date than the proxy; (ii) duly executing a later-dated proxy relating to the same shares and delivering it to the Secretary of BioStar before the taking of the vote at the BioStar Special Meeting or (iii) attending the BioStar Special Meeting and voting in person (although attendance at the BioStar Special Meeting will not in and of itself constitute a revocation of proxy). Any written notice of revocation or subsequent proxy should be sent so as to be delivered to BioStar, Inc. at 6655 Lookout Road, Boulder, Colorado 80301, Attention: Secretary, or hand-delivered to the Secretary at BioStar, in each case at or before the taking of the vote at the BioStar Special Meeting. Proxies given by BioStar stockholders pursuant to the BioStar Voting Agreements are irrevocable. CORTECH STOCK PRICE AND DIVIDEND INFORMATION Since November 24, 1992, Cortech Common Stock has been quoted on the Nasdaq National Market under the symbol "CRTQ". The following table sets forth, for the quarters indicated, the reported high and low closing sales prices of Cortech Common Stock as reported on the Nasdaq National Market.
CORTECH COMMON STOCK --------------------- HIGH LOW -------- ------- 1996 First Quarter............................................. 3.688 2.188 Second Quarter............................................ 3.438 2.688 Third Quarter............................................. 3.188 2.125 Fourth Quarter............................................ 2.500 1.375 1997 First Quarter............................................. 2.000 0.844 Second Quarter............................................ 0.938 0.594 Third Quarter............................................. 0.813 0.500 Fourth Quarter............................................ 0.844 0.531 1998 First Quarter (through February 12, 1998)................. 0.688 0.578 ------- ------
34 49 The last sales price per share of Cortech Common Stock, as reported by the Nasdaq National Market, was $0.594 on December 19, 1997, the last trading day preceding the public announcement of the proposed Merger on December 22, 1997. On February 12, 1998, the last reported sale price per share of Cortech Common Stock on the Nasdaq National Market was $0.61. As of the Cortech Record Date and the BioStar Record Date, respectively, there were approximately 559 record holders of Cortech Common Stock and approximately 239 record holders of BioStar Capital Stock. Neither Cortech nor BioStar has ever paid cash dividends on its respective capital stock. The policies of Cortech and BioStar are to retain earnings for use in their respective businesses. CORTECH AND BIOSTAR STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR CORTECH COMMON STOCK. APPROVAL OF THE MERGER AND RELATED TRANSACTIONS BACKGROUND OF THE MERGER Following upon the terminations in December 1996 and March 1997 of Cortech's corporate collaborative arrangements with key partners and the announcement of disappointing test results involving Cortech's principal technologies under development, Cortech's Board determined that (i) an aggressive restructuring would be necessary to conserve Cortech's existing resources and (ii) a strategic transaction would likely be required in order for Cortech's stockholders to achieve appropriate value from their investment in Cortech. In 1997, Cortech promptly began implementation in the second quarter of a significant corporate-wide downsizing (from 75 full-time, regular employees to approximately 30) and undertook an additional downsizing in the fourth quarter (to less than 15 full-time, regular employees) following the contractually scheduled end, on September 14, 1997, of Cortech's operational responsibilities with respect to its last remaining corporate collaborative arrangement. As a result of these downsizings, which were undertaken to accomplish the fundamental objective of reducing Cortech's rate of spending thereby preserving cash, Cortech no longer had the staff that would be required to conduct research and development within Cortech. Accordingly, Cortech faced a limited number of alternatives which included: (i) continuing as a stand-alone entity (i.e., attempting to attract new collaborative partners to support research and development of technology, including in areas where significant corporate partners had recently terminated arrangements and ceded back to Cortech related rights); (ii) engaging in a voluntary corporate liquidation; or (iii) entering into a strategic transaction to realize appropriate value from Cortech's tangible and intangible assets in a reasonably expedient manner. Insofar as the stand-alone alternative would continue incrementally to deplete Cortech's cash and impair Cortech's ability to realize appropriate value from its technology assets, from April 1997 to the date of Cortech's execution of the Reorganization Agreement, management and the Cortech Board reviewed potential opportunities for the realization of appropriate value from Cortech's tangible and intangible assets. This activity included reviewing numerous potential strategic transactions with third parties involving either a combination with Cortech or a sale of certain of its assets. Management and the Cortech Board also reviewed, and used as a baseline analysis against which to measure potential strategic transactions, the possible returns for stockholders in the event of a voluntary corporate liquidation. With the exception of BioStar, however, no discussions or exchanges by Cortech with any third party during this period led to (i) any agreement in principle regarding a proposed transaction or (ii) any sustained discussions regarding the terms of any transaction which management or the Cortech Board believed might reasonably represent a transaction for the stockholders to achieve appropriate value from their investment in Cortech. 35 50 From December 1996 through early December 1997 Cortech internally discussed and interviewed and held discussions with outside investment bankers regarding potential strategic transactions. Such discussions did not result in a formal engagement until December 8, 1997, at which time Cortech formally retained Cowen to serve as its financial advisor in connection with Cortech's exploration of strategic alternatives. In February 1997, the BioStar Board began initial discussions concerning the feasibility of a strategic transaction by which BioStar could achieve a significant cash infusion to fund future growth opportunities and provide an opportunity for stockholder liquidity. In May 1997, BioStar engaged Lehman Brothers Inc. ("Lehman") to provide financial advisory services to BioStar (including identifying opportunities for a potential strategic transaction). Between May 1997 and the execution of the Reorganization Agreement, BioStar engaged in discussions and exchanges with third parties regarding various potential strategic transactions as well as the evaluation of a variety of financing alternatives, both public and private. On October 23, 1997, Teresa W. Ayers, President and Chief Executive Officer of BioStar, was introduced to Kenneth R. Lynn, President, Chief Executive Officer and Chairman of the Board of Cortech, through Cooley Godward LLP ("Cooley"). Cooley has acted as legal counsel to both entities (although Cortech had retained Pillsbury Madison & Sutro LLP ("Pillsbury") in August 1997 to act as legal counsel in connection with potential strategic transactions). On October 24, 1997, officers of Cortech and BioStar (including Mr. Lynn and Ms. Ayers) met at Cortech for a tour of its facilities, an exchange of general information and a discussion regarding the potential benefits from a combination of the two entities. The discussion was general in nature and no formal proposal or relative valuation was discussed. Cortech and BioStar also entered into a mutual non-disclosure agreement as of October 24, 1997. On October 28, 1997, Mr. Lynn and Ms. Ayers participated in a telephone conference with a representative from Lehman during which the possibility of a combination of Cortech and BioStar was discussed. At the end of the conference, Mr. Lynn and Ms. Ayers agreed to meet in person with the representative from Lehman to engage in further discussions. On October 31, 1997, officers of BioStar and Cortech (including Mr. Lynn and Ms. Ayers) met at BioStar for a tour of its facility and discussion concerning the business operations, products and financial results and prospects of BioStar. On November 5, 1997, officers of BioStar and Cortech (including Mr. Lynn and Ms. Ayers) met with representatives of Lehman and discussed the possibility of a business combination, including possible terms and structure. A representative of Lehman outlined a proposed combination involving an issuance of shares by Cortech to BioStar's stockholders to accomplish a relative valuation between Cortech and BioStar, respectively, of approximately 30:70. Mr. Lynn responded that such a relative valuation would be unacceptable for Cortech and, following the November 5, 1997 meeting, officers of BioStar and Cortech (principally Mr. Lynn and Ms. Ayers) engaged in various discussions regarding relative valuation and other significant terms of a possible transaction. On November 12, 1997, officers of Cortech (including Mr. Lynn) and one outside member of the Cortech Board (Bert Fingerhut) met with Ms. Ayers and Alexander E. Barkas, Ph.D., Chairman of the BioStar Board, to provide BioStar with an overview of Cortech's business and technology development status. On November 13, 1997, the BioStar Board met at a regularly scheduled meeting at which the potential merits of a business combination with Cortech were discussed relative to other financial and strategic alternatives available to BioStar. Following such discussion, the BioStar Board authorized management to undertake the negotiation of a potential business combination with Cortech. On November 24, 1997, officers of BioStar and Cortech (including Mr. Lynn and Ms. Ayers) met with representatives of Cowen. At this meeting, BioStar presented an overview of its business operations, products and financial results and prospects. Following the November 24, 1997 meeting, representatives of Lehman circulated an outline for a possible combination of BioStar and Cortech. As part of the discussions concerning such outline, officers of BioStar 36 51 and Cortech addressed the matter of relative valuation, eventually agreeing upon a relative valuation for Cortech and BioStar, respectively, of 40:60 as the basis for a proposed combination. During the period of meetings between officers of Cortech and BioStar, Mr. Lynn communicated regularly with his fellow members of the Cortech Board regarding the status of discussions between the parties. In addition, officers of Cortech (including Mr. Lynn) consulted regularly with representatives from Cowen and Pillsbury regarding such discussions. From December 5, 1997, when a draft of the Reorganization Agreement was first circulated, until December 22, 1997, representatives from Cortech, BioStar and their respective legal counsel negotiated the terms of the Reorganization Agreement as well as the terms of related arrangements and documents. On December 12, 1997, the Cortech Board met at a regularly scheduled meeting at which the potential merits of a business combination with BioStar were discussed relative to other potential financial and strategic alternatives available to Cortech (in particular, a voluntary corporate liquidation). The meeting was attended by representatives of Cowen and Pillsbury. In addition, BioStar's management team (including Ms. Ayers) and Chairman of the Board joined the meeting to make a presentation to the Cortech Board regarding BioStar and to answer questions regarding BioStar's business operations, products and financial results and prospects. Following this presentation, the representatives of BioStar were excused from the meeting and the Cortech Board considered the preliminary analyses of Cowen regarding a combination of Cortech and BioStar from a financial point of view as well as the alternative of a voluntary corporate liquidation. Following discussion, and based upon its review of the information presented at the meeting, the Cortech Board authorized management to undertake the negotiation of a potential business combination with BioStar. On December 19, 1997, at a special telephonic meeting of the BioStar Board, (1) management of BioStar and representatives from Cooley reviewed the results of their due diligence of Cortech, (2) management reviewed the possible benefits and risks relating to the proposed combination, (3) the Directors reviewed with management and representatives of Cooley the specific terms of the proposed Reorganization Agreement and (4) Lehman presented an analysis regarding the combination from a financial point of view. At the meeting, the BioStar Board unanimously approved the Merger and the Reorganization Agreement. On December 19, 1997, at a special meeting of the Cortech Board, (1) management of Cortech and a representative from Pillsbury reviewed the results of due diligence conducted with respect to BioStar, (2) management reviewed the possible benefits and risks relating to the proposed combination, (3) the Cortech Board reviewed with management and a representative of Pillsbury the specific terms of the proposed Reorganization Agreement and (4) Cowen made a presentation regarding the combination from a financial point of view. The meeting was adjourned to December 22, 1997 at which time (i) the Cortech Board reviewed with management and a representative of Pillsbury the proposed Reorganization Agreement and related documents in their final form, (ii) Cowen delivered its oral opinion that the financial terms of the Merger were fair, as of such date and from a financial point of view, to Cortech (and such oral opinion was subsequently confirmed by delivery of the written opinion of Cowen dated December 22, 1997) and (iii) the Cortech Board unanimously approved the Reorganization Agreement and the Merger. On December 22, 1997, Cortech and BioStar executed the Reorganization Agreement and, subsequently, issued a joint press release announcing the execution of the Reorganization Agreement. CORTECH'S REASONS FOR THE MERGER In the course of reaching its decision to approve the Reorganization Agreement and the Merger, the Cortech Board consulted with Cortech's legal and financial advisors, as well as with Cortech's management and others, and considered a number of factors, including that: (1) The combination of Cortech's cash resources and status as a public company with BioStar's products, platform technology and organization would offer Cortech's stockholders an opportunity to realize appropriate value from their investment in Cortech; 37 52 (2) The combination would afford Cortech's existing technology an enhanced opportunity to be (i) recognized as valuable and (ii) advanced in externally funded development, thereby permitting Cortech stockholders an opportunity to realize any benefits therefrom; (3) As compared with a voluntary corporate liquidation, (i) the combination would permit Cortech's stockholders an opportunity to share in potential value which would otherwise be lost in a liquidation (such as value potentially to be derived from Cortech's public company status as well as the potential going concern value of other intangible and tangible Cortech assets) and (ii) Cortech's stockholders would not have to face risks as to whether or not reserves allocated to cover residual liabilities in connection with any liquidation would prove to be adequate; (4) After reviewing numerous potential strategic transactions, and balanced against Cortech's diminishing prospects and status as a stand-alone entity (due, primarily, to continued incremental depletion of cash assets, the impairment of Cortech's ability (through a series of corporate downsizings) to undertake internal research and development and the resulting/growing potential for technological stagnation), management and the Cortech Board determined that an alternative transaction of comparable or superior terms for Cortech's stockholders likely would not become available to Cortech within the reasonably foreseeable future (if ever); and (5) BioStar possesses a variety of assets and resources that would bring value to a combined entity and thereby potentially benefit Cortech's stockholders, including: (i) a capable management team with the demonstrated ability to lead the development and commercialization of products; (ii) a business plan for continued efforts to develop and commercialize products; and (iii) current product revenues which would, at least partially, offset continuing research and development expenses (and thereby extend the cash resources of a combined company). In the course of its deliberations, the Cortech Board reviewed and considered a number of other factors relevant to the Merger and the Reorganization Agreement, including: (a) Information concerning the respective businesses, financial position, results of operations, product development schedules, technologies and properties of Cortech and BioStar; (b) Cowen's oral opinion, delivered on December 22, 1997 and subsequently confirmed in writing, that as of such date the financial terms of the Merger were fair, from a financial point of view, to Cortech; (c) Analysis from management concerning the possible returns to Cortech stockholders in the event of a voluntary corporate liquidation; (d) Analysis from management concerning due diligence conducted with respect to BioStar's business, operations, technology and competitive position, as well as the potential opportunities for growth by a combined company; (e) Presentations from management and a representative from Pillsbury concerning the specific terms of the Reorganization Agreement and related documents, including the obligations of Cortech to refrain from soliciting or encouraging other proposals with respect to a strategic combination, provisions relating to the possible payment of a break-up fee, the possible circumstances under which the Reorganization Agreement could be terminated and the conditions precedent to a closing of the Merger; and (f) The requirements that the Merger be approved by votes of the Cortech and BioStar stockholders, respectively. The Cortech Board also considered certain potentially negative factors in its deliberations concerning the Merger, including (i) the possibility that the anticipated benefits of the Merger would not be realized, (ii) the dilutive effects of the issuance of shares of Cortech Common Stock in the Merger to the stockholders of BioStar, (iii) the possibility that the Merger would not be consummated and (iv) other risks described above 38 53 under "Risk Factors". The Cortech Board concluded that the potential benefits of the Merger to Cortech and its stockholders outweighed the potential risks. The foregoing discussion of the information and factors considered by the Cortech Board is not intended to be exhaustive, but is believed to include the material information and factors considered by the Cortech Board. In reaching a determination whether to approve the Reorganization Agreement and the Merger, in view of the variety of factors considered the Cortech Board did not find it practicable to, and did not, quantify or otherwise attempt to assign relative or specific weights to the information and factors considered in reaching its determinations, and individual directors may have given differing weights to different factors. CORTECH BOARD RECOMMENDATION FOR THE REASONS DISCUSSED ABOVE, THE CORTECH BOARD HAS DETERMINED THAT THE TERMS OF THE REORGANIZATION AGREEMENT AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, CORTECH AND THE CORTECH STOCKHOLDERS. ACCORDINGLY, THE CORTECH BOARD HAS UNANIMOUSLY RECOMMENDED THAT CORTECH STOCKHOLDERS VOTE FOR THE APPROVAL OF THE MERGER PROPOSAL. BIOSTAR'S REASONS FOR THE MERGER In reaching its decision to approve the Reorganization Agreement and the Merger, the BioStar Board consulted with BioStar's legal and financial advisors, and considered a number of factors, including that: (1) The Merger is expected to provide BioStar with substantially greater resources, including cash and a publicly-traded security, to fund internal development work and pursue strategic transactions, including acquisitions and strategic partnerships. (2) BioStar's stockholders will receive Cortech Common Stock in the Merger for which there is a ready public market, in contrast to the illiquid nature of their present holdings of BioStar Capital Stock. (3) The Merger is expected to provide BioStar with access to the intangible assets associated with Cortech's business. (4) The parties have overlapping technology interests. BioStar has completed feasibility testing for brain marker assays which may be useful for developing a brain trauma diagnostic test. (5) The Merger is expected to provide BioStar with access to Cortech's laboratory and office facilities in Denver, Colorado which may be useful for BioStar's continued growth. In addition to the factors described above, the BioStar Board considered, among other things, the following factors: (a) Detailed financial analyses, pro forma and other information with respect to Cortech and BioStar presented by Lehman and BioStar's management; (b) The BioStar Board's own knowledge of Cortech, BioStar and their respective businesses, financial position, historical and prospective results of operations and product development plans; (c) The current economic, financial and business climate, including the states of the clinical diagnostics and pharmaceutical industries, including current and future competition, and consolidations within the industries; (d) The historical price and volume trading data for Cortech's Common Stock as well as the composition of Cortech's stockholder base; (e) Other alternatives available to BioStar in short and long-term time frames, including the availability of public and private financing, a range of business combinations and a sale of BioStar to achieve BioStar's funding, liquidity and other strategic objectives; 39 54 (f) The expectation that the Merger will be tax free for federal income tax purposes to BioStar's stockholders; and (g) Reports from management and legal and financial advisors concerning the specific terms of the Reorganization Agreement and ancillary documents, including the obligation of Cortech not to solicit or encourage other acquisition proposals, the breakup fee provisions, the circumstances under which either Cortech or BioStar can terminate the Reorganization Agreement and the closing conditions to the Merger. The BioStar Board also considered a number of potential risks relating to the Merger, including (i) the risk that the Merger would not be consummated due to the failure of the parties to satisfy conditions to the Merger, (ii) the risk that the market price of Cortech Common Stock might decline between execution of the Reorganization Agreement and consummation of the Merger, (iii) the risk that despite the intentions and efforts of the parties, the key technical and management personnel of Cortech and BioStar required to facilitate a successful integration may not remain with the combined company, and (iv) the other risks described above under "Risk Factors". The foregoing discussion of the factors considered by the BioStar Board is not intended to be exhaustive but is intended to include all of the material factors considered by the BioStar Board. In view of the complexity and variety of factors considered by the BioStar Board, the BioStar Board did not consider it practical to quantify or otherwise attempt to assign any relative or specific weights to the specific factors considered, and individual directors may have given differing weights to different factors. FOR THE REASONS DISCUSSED ABOVE, THE BIOSTAR BOARD HAS APPROVED THE REORGANIZATION AGREEMENT AND THE MERGER AND HAS DETERMINED THAT THE TERMS OF THE REORGANIZATION AGREEMENT AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, BIOSTAR AND THE BIOSTAR STOCKHOLDERS. ACCORDINGLY, THE BIOSTAR BOARD HAS UNANIMOUSLY RECOMMENDED THAT THE BIOSTAR STOCKHOLDERS VOTE IN FAVOR OF APPROVAL OF THE MERGER PROPOSAL. OPINION OF FINANCIAL ADVISOR TO CORTECH Pursuant to an engagement letter dated December 8, 1997 (the "Cowen Engagement Letter"), Cortech retained Cowen to serve as its financial advisor in connection with Cortech's exploration of strategic alternatives. As part of this assignment, Cowen was asked to render an opinion to the Cortech Board as to the fairness to Cortech, from a financial point of view, of the terms of the Merger. On December 22, 1997, Cowen delivered its oral opinion to the Cortech Board, subsequently confirmed in writing as of the same date, to the effect that, as of December 22, 1997, the financial terms of the Merger pursuant to the Reorganization Agreement were fair, from a financial point of view, to Cortech. THE FULL TEXT OF THE WRITTEN OPINION OF COWEN, DATED DECEMBER 22, 1997, IS ATTACHED HERETO AS APPENDIX C AND IS INCORPORATED BY REFERENCE. HOLDERS OF CORTECH COMMON STOCK ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY COWEN. THE SUMMARY OF THE WRITTEN OPINION OF COWEN SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. COWEN'S ANALYSES AND OPINION WERE PREPARED FOR THE CORTECH BOARD AND ARE DIRECTED TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE FINANCIAL TERMS OF THE MERGER. THE OPINION DOES NOT CONSTITUTE AN OPINION AS TO THE MERITS OF THE MERGER OR A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW TO VOTE ON THE PROPOSED MERGER. THE AMOUNT OF STOCK CONSIDERATION WAS DETERMINED THROUGH NEGOTIATIONS BETWEEN CORTECH AND BIOSTAR. COWEN DID NOT MAKE ANY RECOMMENDATION TO CORTECH AS TO FORM AND AMOUNT OF CONSIDERATION TO BE PAID IN THE MERGER. Cowen was selected by the Cortech Board as its financial advisor, and to render an opinion to the Board, because Cowen is a nationally recognized investment banking firm and because certain principals of Cowen have substantial experience in transactions similar to the Merger and are familiar with Cortech and its businesses. As part of its investment banking business, Cowen is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions and valuations for corporate and other 40 55 purposes. In the ordinary course of its business, Cowen trades equity securities of Cortech for its account and for the accounts of its customers, and, accordingly, it may at any time hold a long or short position in such securities. In arriving at its opinion, Cowen (a) reviewed Cortech's financial statements for the fiscal years ended December 31, 1994, 1995, and 1996 and for the quarters ended September 30, 1996 and September 30, 1997, respectively, certain publicly available filings with the Securities and Exchange Commission and certain other relevant financial and operating data of Cortech; (b) reviewed BioStar's financial statements for the fiscal years ended December 31, 1994, 1995, and 1996 and for the quarters ended September 30, 1996 and September 30, 1997, respectively, and certain other relevant financial and operating data of BioStar; (c) reviewed a draft Reorganization Agreement, dated December 22, 1997; (d) held meetings and discussions with management and senior personnel of Cortech and BioStar to discuss the business, operations, historical financial results and future prospects of Cortech and BioStar; (e) reviewed financial projections furnished to Cowen by the management of Cortech, including, among other things, the capital structure, sales, net income, cash flow, capital requirements and other data of Cortech that Cowen deemed relevant; (f) reviewed financial projections furnished to Cowen by the management of BioStar, including, among other things, the capital structure, sales, net income, cash flow, capital requirements and other data of BioStar that Cowen deemed relevant; (g) reviewed the valuation of Cortech and BioStar in comparison to other similar publicly traded companies; (h) analyzed the potential pro forma financial effects of the Merger; and (i) conducted such other studies, analysis, inquiries and investigations as Cowen deemed appropriate. Cowen was not requested to, and did not, solicit third party indications of interest in acquiring all or substantially all of the stock or assets of Cortech. In rendering its opinion, Cowen relied upon Cortech's and BioStar's managements with respect to the accuracy and completeness of the financial and other information furnished to it as described above. Cowen assumed that financial forecasts, projections and estimates of operating efficiencies and potential synergies reflected the best currently available estimates of expected future financial performance of their respective entities. Cowen has not assumed any responsibility for independent verification of such information, including financial information, nor has it made an independent evaluation or appraisal of any of the properties or assets of Cortech or BioStar. Cowen has conducted no inquiry as to legal matters relating to Cortech and BioStar, and Cowen expresses no opinion with respect to any such matters. Cowen's opinion is necessarily based on general economic, market, financial and other conditions as they exist on, and can be evaluated as of, the date of the opinion, as well as the information currently available to Cowen at that time. It should be understood that, although subsequent developments may affect Cowen's opinion, Cowen does not have any obligation to update, revise or reaffirm its opinion. Cowen's opinion does not constitute a recommendation to any stockholder as to how such stockholder should vote on the proposed Merger. Cowen's opinion does not imply any conclusion as to the likely trading range for Cortech Common Stock following consummation of the Merger or otherwise, which may vary depending on numerous factors that generally influence the price of securities. Cowen's opinion is limited to the fairness, from a financial point of view, of the terms of the Merger. Cowen expresses no opinion with respect to any other reasons, legal, business or otherwise, that may support the decision of the Cortech Board to approve, or Cortech's decision to consummate, the Merger. For purposes of rendering its opinion, Cowen has assumed in all respects material to its analysis, that the representations and warranties of each party contained in the Reorganization Agreement are true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the Reorganization Agreement and that all conditions to the consummation of the Merger will be satisfied without waiver thereof. Cowen has also assumed that all governmental, regulatory or other consents and approvals contemplated by the Reorganization Agreement will be obtained and that in the course of obtaining any of those consents no restrictions will be imposed or waivers made that would have an adverse effect on the contemplated benefits of the Merger. The following is a summary of certain financial analyses performed by Cowen to arrive at its opinion. Cowen performed certain procedures, including each of the financial analyses described below, and reviewed 41 56 with the management of Cortech the assumptions on which such analyses were based and other factors, including the historical and projected results of Cortech and BioStar. No limitations were imposed by the Cortech Board with respect to the investigations made or procedures followed by Cowen in rendering its opinion. Valuation of Cortech Analysis of Certain Publicly Traded Companies. Using publicly available information, Cowen compared, among other things, the market value of the total outstanding common equity (the "Market Value") and market value minus "cash" (the "Technology Value") of Cortech to the corresponding Market Value and Technology Value of certain other biotechnology companies (the "Biotech Companies") whose securities are publicly traded and which Cowen deemed comparable to Cortech. "Cash" equals cash and cash equivalents plus marketable securities. The Technology Values of these companies is a measure of the value attributed by the market to the current value of the companies' products under development. Selected Biotech Companies included: Anergen, Inc., Corvas International, Inc., Cytel Corporation, La Jolla Pharmaceutical Company, Repligen Corporation, T Cell Sciences, Inc., and Xenova Group plc. Technology Values ranged from a high of $45.2 million to a low of ($6.9) million. Cortech's Technology Value was calculated to be ($4.0) million. Based on this analysis, Cortech's Technology Value was shown to be at the low end of the range of Technology Values of the Biotech Companies. Although the Biotech Companies were used for comparison purposes, none of such companies is directly comparable to Cortech. Accordingly, an analysis of the results of such a comparison is not purely mathematical but instead involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the Biotech Companies and other factors that could affect the public trading value of the Biotech Companies or the company to which they are being compared. Liquidation Analysis. Cowen performed a liquidation analysis on Cortech as a way of determining the cash value of Cortech assuming the Merger did not occur. Such analysis assumes Cortech would complete its liquidation by the end of 1998. This analysis was based upon certain assumptions described by, projections supplied by and discussions held with the management of Cortech. Based on this analysis, Cortech was projected to receive approximately $1.0 million in cash from interest income and the sale of assets by the end of 1998 and spend approximately $4.4 million in general and administrative expenses, research and development salaries and overhead by the end of 1998. Given Cortech's cash position of $15.4 million at the beginning of the first quarter of 1998, the net result of these cash receipts and expenditures by the end of the fourth quarter of 1998 would yield a cash position of $12.1 million as a result of the liquidation of Cortech by the end of 1998. In connection with the liquidation analysis, it should be noted that such analysis is based upon observations and estimates of management as of December 1997. Management has not prepared a detailed plan in preparation for an actual liquidation, and there can be no assurances that Cortech would receive the projected income, that Cortech would not incur additional expenses (whether or not relating to a liquidation) or that Cortech would seek to or could effect an orderly liquidation by the end of 1998, if at all. Accordingly, there can be no assurances that the projected cash position of $12.1 million (or a figure approximating such amount) would result from the liquidation of Cortech. Valuation of BioStar Analysis of Certain Publicly Traded Companies. Cowen compared selected historical operating and financial data and ratios for BioStar to the corresponding financial data and ratios of certain other point-of-care diagnostic companies (the "Diagnostics Companies") whose securities are publicly traded and which Cowen deemed comparable to BioStar. These companies included: Abaxis, Inc., Abbott Laboratories, Beckman Instruments, Inc., BioSite Diagnostics, Incorporated, CardioVascular Diagnostics, Inc., Cholestech Corporation, Diametrics Medical, Inc., i-STAT Corporation, International Murex Technologies Corporation, Meridian Diagnostics, Inc. and Quidel Corporation. Such data and ratios include the "Enterprise Value" of such Diagnostics Companies as multiples of revenues, earnings before interest and taxes plus depreciation and 42 57 amortization ("EBITDA") and earnings before interest and taxes ("EBIT") for the latest twelve months ("LTM"), estimated 1997 calendar year and estimated 1998 calendar year periods. Cowen also examined the ratios of the current prices of the Diagnostics Companies to the LTM earnings per share ("EPS"), estimated 1997 calendar year EPS and estimated 1998 calendar year EPS, as estimated by Cowen or First Call, for these companies. Such analysis indicated that, for the Diagnostics Companies, (i) the median values of Enterprise Value (a) as a multiple of LTM revenue, EBITDA and EBIT were 3.50 times, 13.7 times and 22.4 times, respectively; (b) of estimated 1997 revenue, EBITDA and EBIT were 4.46 times, 28.5 times and 18.9 times, respectively; (c) of estimated 1998 revenue, EBITDA and EBIT were 2.95 times, 10.9 times and 14.2 times, respectively; and (ii) the median values of price per share as a multiple of LTM EPS, estimated 1997 EPS and estimated 1998 EPS were 25.6 times, 24.2 times and 19.1 times, respectively. Although the Diagnostics Companies were used for comparison purposes, none of such companies is directly comparable to BioStar. Accordingly, an analysis of the results of such a comparison is not purely mathematical but instead involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the Diagnostics Companies and other factors that could affect the public trading value of the Diagnostics Companies or BioStar to which they are being compared. BioStar provided certain revenue projections and expense projections ("Management Case"). The Management Case was adjusted based upon certain assumptions described by, projections supplied by and discussions held with the managements of BioStar and Cortech (the "Adjusted Case"). Utilizing Adjusted Case 1997 and 1998 revenue projections, a range of equity values for BioStar was determined by applying such Adjusted Case revenue projections to median 1997 and 1998 Diagnostics Companies revenue multiples and subtracting projected debt as of December 31, 1997 of $8.4 million and adding projected cash as of December 31, 1997 of $10,000. Once these equity values were determined, a 35% illiquidity discount to compensate for the additional risk and lack of liquidity associated with a private company was applied to BioStar's range of equity values, yielding equity values for BioStar ranging from $33.5 million to $39.5 million. Discounted Cash Flow Analysis. Cowen estimated the range of values for BioStar based upon the discounted present value of the Management Case projected after-tax free cash flows of BioStar for the years ending December 1997 through December 2001, and of the terminal value of BioStar at December 30, 2001 based upon estimated EBIT multiples and 2001 EBIT. After-tax cash flow was calculated by taking projected EBIT and subtracting from such amount projected taxes, capital expenditures, changes in working capital and changes in other assets and liabilities and adding back projected depreciation and amortization. This analysis was based upon certain assumptions described by, projections supplied by and discussions held with the managements of Cortech and BioStar. In performing this analysis, Cowen utilized discount rates ranging from 20% to 40%. These discount rates were selected based on a number of criteria including the estimated industry weighted average cost of capital for Diagnostics Companies and as a way to account for the risks inherent in private diagnostics companies and BioStar. Cowen utilized terminal multiples of EBIT ranging from 8.0 times to 12.0 times for BioStar. These multiples were derived by taking the general range of 1998 EBIT multiples for the Diagnostics Companies and reducing these multiples to 8.0 times to 12.0 times as a way to account for the risks inherent in private diagnostics companies and BioStar. Such analysis resulted in a range of equity values for BioStar to which a 35% illiquidity discount was applied to account for the additional risk and lack of liquidity associated with a private company. Utilizing this methodology, BioStar's midrange equity value ranged from $22.3 million to $34.7 million. IPO Valuation Analysis. As a result of the Merger, if consummated, BioStar's shareholders will hold publicly traded securities. Cowen estimated the range of equity values for BioStar assuming a theoretical initial public offering ("IPO") of BioStar in 2000 and discounting such equity values to the end of 1997. The equity value of BioStar was calculated by taking the average 1998 price to earnings multiple of publicly traded companies Cowen deemed most comparable to BioStar. These companies included International Murex Technologies Corporation, Meridian Diagnostics, Inc. and Quidel Corporation. The average 1998 price to earnings multiple of these companies was 14.2 times, to which a standard 15% IPO discount was applied, 43 58 yielding a multiple of 12.0 times. This multiple was then applied to BioStar's Adjusted Case projected 2000 net income, yielding an equity valuation which was discounted to the present at discount rates ranging from 20% to 40%. These discount rates were selected based on a number of criteria, including the estimated industry weighted average cost of capital for Diagnostics Companies and as a way to account for the risks inherent in private diagnostics companies and BioStar. Utilizing this methodology, BioStar's equity values ranged from $27.6 million to $37.5 million. Pro Forma Valuation Pro Forma Analysis. Cowen analyzed the potential effect of the Merger on the projected pro forma Management Case and Adjusted Case income statement of BioStar for the years ended December 1998, 1999, 2000 and 2001. This analysis was based on (a) the liquidation value of Cortech provided by Cortech's management; (b) Management Case projections for BioStar; and (c) Adjusted Case projections for BioStar. The analysis excluded all one-time events, including the effects of a BioStar financing transaction projected to occur in the first quarter of 1998. In addition, the analysis excluded the effects of any negative goodwill amortization which may be created by the Merger. The analysis showed, among other things, that on a pro forma Management Case basis, BioStar is projected to earn $15.8 million in 2001 and on a pro forma Adjusted Case basis, BioStar is projected to earn $7.3 million in 2001. The summary set forth above does not purport to be a complete description of the analyses performed by Cowen. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analyses and the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. Cowen did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, notwithstanding the separate factors summarized above, Cowen believes, and has advised the Cortech Board, that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, could create an incomplete view of the process underlying its opinion. In performing its analyses, Cowen made numerous assumptions with respect to industry performance, business and economic conditions and other matters, many of which are beyond the control of Cortech and BioStar. These analyses performed by Cowen are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of businesses do not purport to be appraisals or to reflect the prices at which businesses or securities may actually be sold. Accordingly, such analyses and estimates are inherently uncertain and are subject to significant business, economic, competitive, regulatory and other uncertainties and contingencies, all of which are difficult or impossible to predict and are beyond the control of Cowen, Cortech and BioStar. As mentioned above, the analyses supplied by Cowen and its opinion were among several factors taken into consideration by the Cortech Board in making its decision to enter into the Reorganization Agreement and should not be considered as determinative of such decision. Pursuant to the Cowen Engagement Letter, Cortech has agreed to pay certain fees to Cowen for its financial advisory services provided in connection with the Merger. Cowen has been paid a non-refundable retainer fee and a fairness opinion fee totaling $250,000. In addition, if the Merger is consummated, Cortech has agreed to pay Cowen an additional advisory fee of $150,000 in consideration for Cowen's professional services. Additionally, Cortech has agreed to reimburse Cowen for its out-of-pocket expenses (including the reasonable fees and expenses of its counsel) incurred or accrued during the period of, and in connection with, Cowen's engagement. Cortech has also agreed to indemnify Cowen against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of services performed by Cowen as financial advisor to the Cortech Board in connection with the Merger, unless it is finally judicially determined that such liabilities arose out of Cowen's gross negligence or willful misconduct. The terms of the fee arrangement with Cowen, which are customary in transactions of this nature, were negotiated at arms' length between Cortech and Cowen, and the Cortech Board was aware of such arrangement, including the fact that a significant portion of the aggregate fee payable to Cowen is contingent upon consummation of the Merger. 44 59 INTERESTS OF CERTAIN PERSONS IN THE MERGER Certain members of Cortech's and BioStar's management and the BioStar Board may be deemed to have certain interests in the Merger that are in addition to their interests as stockholders of Cortech or BioStar generally. The BioStar Board and the Cortech Board were each aware of these interests and considered them, among other matters, in approving the Reorganization Agreement and the transactions contemplated thereby. Indemnification. Under the Reorganization Agreement, Cortech has agreed to provide indemnification, to the fullest extent permitted by applicable laws, to any person who has served as a director or officer of Cortech or BioStar against losses, claims, damages or expenses arising out of the fact that such person was a director or officer of Cortech or BioStar. Acceleration of Stock Options. At the Effective Time of the Merger, vesting of options to purchase BioStar common stock held by the following BioStar directors shall accelerate (or the repurchase option held by BioStar with respect to shares underlying such options shall expire) so that the following portions of options shall be vested as of such time: option to purchase 100,000 shares at an exercise price of $.23 per share held by Thomas Bologna (50,000 shares will be vested and the remainder will be canceled); options to purchase 200,000 shares at an exercise price of $.23 per share held by Alexander E. Barkas (125,000 shares will be vested and the remainder will be canceled); and 100,000 shares subject to a repurchase option held by Marvin H. Caruthers (50,000 shares will be vested and the remainder will be canceled). BioStar Management Bonuses. In February 1998, the BioStar Board granted its executive officers stock options in the following amounts as compensation for services provided by such persons to BioStar in connection with the Merger: Teresa W. Ayers (150,000 shares), Lyndal K. Hesterberg (130,000 shares), Noel T. Doheny (115,000 shares), Kim L. Stebbings (95,000 shares) and Edward C. Pritchard (10,000 shares), (each a "Bonus Option"). The Bonus Options are exercisable at $.40 per share of BioStar Common Stock and will vest in full on the first anniversary of the Merger. The Bonus Options will be assumed by Cortech in the Merger. The Bonus Options may be exercised early pursuant to restricted stock purchase agreements which provide that BioStar can repurchase any shares if the employee leaves prior to the first anniversary of the Merger. In addition, in February 1998, BioStar paid Ms. Ayers, Mr. Hesterberg, Mr. Doheny, Ms. Stebbings and Mr. Pritchard a cash bonus equal to the exercise price for the number of shares equal to two years of vesting on outstanding options (the "Two Year Vesting Amount") held by such executive plus an amount equal to such executive's tax liability. The executive officers are required to use the cash bonus to exercise the Two Year Vesting Amount. The aggregate cash bonus amount paid was $380,000. Severance Arrangements. Cortech adopted an Executive Officers' Severance Benefit Plan (the "Severance Plan") on September 18, 1995, which was amended on December 13, 1996, to encourage senior employees to continue working on Cortech's behalf during and following a change in control. In the event of an involuntary termination of employment within 60 days prior to and up to 30 months following a change in control, all employees employed at the level of Vice President or above, and such other management employees as may be designated by the Chief Executive Officer, will receive compensation during the Benefit Period (defined below), as well as a proportional bonus payment if one was received the year preceding the year in which the termination date occurs, and all outstanding unvested stock options held by any such employee will become fully vested on the termination date. The "Benefit Period" for employees other than the Chief Executive Officer is the period commencing on the termination date and (i) continuing for 18 months following such date if the date occurs within 60 days prior or up to 12 months after a change in control, or (ii) if termination occurs beyond 12 months after a change in control, continuing for the period following the termination date determined by reducing 30 months by the number of months the eligible employee was employed by Cortech following a change in control. With respect to the Chief Executive Officer, the "Benefit Period" is the period commencing on the Chief Executive Officer's termination date and (i) continuing for 24 months following such date if the date occurs within 60 days prior or up to 12 months after a change in control, or (ii) if termination occurs beyond 12 months after a change in control, continuing for the period following such termination date determined by reducing 36 months by the number of months the Chief Executive Officer was employed by Cortech following a change in control. 45 60 Cortech entered into an Executive Compensation and Benefits Continuation Agreement with Kenneth R. Lynn (the "Employment Agreement") on October 14, 1997, which provides, upon the occurrence of the Termination Event (defined below) for the payment of the equivalent of 24 months base salary, the payment of health insurance policies for up to 18 months following the Termination Event, immediate vesting of all stock options not already vested and the payment of a bonus (equal to the fraction of the current year worked multiplied by the bonus paid for the prior year). A "Termination Event" is defined as the involuntary termination of Mr. Lynn by Cortech without cause or the termination of employment by Mr. Lynn on account of a material change in the business of Cortech or the duties of Mr. Lynn prior to a change in control of Cortech or within 30 months after a change in control of Cortech. The Employment Agreement also provides that, with respect to any Termination Event that is also covered by the Severance Plan, Mr. Lynn will receive compensation and benefits pursuant to the Employment Agreement only and not pursuant to the Severance Plan. As part of the arrangements relating to the Reorganization Agreement and the Merger, Mr. Lynn would be terminated as Chief Executive Officer of Cortech at the Effective Time. Accordingly, Mr. Lynn would become entitled to benefits under the Employment Agreement upon such termination (and would not be entitled to any benefits under the Severance Plan). In connection with arrangements relating to the Reorganization Agreement, Mr. Lynn has agreed to an amendment of the Employment Agreement. Pursuant to such amendment, Mr. Lynn would provide Cortech with consulting services for up to 20 hours per week (on a non-cumulative basis) for three months following the Effective Time and (ii) defer three months' worth of base salary otherwise payable following the Merger as severance (to be paid, on a month-to-month basis, over the course of such three-month consulting period). As a result of Mr. Lynn's Employment Agreement, it is anticipated that the only individual covered by the Severance Plan will be Diarmuid F. Boran, Cortech's Vice President of Corporate Development and Planning. As part of the arrangements relating to the Reorganization Agreement and the Merger, it is contemplated that Mr. Boran will be terminated as an officer of Cortech at the Effective Time of the Merger. Pursuant to an agreement with Mr. Boran (the "Boran Agreement"), the cash benefits payable under the Severance Plan would be paid at the Effective Time. The Boran Agreement further provides that benefits available under the Severance Plan would also be paid to Mr. Boran (with cash payments made over the course of six months) in the event of Mr. Boran's involuntary termination in the absence of the Merger. Cortech Employment and Consulting Arrangements. Pursuant to agreements reached between Cortech and BioStar, Cortech has entered into agreements with three key employees of Cortech (including Mr. Boran, as part of the Boran Agreement, but no other officers or directors of Cortech). Pursuant to these agreements, Cortech has agreed to employ these individuals at their current salaries as full or part-time employees and/or consultants for periods ranging from six to nine months following the Effective Time (six months for Mr. Boran). To ensure their continued employment, Cortech has agreed to make certain additional payments to two of these employees (excluding Mr. Boran who would otherwise be receiving benefits pursuant to the Severance Plan and in accordance with the Boran Agreement). VOTING AGREEMENTS Certain directors, officers and other affiliates of BioStar (the "Voting Agreement Stockholders"), who together hold approximately 65% of the BioStar common stock and preferred stock voting together as a single class, and 100% of the Series A Preferred Stock, 100% of the Series B Preferred Stock, 100% of the Series C Preferred Stock, at least 50% of the Series D Preferred Stock and at least 38% of the Series E Preferred Stock, outstanding as of the BioStar Record Date, have entered into voting agreements with Cortech (the "BioStar Voting Agreements") pursuant to which such Voting Agreement Stockholders have agreed to vote in favor of the Merger Proposal and the BioStar Certificate Proposal and have granted Cortech an irrevocable proxy to vote their shares of BioStar Capital Stock in favor of the Merger Proposal and the BioStar Certificate Proposal. In addition, subject to certain exceptions, the Voting Agreement Stockholders have agreed not to Transfer any of their beneficial ownership of, interest in, or risk relating to, securities owned by them unless and until the proposed transferee of such securities shall have (i) executed a counterpart of the BioStar Voting Agreement and an irrevocable proxy and (ii) agreed to hold such securities subject to all of the terms and 46 61 conditions of the BioStar Voting Agreement. See "Approval of the Merger and Related Transactions -- Voting Agreements". Certain directors, officers and other affiliates of Cortech, who together hold approximately 2.3% of the Cortech Common Stock outstanding as of the Cortech Record Date, have entered into the Cortech Voting Agreements pursuant to which such directors, officer and other affiliates of Cortech have agreed to vote in favor of the Merger Proposal and the Cortech Certificate Proposal and have granted BioStar an irrevocable proxy to vote their shares of Cortech Common Stock in favor of the Merger Proposal and the Cortech Certificate Proposal. AFFILIATE AGREEMENTS It is a condition to consummation of the Merger that each person who could reasonably be determined to be an "affiliate," as such term is defined in Rule 145 promulgated under the Securities Act, of BioStar ("Affiliate") execute an agreement that generally requires such holder, for the one year period following consummation of the Merger, to sell shares to the public only in accordance with the volume restrictions and manner of sale restrictions of Rule 144. These restrictions generally require that sales to the public be made only through unsolicited "brokers' transactions" or in transactions directly with a "market maker," as such terms are defined in Rule 144. Additionally, the number of shares to be sold by an affiliate (together with certain related persons and certain persons acting in concert) within any three-month period for purposes of Rule 145 may not exceed the greater of 1% of the outstanding shares of Cortech Common Stock or the average weekly trading volume of such stock during the four calendar weeks preceding such sale. One year after the Effective Time, an affiliate would be able to sell such Cortech Common Stock without such manner of sale or volume limitations provided that Cortech was current with its Exchange Act informational filings and such affiliate was not then an affiliate of Cortech. This requirement will lapse if the SEC repeals the provisions currently contained in Rule 145(c) in a manner that would apply to this transaction. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion summarizes the material federal income tax considerations of the Merger that are generally applicable to holders of BioStar Capital Stock. This discussion is based on currently existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury Regulations thereunder and current administrative rulings and court decisions, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences to Cortech, BioStar or BioStar stockholders as described herein. BioStar stockholders should be aware that this discussion does not deal with all U.S. federal income tax considerations that may be relevant to particular BioStar stockholders in light of their particular circumstances, such as stockholders who are dealers in securities, banks, insurance companies or tax-exempt organizations, who are subject to the alternative minimum tax provisions of the Code, who are foreign persons, who acquired their shares in connection with stock option or stock purchase plans or in other compensatory transactions or who hold their shares as a hedge or as part of a hedging, straddle, conversion or other risk reduction transaction. Further, this discussion does not address the federal income tax treatment with respect to holders of warrants for BioStar Capital Stock. In addition, the following discussion does not address the tax consequences of the Merger under foreign, state or local tax laws or the tax consequences of transactions effectuated prior to or after the Merger (whether or not such transactions are in connection with the Merger). BIOSTAR STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES. Neither Cortech nor BioStar has requested a ruling from the Internal Revenue Service (the "IRS") with regard to any of the U.S. federal income tax consequences of the Merger. As a condition to the consummation of the Merger, Pillsbury Madison & Sutro LLP, counsel to Cortech, and Cooley Godward LLP, counsel to BioStar, will each render an opinion (collectively, the "Tax Opinions") that the Merger will constitute a 47 62 reorganization under Section 368(a) of the Code (a "Reorganization"). Such opinions are, and will be, based on certain assumptions as well as representations (discussed below) and are and, will be subject to the limitations discussed below. Moreover, such opinions will not be binding on the IRS nor preclude the IRS from adopting a contrary position. The discussion below assumes that the Merger will qualify as a Reorganization, based upon the Tax Opinions. The tax description set forth below has been prepared and reviewed by Pillsbury Madison & Sutro LLP and Cooley Godward LLP, and in their opinion, to the extent such description relates to statements of law, it is correct in all material respects. Subject to the limitations and qualifications referred to herein, and as a result of the Merger's qualifying as a Reorganization, the following U.S. federal income tax consequences should result: (i) No gain or loss will be recognized by the holders of BioStar Capital Stock upon the receipt of Cortech Common Stock solely in exchange for such BioStar Capital Stock in the Merger (except to the extent of cash received in lieu of fractional shares); (ii) The aggregate tax basis of the Cortech Common Stock so received by BioStar stockholders in the Merger (including any fractional share of Cortech Common Stock not actually received) will be the same as the aggregate tax basis of BioStar Capital Stock surrendered in exchange therefor; (iii) The holding period of the Cortech Common Stock so received by each BioStar stockholder in the Merger will include the period for which the BioStar Capital Stock surrendered in exchange therefor was considered to be held, provided that the BioStar Capital Stock so surrendered is held as a capital asset at the Effective Time; (iv) Cash payments received by holders of BioStar Capital Stock in lieu of a fractional share will be treated as if such fractional share of Cortech Common Stock had been issued in the Merger and then redeemed by Cortech. A BioStar stockholder receiving such cash will recognize gain or loss upon such payment, measured by the difference (if any) between the amount of cash received and the basis in such fractional share. The gain or loss should be capital gain or loss provided that such share of BioStar Capital Stock was held as a capital asset at the Effective Time; (v) A stockholder of BioStar who exercises dissenters' rights under any applicable law with respect to a share of BioStar Capital Stock and receives a cash payment for such stock will generally recognize capital gain or loss (if such stock was held as a capital asset at the Effective Time of the Merger) measured by the difference between the amount of cash received and the stockholder's basis in such share, provided such payment is neither essentially equivalent to a dividend within the meaning of Section 302 of the Code nor has the effect of a distribution of a dividend within the meaning of Section 356(a)(2) of the Code (collectively, a "Dividend Equivalent Transaction"). A sale of BioStar shares incident to an exercise of dissenters' rights will generally not be a Dividend Equivalent Transaction if, as a result of such exercise, the dissenting stockholder owns no shares of Cortech Common Stock (either actually or constructively within the meaning of Section 318 of the Code); and (vi) Neither Cortech nor BioStar will recognize gain solely as a result of the Merger. The Tax Opinions will be subject to certain assumptions and qualifications and will be based on the truth and accuracy of certain representations of Cortech, BioStar and certain stockholders of BioStar, including representations in certain certificates delivered to counsel by the respective managements of Cortech and BioStar and certain stockholders of BioStar. Of particular importance are the assumptions and representations relating to the "continuity of interest" requirement. To satisfy the "continuity of interest" requirement, BioStar stockholders must not, pursuant to a plan or intent existing at or prior to the Effective Time, dispose of or transfer so much of either (i) their BioStar Capital Stock in anticipation of the Merger or (ii) the Cortech Common Stock to be received in the Merger (collectively, "Planned Dispositions"), such that the BioStar stockholders, as a group, would no longer have a "significant equity interest" in the BioStar business being conducted by Cortech after the Merger. BioStar 48 63 stockholders will generally be regarded as having a "significant equity interest" as long as the Cortech Common Stock received in the Merger (after taking into account Planned Dispositions), in the aggregate, represents a substantial portion of the entire consideration received by the BioStar stockholders in the Merger. This requirement is frequently referred to as the "continuity of interest" requirement. If the continuity of interest requirement is not satisfied, the Merger would not be treated as a Reorganization. The law is unclear as to what constitutes a "significant equity interest" or a "substantial portion". The IRS ruling guidelines require a minimum of 50% continuity (although such guidelines do not purport to represent the applicable substantive law). The Reorganization Agreement and certificates from certain BioStar stockholders regarding continuity contemplate that the 50% standard will be applied. No assurance can be made that the "continuity of interest" requirement will be satisfied, and if such requirement is not satisfied, the Merger would not be treated as a Reorganization. A successful IRS challenge to the Reorganization status of the Merger (as a result of a failure of the "continuity of interest" requirement or otherwise) could result in significant adverse tax consequences to the BioStar stockholders. A BioStar stockholder would recognize gain or loss with respect to each share of BioStar Capital Stock surrendered equal to the difference between the stockholder's basis in such share and the fair market value, as of the Effective Time, of the Cortech Common Stock received in exchange therefor. In such event, a stockholder's aggregate basis in the Cortech Common Stock so received would equal its fair market value, and the stockholder's holding period for such stock would begin the day after the Closing Date. Certain noncorporate BioStar stockholders may be subject to backup withholding at a rate of 31% on cash payments received in lieu of a fractional share interest in Cortech Common Stock. Backup withholding will not apply, however, to a stockholder who furnishes a correct taxpayer identification number ("TIN") and certifies that he, she or it is not subject to backup withholding on the substitute Form W-9 included in the Transmittal Letter, who provides a certificate of foreign status on Form W-8, or who is otherwise exempt from backup withholding. A stockholder who fails to provide the correct TIN on Form W-9 may be subject to a $50 penalty imposed by the IRS. Each BioStar stockholder will be required to retain records and file with such holder's U.S. federal income tax return a statement setting forth certain facts relating to the Merger. ANTICIPATED ACCOUNTING TREATMENT Although as a legal matter Cortech is acquiring BioStar, the Merger will be accounted for as a "purchase" of Cortech by BioStar for accounting and financial reporting purposes. Accordingly, BioStar's historical financial statements will be the financial statements of the post-merger combined company. Under the purchase method of accounting, Cortech's results of operations will be combined with those of BioStar from and after the Effective Time, and Cortech's specific tangible and identifiable intangible assets and liabilities will be recorded on BioStar's books at their respective fair values at the Effective Time. A determination of the fair value of Cortech's specific tangible and identifiable intangible assets and liabilities will be made in order to allocate the purchase price to the assets acquired and the liabilities assumed. REGULATORY MATTERS Antitrust. Cortech and BioStar do not believe that any governmental filings with the Federal Trade Commission ("FTC") are required with respect to the Merger. However, the FTC or the United States Department of Justice Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin consummation of the Merger or seeking to cause divestiture of significant assets of Cortech or BioStar or their subsidiaries. There can be no assurance that a challenge to the Merger on antitrust grounds will not be made, or, if such challenge is made, of what the result would be. Consummation of the Merger is conditioned upon, among other things, the absence of any temporary restraining order, preliminary or permanent injunction, or other order issued by any federal or state court in the United States which prevents the consummation of the Merger. Filing with the Delaware Secretary of State. Certificate of Merger must be filed with the Secretary of State of the State of Delaware in order to consummate the Merger. 49 64 Securities Laws. Cortech and BioStar must comply with the federal securities laws and applicable securities laws of various states. RIGHTS OF DISSENTING STOCKHOLDERS Stockholders of BioStar may, under certain circumstances and by following the procedure prescribed by the DGCL, exercise appraisal rights and receive cash for their shares of BioStar Capital Stock. The stockholders exercising appraisal rights under the DGCL must follow the appropriate procedures under the DGCL or suffer the termination or waiver of such rights. If a holder of BioStar Capital Stock exercises appraisal rights in connection with the Merger under Section 262 of the DGCL ("Section 262"), any shares of BioStar Capital Stock in respect of which such rights have been exercised and perfected will not be converted into Cortech Common Stock but instead will be converted into the right to receive such consideration as may be determined by the Delaware Court of Chancery (the "Court") to be due with respect to such shares pursuant to the laws of the State of Delaware. The following summary of the provisions of Section 262 is not intended to be a complete statement of such provisions and is qualified in its entirety by reference to the full text of Section 262, a copy of which is attached to this Joint Proxy Statement/Prospectus as Appendix D and incorporated herein by reference. Holders of shares of BioStar Capital Stock who object to the Merger and who follow the procedures in Section 262 will be entitled to have their shares of BioStar Capital Stock appraised by the Court and to receive payment of the "fair value" of such shares as of the Effective Time. A stockholder of BioStar electing to exercise appraisal rights must, prior to the BioStar Special Meeting, perfect his, her or its appraisal rights by demanding in writing from BioStar the appraisal of his, her or its shares of BioStar Capital Stock, as provided in Section 262. A holder who elects to exercise appraisal rights should mail or deliver his, her or its written demand to BioStar at 6655 Lookout Road, Boulder, Colorado 80301, Attn: Corporate Secretary. The demand should specify the holder's name and mailing address, the number of shares of BioStar Capital Stock owned and that such holder is demanding appraisal of his, her or its shares. Only a holder of record of shares of BioStar Capital Stock (or his, her or its duly appointed representative) is entitled to assert appraisal rights for the shares registered in that holder's name. Within 120 days after the Effective Time, any stockholder who has made a valid written demand and who has not voted in favor of approval and adoption of the Reorganization Agreement and approval of the Merger may (i) file a petition in the Court demanding a determination of the value of shares of BioStar Capital Stock and (ii) upon written request, receive from BioStar a statement setting forth the aggregate number of shares of BioStar Capital Stock not voted in favor of approval and adoption of the Reorganization Agreement and approval of the Merger and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such statement must be mailed within ten days after the written request therefor has been received by BioStar. If a petition for an appraisal is timely filed, at a hearing on such petition, the Court is required to determine the holders of BioStar Capital Stock entitled to appraisal rights and will determine the "fair value" of such BioStar Capital Stock exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with a fair rate of interest, if any, to be paid upon the value of such BioStar Capital Stock. In determining the "fair value" of such BioStar Capital Stock, the Court is required to take into account all relevant factors, including the market value of BioStar Capital Stock and the net asset and earnings value of BioStar. In determining the fair value of interest, the Court may consider all relevant factors including the rate of interest which BioStar would have had to pay to borrow money during the pendency of the proceedings. Upon application by a stockholder, the Court may also order that all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts utilized in the appraisal proceeding, be charged pro rata against the value of all the shares of BioStar Capital Stock entitled to appraisal. Any holder of BioStar Capital Stock who has duly demanded an appraisal under Section 262 will not, after the Effective Time, be entitled to vote the shares subject to such demand for any purpose or be entitled to 50 65 the payment of dividends or other distributions on such BioStar Capital Stock (except dividends or other distributions payable to stockholders of record as of a date prior to the Effective Time). If any holder of shares of BioStar Capital Stock who demands appraisal under Section 262 effectively withdraws or loses his, her or its right to appraisal, the shares of such holder will be converted into a right to receive that number of shares of Cortech Common Stock as is determined in accordance with the Reorganization Agreement. A holder will effectively lose his right to appraisal if he, she or it votes in favor of approval and adoption of the Reorganization Agreement and approval of the Merger, if no petition for appraisal is filed within 120 days after the Effective Time or if the holder delivers to BioStar a written withdrawal of such holder's demand for an appraisal and an acceptance of the Merger, except that any such attempt to withdraw made more than 60 days after the Effective Time requires the written approval of BioStar. A holder of stock represented by certificates may also lose his, her or its right of appraisal if he, she or it fails to comply with the Court's direction to submit such certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings. Holders of Cortech Common Stock are not entitled to appraisal rights under the DGCL because Cortech is not a constituent corporation to the Merger under the DGCL. RESALE OF CORTECH COMMON STOCK Cortech Common Stock issued in connection with the Merger will be freely transferable, except that shares issued to any BioStar stockholder that may be an "affiliate" of BioStar or who becomes an "affiliate" of Cortech are subject to certain restrictions on resale. Affiliates generally include, without limitation, directors, certain executive officers and certain other persons who control a company. Certain stockholders of BioStar who may be deemed to be affiliates have executed agreements that prohibit the sale, transfer or other disposition of Cortech Common Stock received by such stockholders in the Merger, except under certain circumstances, in order to comply with the requirements of certain federal securities laws. See "Approval of the Merger and Related Transactions -- Affiliate Agreements". Certain stockholders of BioStar have also delivered to Cortech certificates certifying that such stockholders have no present intention to dispose of certain of the shares of Cortech Common Stock to be received by such stockholders in the Merger in order to comply with the requirements of certain United States federal tax laws. See "-- Certain Federal Income Tax Consequences". EFFECT UNDER CORTECH RIGHTS PLAN In 1995, the Cortech Board adopted a stockholder rights plan (the "Rights Plan"). The Cortech Board has determined that neither the Merger, the Reorganization Agreement nor the arrangements contemplated thereby will cause any preferred stock purchase rights to become exercisable under the Rights Plan. Although such an event is not anticipated, the Cortech Board has not taken any action to prevent any former BioStar stockholder from triggering the exercisability of such rights through any post-Merger holding or accumulation of Cortech Common Stock (including, without limitation, shares issued pursuant to the Merger). See "Description of Cortech Capital Stock -- Certain Anti-takeover Provisions". 51 66 THE REORGANIZATION AGREEMENT GENERAL The following is a summary of the material provisions of the Reorganization Agreement, a copy of which is attached as Appendix A to this Joint Proxy Statement/Prospectus and is incorporated herein by reference. The following is not a complete statement of all provisions of the Reorganization Agreement and related agreements. Statements made in this Joint Proxy Statement/Prospectus with respect to the terms of the Reorganization Agreement and such related agreements are qualified in their respective entireties by reference to the more detailed information set forth in the Reorganization Agreement and such related agreements. The Reorganization Agreement provides for the merger of Merger Sub with and into BioStar. As a result of the Merger, Merger Sub will cease to exist, BioStar will become a wholly owned subsidiary of Cortech and the former stockholders of BioStar will become stockholders of Cortech. BioStar will continue as the surviving corporation of the Merger (the "Surviving Corporation"). The Merger will become effective upon the filing of a Certificate of Merger with the Delaware Secretary of State. Such filing is anticipated to take place as soon as practicable after the receipt of all required regulatory approvals and the satisfaction or waiver of the other conditions to the Merger, including the approval of the Merger Proposal by the stockholders of BioStar and Cortech. It is currently anticipated that the Effective Time will occur on or about 1998. There can be no assurance, however, that the required regulatory approvals will be obtained, that the other conditions to the Mergers will be satisfied or waived by such date, or at all, or that the Reorganization Agreement will not be terminated. See "-- Conditions to the Merger" and "The Merger and Related Transactions -- Regulatory Matters". MERGER CONSIDERATION Subject to the provisions contained in the Reorganization Agreement relating to the payment of cash in lieu of fractional shares and shares properly exercising appraisal rights, each share of BioStar Capital Stock outstanding will be converted into the right to receive shares of Cortech Common Stock equal to the "Exchange Ratio." The Exchange Ratio is equal to a fraction the numerator of which is 28,500,000 and the denominator of which is the number of shares of BioStar Capital Stock outstanding plus the number of shares of BioStar Capital Stock issuable upon exercise of all (x) outstanding BioStar Warrants and (y) outstanding BioStar Options, in each case as of immediately prior to the Effective Time. Although the Exchange Ratio will depend upon the capitalization of BioStar at the Effective Time and the per share market price for Cortech Common Stock prior to the Effective Time, BioStar presently estimates that the Exchange Ratio will be approximately .5512 (based upon BioStar's capitalization as of the date of this Joint Proxy Statement/Prospectus and assuming a per share market price for Cortech Common Stock of $0.656 (the per share market price of Cortech Common Stock as of the date of the Reorganization Agreement) immediately prior to the Effective Time). Certain outstanding debt of BioStar and related accrued interest will convert into shares of BioStar preferred stock immediately prior to the Merger. The rate at which such debt will be converted will depend upon, and vary with, the average market price of Cortech Common Stock over a period ending shortly before the Merger. BioStar will issue fewer shares to convert such debt as the per share market price for Cortech Common Stock increases; similarly, BioStar will issue a greater number of shares to convert such debt as such market price decreases. The number of shares of BioStar Capital Stock outstanding immediately prior to the Merger (and, therefore, the Exchange Ratio) will fluctuate based upon such market price. Assuming, (solely for purposes of illustration) that the per share market price for Cortech Common Stock immediately prior to the Merger is (i) $0.35, the Exchange Ratio is estimated to be .1055; (ii) $0.50, the Exchange Ratio is estimated to be .3919; and (iii) $0.656 (the per share market price as of the date of the Reorganization Agreement and the price assumed in preparing the unaudited pro forma condensed consolidated financial information included elsewhere herein), the Exchange Ratio is estimated to be .5512. To the extent the per share market price for Cortech Common Stock is higher than $0.656, the Exchange Ratio will increase accordingly. 52 67 NO FRACTIONAL SHARES No Fractional Shares of Cortech Common Stock will be issued in connection with the Merger, and no certificates for any such fractional shares will be issued. In lieu of such fractional shares, any holder of BioStar Capital Stock (after aggregating all fractional shares of Cortech Common Stock issuable to such holder) will, upon surrender of such holder's stock certificate(s) representing BioStar Capital Stock to the Exchange Agent, be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the closing price of a share of Cortech Common Stock on the Nasdaq National Market on the date the Merger becomes effective. STOCK OPTIONS AND WARRANTS At the Effective Time, each unexpired and unexercised BioStar Option shall be assumed by Cortech and will continue to have and be subject to, substantially the same terms and conditions set forth in the documents governing such options immediately prior to the Effective Time, except that (i) such options will be exercisable for that number of shares of Cortech Common Stock equal to the number of shares of BioStar Common Stock subject to such BioStar Option immediately prior to the Effective Time multiplied by the Exchange Ratio (rounded down to the nearest whole share of Cortech Common Stock) and (ii) the per share exercise price of such options will be equal to the exercise price per BioStar share immediately prior to the Effective Time divided by the Exchange Ratio (rounded up to the nearest whole share). As soon as practicable after the Effective Time, the combined company shall issue to each holder of a BioStar Option assumed in connection with the Merger a notice evidencing the stock option assumption by the combined company. After the Merger, the combined company will file a Form S-8 Registration Statement to register shares under the BioStar 1995 Equity Incentive Plan. Each BioStar Warrant shall be, in connection with the Merger, assumed by Cortech. Each warrant so assumed by Cortech under the Reorganization Agreement shall continue to have, and be subject to, the same terms and conditions set forth in the respective warrant agreements governing such warrant immediately prior to the Effective Time, except that each such warrant shall, following the Effective Time, be exercisable only for shares of Cortech Common Stock in such number, and at such exercise price as is determined by applying the Exchange Ratio in accordance with the terms of the applicable warrant agreement. STOCK OWNERSHIP FOLLOWING THE MERGER A maximum of 28,500,000 shares of Cortech Common Stock will be issued to holders of BioStar Capital Stock or reserved for issuance upon exercise of BioStar Options or BioStar Warrants (prior to the effect of the one-for-[ ] reverse stock split to be considered at the Cortech Special Meeting). Based upon the number of shares of Cortech Common Stock issued and outstanding as of the Cortech Record Date, and after giving effect to the additional shares of Cortech Common Stock proposed to be issued, or reserved for issuance, in the Merger (assuming the full exercise of all outstanding options and warrants to purchase Cortech Common Stock), the former holders of BioStar Capital Stock, BioStar Options and BioStar Warrants would hold and have voting power with respect to approximately 60% of Cortech's total issued and outstanding shares. CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES. As soon as practicable after the Effective Time, the Exchange Agent will mail to the registered holders of BioStar Capital Stock (i) a Letter of Transmittal and (ii) instructions for the use of the Letter of Transmittal in effecting the surrender of the BioStar Stock Certificates in exchange for certificates representing Cortech Common Stock. Upon surrender of a BioStar Stock Certificate to the Exchange Agent for exchange, together with a duly executed Letter of Transmittal and such other documents as may reasonably be required by the Exchange Agent or Cortech, the holder of such BioStar Stock Certificate shall be entitled to receive in exchange therefor a certificate representing the whole number of shares of Cortech Common Stock that such holder has the right to receive. No fractional shares of Cortech Common Stock will be issued in connection with the Merger, and no certificates for any such fractional shares will be issued. If any BioStar Stock Certificate has been lost, stolen or destroyed, Cortech may require the owner of such 53 68 lost, stolen or destroyed BioStar Stock Certificate to provide an appropriate affidavit and to deliver a bond as indemnity against any claim that may be made against the Exchange Agent, Cortech or BioStar with respect to such BioStar Stock Certificate. BIOSTAR STOCKHOLDERS SHOULD NOT SURRENDER THEIR BIOSTAR STOCK CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT. EFFECT ON CERTIFICATES At the Effective Time, (i) all shares of BioStar Capital Stock outstanding immediately prior to the Effective Time will automatically be canceled and retired and will cease to exist, (ii) all holders of certificates representing shares of BioStar Capital Stock that were outstanding immediately prior to the Effective Time will cease to have any rights as stockholders of BioStar and (iii) the stock transfer books of BioStar will be closed with respect to all shares of BioStar Capital Stock outstanding immediately prior to the Effective Time. No further transfer of any such shares of BioStar Capital Stock will be made on such stock transfer books after the Effective Time. If, after the Effective Time, a BioStar Stock Certificate is presented to the Exchange Agent (or to BioStar or Cortech), such BioStar Stock Certificate will be canceled and will be exchanged as provided above under the caption "-- Conversion of Shares; Procedure for Exchange of Certificates". CORPORATE MATTERS; COMPOSITION OF THE CORTECH BOARD AND OFFICERS As of the Effective Time, the Certificate of Incorporation of Merger Sub will be the Certificate of Incorporation of the Surviving Corporation and the Bylaws of Merger Sub will be the Bylaws of the Surviving Corporation. Cortech has agreed to use all reasonable efforts to have the Cortech Board consist of five persons from and after the Effective Time to serve until the next election of directors for each director's respective class, three of whom have been specified by BioStar. Promptly following the Effective Time, it is expected that the Cortech Board will be composed of Teresa W. Ayers, with a term expiring in 2000, Alexander E. Barkas, Ph.D., with a term expiring in 1999, Thomas A. Bologna, with a term expiring in 2000, Kenneth R. Lynn, with a term expiring in 1998, and Bert Fingerhut, with a term expiring in 1999. Ms. Ayers and Messrs. Barkas and Bologna have been specified by BioStar. As of the Effective Time, the BioStar executive officers will become the executive officers of Cortech. CONDITIONS TO THE MERGER Cortech and Merger Sub. The obligations of Cortech and Merger Sub to effect the Merger and otherwise consummate the transactions contemplated by the Reorganization Agreement are subject to the satisfaction, at or prior to the consummation of the transactions contemplated by the Reorganization Agreement (the "Closing") of each of the following conditions: (i) representations and warranties of BioStar contained in the Reorganization Agreement, except for any representation and warranty that refers specifically to the date of the Reorganization Agreement or to any date or period prior to the date of the Reorganization Agreement, shall be accurate in all material respects as of the date of the Closing (the "Closing Date") as if made on and as of the Closing Date except that any inaccuracies in such representations and warranties shall be disregarded if the circumstances giving rise to such inaccuracies (individually and collectively) do not constitute a Material Adverse Effect (as defined below) on BioStar (it being understood that, for purposes of determining the accuracy of such representations and warranties, (a) all "Material Adverse Effect" qualifications and other materiality qualifications contained in such representations and warranties shall be disregarded and (b) any update of or modification to BioStar's disclosure schedule made or purported to have been made after the date of the Reorganization Agreement shall be disregarded); (ii) each covenant or obligation that BioStar is required to comply with or to perform at or prior to the Closing shall have been complied with and performed in all material respects; 54 69 (iii) this Registration Statement shall have become effective in accordance with the provisions of the Securities Act, and no stop order shall have been issued by the Commission with respect to this Registration Statement; (iv) the Merger Proposal and the BioStar Certificate Proposal shall have been duly approved by the Required BioStar Stockholder Vote, and the Merger Proposal shall have been duly approved by the Required Cortech Stockholder Vote; (v) the holders of fewer than 10% of the outstanding shares of BioStar Capital Stock shall have notified BioStar of their intention to assert appraisal rights with respect to the Merger; (vi) all material consents required to be obtained in connection with the Merger and the other transactions contemplated by the Reorganization Agreement shall have been obtained and shall be in full force and effect; (vii) Cortech shall have received the following legal documents, each of which shall be in full force and effect: (a) a legal opinion of Cooley Godward LLP, dated as of the Closing Date, in the form reasonably satisfactory to Cortech and its legal counsel, (b) a legal opinion of Pillsbury Madison & Sutro LLP dated as of the Closing Date and addressed to Cortech, to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"); (c) a certificate executed on behalf of BioStar by its President/Chief Executive Officer confirming that the conditions set forth in clauses (i), (ii), (iv), (v), (vi) and (viii) have been duly satisfied; (viii) there shall have been no material adverse change in the business, financial condition, capitalization, assets, liabilities, operations or financial performance of the BioStar since the date of the Reorganization Agreement; (ix) no temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any legal requirement enacted or deemed applicable to the Merger that makes consummation of the Merger illegal; (x) there shall not be (i) pending or threatened any legal proceeding in which a governmental body is or is threatened to become a party or is otherwise involved (a) challenging or seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by the Reorganization Agreement; (b) relating to the Merger and seeking to obtain from Cortech or any of its subsidiaries any damages that may be material to Cortech; or (c) which would materially and adversely affect the right of Cortech to own the assets or operate the business of BioStar, or (ii) pending any legal proceeding in which there is a reasonable probability of an outcome that would have a Material Adverse Effect on BioStar or on Cortech (a) challenging or seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by the Reorganization Agreement; (b) relating to the Merger and seeking to obtain from Cortech or any of its subsidiaries any damages that may be material to Cortech; (c) seeking to prohibit or limit in any material respect Cortech's ability to vote, receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of the Surviving Corporation; or (d) which would materially and adversely affect the right of Cortech to own the assets or operate the business of BioStar; (xi) BioStar shall have delivered the Affiliate Agreements; and (xii) The Cowen Opinion shall not have been withdrawn as of the date of the mailing of the definitive Joint Proxy Statements/Prospectus to the Cortech Stockholders. 55 70 BioStar. The obligations of BioStar to effect the Merger and otherwise consummate the transactions contemplated by the Reorganization Agreement are subject to the satisfaction, at or prior to the Closing of the following conditions: (i) the representations and warranties of Cortech contained in the Reorganization Agreement shall have been accurate in all material respects as of the date of the Reorganization Agreement and shall be accurate as of the Closing Date as if made on and as of the Closing Date except that any inaccuracies in such representations and warranties shall be disregarded if the circumstances giving rise to such inaccuracies (individually and collectively) do not constitute a Material Adverse Effect on Cortech (it being understood that, for purposes of determining the accuracy of such representations and warranties, (a) all "Material Adverse Effect" qualifications and other materiality requirements contained in such representations and warranties shall be disregarded and (b) any update of or modification to the Cortech Disclosure Schedule made or purported to have been made after the date of the Reorganization Agreement shall be disregarded); (ii) all of the covenants and obligations that Cortech is required to comply with or to perform at or prior to the Closing shall have been complied with and performed in all material respects; (iii) this Registration Statement shall have become effective in accordance with the provisions of the Securities Act, and no stop order shall have been issued by the Commission with respect to this Registration Statement; (iv) the Merger Proposal and the BioStar Certificate Proposal shall have been approved by the Required BioStar Stockholder Vote, and the Merger Proposal shall have been duly approved by the Required Cortech Stockholder Vote. (v) The holders of fewer than 10% of the outstanding shares of BioStar Capital Stock shall have notified BioStar of their intention to asset appraisal rights with respect to the Merger; (vi) BioStar shall have received the following documents: (a) a legal opinion of Pillsbury Madison & Sutro LLP, dated as of the Closing Date, in a form reasonably satisfactory to BioStar and its legal counsel, (b) a legal opinion of Cooley Godward LLP, dated as of the Closing Date, to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Code and (c) a certificate executed on behalf of Cortech by an executive officer of Cortech, confirming that conditions set forth in Sections (i), (ii), (iv), (v), (vii) and (xi) have been duly satisfied; (vii) there shall have been no material adverse change in Cortech's business, financial condition, assets, liabilities, operations or financial performance since the date of the Reorganization Agreement (it being understood that a decline in Cortech's stock price or the delisting of Cortech's stock shall not constitute, in and of itself, a Material Adverse Effect); (viii) no temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger by BioStar shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any legislation enacted or deemed applicable to the Merger that makes consummation of the Merger by BioStar illegal; (ix) Cortech shall have taken all actions necessary to cause the Cortech Board following the Effective Time to consist of the following individuals: Teresa W. Ayers, with a term expiring in 2000, Alexander E. Barkas, Ph.D., with a term expiring in 1999, Thomas A. Bologna, with a term expiring in 2000, Kenneth R. Lynn, with a term expiring in 1998 and Bert Fingerhut, with a term expiring in 1999. Ms. Ayers and Messrs. Barkas and Bologna have been specified by BioStar; (x) all material consents required to be obtained in connection with the Merger and the other transactions contemplated by the Reorganization Agreement shall have been obtained and shall be in full force and effect; and (xi) there shall not be (i) pending or threatened any legal proceeding to which a governmental body is or is threatened to become a party or is otherwise involved (a) challenging or seeking to restrain or 56 71 prohibit the consummation of the Merger or any of the other transactions contemplated by the Reorganization Agreement; (b) relating to the Merger and seeking to obtain from BioStar or any of its subsidiaries any damages that may be material to BioStar; or (c) which would materially and adversely affect the right of BioStar to own the assets or operate the business of Cortech or (ii) pending any legal proceeding in which there is a reasonable probability of an outcome that would have a Material Adverse Effect on BioStar or on Cortech (a) challenging or seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by the Reorganization Agreement; (b) relating to the Merger and seeking to obtain from BioStar any damages that may be material to BioStar; (c) seeking to prohibit or limit in any material respect BioStar's ability to vote, receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of the Surviving Corporation; or (d) resulting in Cortech as constituted after the Effective Time not containing all of the assets and business of Cortech as constituted immediately prior to the Effective Time. For purposes of the Reorganization Agreement, an event, violation, inaccuracy, circumstance or other matter will be deemed to have a "Material Adverse Effect" on BioStar if such event, violation, inaccuracy, circumstance or other matter would have a material adverse effect on (i) the business, financial condition, capitalization, assets, liabilities, operations or financial performance of the BioStar, (ii) the ability of the party to consummate the Merger or any of the other transactions contemplated by the Reorganization Agreement or to perform obligations under the Reorganization Agreement, or (iii) Cortech's ability to vote, receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of the Surviving Corporation. An event, violation, inaccuracy, circumstance or other matter will be deemed to have a "Material Adverse Effect" on Cortech if such event, violation, inaccuracy, circumstance or other matter would have a material adverse effect on (i) the business, financial condition, assets, liabilities, operations or financial performance of the Cortech Corporations taken as a whole, (ii) the ability of Cortech to consummate the Merger or any of the other transactions contemplated by the Reorganization Agreement or to perform its obligations under the Reorganization Agreement, or (iii) the ability of BioStar's stockholders to vote, receive dividends with respect to, or otherwise exercise ownership rights with respect to the stock of Cortech received by them. REPRESENTATIONS AND WARRANTIES The Reorganization Agreement contains certain representations and warranties by BioStar as to: (i) due organization and subsidiaries; (ii) BioStar's Certificate of Incorporation and Bylaws; (iii) capitalization; (iv) financial statements; (v) absence of certain changes; (vi) title to assets; (vii) real property, equipment and leaseholds; (viii) proprietary assets; (ix) material contracts; (x) liabilities; (xi) compliance with legal requirements; (xii) certain business practices; (xiii) governmental authorizations; (xiv) tax matters; (xv) employee and labor matters and benefit plans; (xvi) environmental matters; (xvii) insurance; (xviii) transactions with Affiliates; (xix) legal proceedings and orders; (xx) authority and binding nature of the Reorganization Agreement; (xxi) absence of existing discussions or negotiations concerning other acquisition proposals; (xxii) vote required; (xxiii) non-contravention and consents; (xxiv) brokers, finders, investment bankers or other fees or commissions; and (xxv) full disclosure. The Reorganization Agreement also contains representations and warranties by Cortech and Merger Sub as to: (i) due organization and subsidiaries; (ii) Cortech's Certificate of Incorporation and Bylaws; (iii) capitalization; (iv) filings with the Commission and financial statements; (v) absence of certain changes; (vi) title to assets; (vii) real property, equipment and leaseholds; (viii) proprietary assets; (ix) material contracts; (x) liabilities; (xi) compliance with legal requirements; (xii) certain business practices; (xiii) governmental authorizations; (xiv) tax matters; (xv) employee and labor matters and benefit plans; (xvi) environmental matters; (xvii) insurance; (xviii) transactions with Affiliates; (xix) legal proceedings and orders; (xx) authority and binding nature of the Reorganization Agreement; (xxi) absence of discussions or negotiations concerning other acquisition proposals; (xxii) vote required; (xxiii) non-contravention and consents; (xxiv) the receipt of a fairness opinion from an investment bank; (xxv) valid issuance of Cortech Common Stock; (xxvi) brokers, finders, investment bankers or other fees or commissions; (xxvii) full disclosure; and (xxviii) cash position. 57 72 COVENANTS Conduct of BioStar's Business. The Reorganization Agreement requires that during the period from the date of the Reorganization Agreement through the Effective Time (the "Pre-Closing Period"), (i) BioStar shall conduct its business and operations (A) in the ordinary course and in accordance with past practices or the operating plan previously delivered by BioStar to Cortech and (B) in compliance with all applicable legal requirements and the requirements of all of material contracts to which any BioStar is a party, by which BioStar or any of its assets is or may become bound or under which BioStar has or may be come subject to any obligation, or under which BioStar has or may acquire any rights or interest (a "BioStar Contract"); (ii) BioStar shall use all reasonable efforts to ensure that BioStar preserves intact its current business organization, keeps available the services of its current officers and employees and maintains its relations and goodwill with all suppliers, customers, landlords, creditors, licensors, licensees, employees and other Persons having business relationships with BioStar; (iii) BioStar shall keep in full force certain insurance policies or replace any such policies that terminate with comparable or superior policies; (iv) BioStar shall provide all notices, assurances and support required by any BioStar Contract relating to any proprietary asset in order to ensure that no condition under such BioStar Contract occurs which could result in, or could increase the likelihood of, any transfer or public disclosure by BioStar of any proprietary asset; and (v) BioStar shall (to the extent requested by Cortech) cause its officers to report regularly Cortech concerning the status of the BioStar's business. During the Pre-Closing Period, BioStar shall not (without the prior written consent of Cortech): (i) declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock, or repurchase, redeem or otherwise reacquire any shares of capital stock or other securities, except for repurchases at less than fair market value pursuant to employment or consulting agreements in effect prior to the date of the Reorganization Agreement; (ii) sell, issue, grant or authorize the issuance or grant of (A) any capital stock or other security (except BioStar common stock upon the valid exercise of options or warrants to purchase BioStar Capital Stock outstanding on the date of the Reorganization Agreement or pursuant to equipment lease financings, in connection with BioStar's line of credit with Venture Lending and similar transactions or otherwise in the ordinary course of business), (B) any option, call, warrant or right to acquire any capital stock or other security, or (C) any instrument convertible into or exchangeable for any capital stock or other security; provided, however, that notwithstanding the foregoing, BioStar may grant up to 800,000 options to employees following the date of the Reorganization Agreement under its existing stock option plans; (iii) except as contemplated by the Reorganization Agreement, amend or waive any of its rights under, or accelerate the vesting under, any provision of any of the BioStar stock option plans, any provision of any agreement evidencing any outstanding stock option or any restricted stock purchase agreement, or otherwise modify any of the terms of any outstanding option, warrant or other security or any related contract; (iv) except as contemplated by the Reorganization Agreement, amend or permit the adoption of any amendment to the BioStar Certificate of Incorporation or Bylaws or other charter or organizational documents, or effect or become a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction; (v) form any subsidiary or acquire any equity interest or other interest in any other entity; (vi) make any capital expenditure, except capital expenditures through December 31, 1997 in an aggregate amount of no more than the amount provided for in the capital budget provided to Cortech for such period, and thereafter in an aggregate amount of no more than is provided for in a 1998 capital budget to be provided to and approved by Cortech (such approval not to be unreasonably withheld) prior to January 1, 1998; 58 73 (vii) except as set forth in the operating plan provided to Cortech, enter into or become bound by, or permit any of the assets owned or used by it to become bound by, any material contract, or amend or terminate, or waive or exercise any material right or remedy under, any material contract; (viii) acquire, lease or license any right or other asset from any other person or sell or otherwise dispose of, or lease or license, any right or other asset to any other person (except in each case for (A) assets not constituting proprietary assets acquired, leased, licensed or disposed of by BioStar in the ordinary course of business; (B) consistent with past practices and except in the case of the in-licensing of proprietary assets, agreements involving the payment of less than $25,000 per year and a royalty of less than 0.75% and (C) rights granted to academic institutions and researchers to use the data collected pursuant to tissue sample agreements for research purposes), or waive or relinquish any material right; (ix) lend money to any person, except travel advances and loans related to relocation, education and immigration-related expenses made in the ordinary course of business, and loans in connection with employee stock purchases as provided for in agreements in effect on the date hereof, or incur or guarantee any indebtedness or pledge or encumber any material assets (except that BioStar may make routine borrowings in the ordinary course of business and in accordance with past practices under its line of credit with Venture Lending); (x) except as set forth in the BioStar's disclosure schedule, establish, adopt or amend any employee benefit plan, pay any bonus (except pursuant to existing incentive plans and employment contracts or understandings currently in effect) or make any profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its directors, officers or employees; (xi) change any of its methods of accounting or accounting practices in any respect; (xii) make any material tax election; (xiii) commence or settle any legal proceeding; (xiv) materially amend or otherwise modify any of the terms of its engagement of Lehman Brothers Inc.; (xv) amend or otherwise modify any of the terms of any warrants to purchase BioStar Capital Stock, except to the extent necessary to terminate such warrants or reduce the number of shares issuable upon exercise thereunder; (xvi) enter into any material transaction or take any other material action in each case not specifically provided for in the operating plan provided by BioStar to Cortech, or outside the ordinary course of business or inconsistent with past practices; or (xvii) agree or commit to take any of the actions described in clauses (i) through (xvi). During the Pre-Closing Period, BioStar must promptly notify Cortech in writing of: (i) the discovery by BioStar of any event, condition, fact or circumstance that occurred or existed on or prior to the date of the Reorganization Agreement and that caused or constitutes a material inaccuracy in any representation or warranty made by BioStar in the Reorganization Agreement; (ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of the Reorganization Agreement and that would cause or constitute a material inaccuracy in any representation or warranty made by BioStar in the Reorganization Agreement if (a) such representation or warranty had been made as of the time of the occurrence, existence or discovery of such event, condition, fact or circumstance, or (b) such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of the Reorganization Agreement; (iii) any material breach of any covenant or obligation of BioStar; and (iv) any event, condition, fact or circumstance that would make the timely satisfaction of any of the conditions to closing set forth in the Reorganization Agreement impossible or unlikely or that has had or could reasonably be expected to have a Material Adverse Effect on BioStar. No notification so given to Cortech will limit or otherwise affect any of the representations, warranties, covenants or obligations of BioStar contained in the Reorganization Agreement. 59 74 Conduct of Cortech's Business. The Reorganization Agreement further provides that during the Pre-Closing Period: (i) Cortech shall ensure that each of the Cortech Corporations conducts its business and operations (A) in the ordinary course and in accordance with operating parameters previously discussed among Cortech and BioStar and (B) in compliance with all applicable legal requirements and the requirements of all material contracts to which any Cortech Corporation is a party, by which any Cortech Corporation or any of their respective assets is or may become bound or under which any of the Cortech Corporations has or may be come subject to any obligation, or under which any of the Cortech Corporations has or may acquire any rights or interest (a "Cortech Corporation Contract"); (ii) Cortech shall use all reasonable efforts to ensure that each of the Cortech Corporations preserves intact its current business organization, keeps available the services of its current officers and employees and maintains its relations and goodwill with all suppliers, customers, landlords, creditors, licensors, licensees, employees and other Persons having business relationships with the respective Cortech Corporations; and (iii) Cortech shall keep in full force certain insurance policies or replace such policies with comparable or superior policies; and (iv) Cortech shall provide all notices, assurances and support required by any Cortech Corporation Contract relating to any proprietary asset in order to ensure that no condition under such Cortech Corporation Contract occurs which could result in, or could increase the likelihood of, any transfer or public disclosure by any Cortech Corporation of any proprietary asset. During the Pre-Closing Period, Cortech shall not (without the prior written consent of BioStar), and shall not permit any of the other Cortech Corporations to: (i) declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock, or repurchase, redeem or otherwise reacquire any shares of capital stock or other securities, except for repurchases at less than fair market value pursuant to employment or consulting agreements in effect prior to the date hereof; (ii) hire any new employees, excluding those persons hired to replace employees who terminate their employment with a Cortech Corporation during the Pre-Closing Period; (iii) sell, issue, grant or authorize the issuance or grant of (A) any capital stock or other security (except Cortech Common Stock upon the valid exercise of options or warrants to purchase Cortech Common Stock outstanding on the date of the Reorganization Agreement or the exercise of rights under the Cortech ESPP or pursuant to equipment lease financings and similar transactions or otherwise in the ordinary course of business), (B) any option, call, warrant or right to acquire any capital stock or other security, (C) any instrument convertible into or exchangeable for any capital stock or other security; (iv) except as contemplated by the Reorganization Agreement, amend or waive any of its rights under, or accelerate the vesting under, any provision of any of Cortech's stock option plans, any provision of any agreement evidencing any outstanding stock option or any restricted stock purchase agreement, or otherwise modify any of the terms of any outstanding option, warrant or other security or any related contract; (v) except as contemplated by the Reorganization Agreement, amend or permit the adoption of any amendment to its Certificate of Incorporation or Bylaws or other charter or organizational documents, or effect or become a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction; (vi) except as contemplated by the Reorganization Agreement and, except as previously disclosed to BioStar, form any subsidiary or acquire any equity interest or other interest in any other entity; (vii) make any capital expenditure, except capital expenditures in an aggregate amount of no more than $25,000; (viii) establish, adopt or amend any employee benefit plan, or pay any bonus or make any profit sharing or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its directors, officers or employees except as disclosed to BioStar; (ix) change any of its methods of accounting or accounting practices in any respect; 60 75 (x) make any material tax election; (xi) commence or settle any legal proceeding except in the ordinary course of business; (xii) materially amend or otherwise modify any of the terms of its engagement of Cowen; (xiii) enter into any material transaction or take any other material action in each case either inconsistent with the operating plan provided by Cortech to BioStar, or outside the ordinary course of business; (xiv) except as previously disclosed to BioStar, sell or otherwise dispose of, or grant an exclusive license or any other exclusive right to utilize Cortech proprietary assets which individually or in the aggregate constitute core technology material to the business of Cortech, or grant to any third party a right of first refusal, first offer, or first negotiation with regard to material products or such core technology; (xv) make any expenditure singly or in the aggregate, that exceeds the aggregate expenditures set forth in the Cortech cash projection during the period ended March 31, 1998 by more than a net $350,000 or make any expenditure, singly or in the aggregate, that exceeds the aggregate expenditures set forth in the cash projections by more than a net $100,000 for the months of April 1998 or May 1998; or (xvi) agree or commit to take any of the actions described in clause (i) through (xv). During the Pre-Closing Period, Cortech shall promptly notify BioStar in writing of: (i) the discovery by Cortech of any event, condition, fact or circumstance that occurred or existed on or prior to the date of the Reorganization Agreement and that caused or constitutes a material inaccuracy in any representation or warranty made by Cortech in the Reorganization Agreement; (ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of the Reorganization Agreement and that would cause or constitute a material inaccuracy in any representation or warranty made by Cortech in the Reorganization Agreement if (a) such representation or warranty had been made as of the time of the occurrence, existence or discovery of such event, condition, fact or circumstance, or (b) such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of the Reorganization Agreement; (iii) any material breach of any covenant or obligation of Cortech; and (iv) any event, condition, fact or circumstance that would make the timely satisfaction of any of the conditions to closing impossible or unlikely or that has had or could reasonably be expected to have a Material Adverse Effect on the Cortech Corporations. No notification so given to BioStar will limit or otherwise affect any of the representations, warranties, covenants or obligations of Cortech contained in the Reorganization Agreement. Non-Solicitation. Pursuant to the Reorganization Agreement, BioStar and Cortech have each agreed that they will not directly or indirectly, and will not authorize or permit any representative of BioStar, in the case of BioStar, or any representative of Cortech or Merger Sub, in the case of Cortech, directly or indirectly to (i) solicit, initiate, knowingly encourage or induce the making, submission or announcement of any Acquisition Proposal (as such term is defined below) or take any similar action, (ii) furnish any non-public information regarding BioStar or any of the Cortech Corporations, respectively, to any person in connection with or in response to an Acquisition Proposal, (iii) engage in discussions or negotiations with any person with respect to any Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition Proposal or (v) enter into any letter of intent or similar document or any contract contemplating or otherwise relating to any Acquisition Transaction (as such term is defined below). BioStar and Cortech and their respective boards of directors are not prevented, however, from (i) furnishing information regarding BioStar or any of the Cortech Corporations, respectively, to any person in connection with or in response to a bona fide, unsolicited Acquisition Proposal or engaging in discussions or negotiations with respect thereto if and only to the extent that (a) the relevant board of directors determines in good faith, after consultation with its financial advisor that such Acquisition Proposal is reasonably likely to result in an offer for acquisition superior to the one provided for in the Reorganization Agreement, (b) the relevant board of directors determines in good faith, after consultation with its outside counsel that such action is required in order for the board of directors to comply with its fiduciary duties under applicable law, (c) the person who has requested such information has 61 76 executed and delivered to the relevant company a non-disclosure agreement that is not less restrictive than the non-disclosure agreement in effect between BioStar and Cortech, and (d) the company engaging in such activities has not breached its obligations concerning non-solicitation set forth herein or (ii) complying with Exchange Act Rules 14e-2 and 14d-9. Notwithstanding the foregoing, the relevant board of directors may recommend a superior offer to its stockholders, if the relevant board of directors determines, after consultation with its outside counsel that, in light of such superior offer, such recommendation is required in order for the relevant board of directors to comply with its fiduciary obligations; provided, however, that Cortech provides BioStar with at least 48 hours prior written notice of its intentions to consider an Acquisition Proposal and Cortech does not recommend a superior offer to its stockholders for at least two business days after Cortech has provided BioStar with the material terms of such superior offer. In addition, each of BioStar and Cortech shall promptly advise the other orally and in writing of any Acquisition Proposal (including the identity of the person making or submitting such Acquisition Proposal and the terms thereof) that is made or submitted by any person during the Pre-Closing Period. Each of BioStar and Cortech shall keep the other informed with respect to material changes to the terms of any such Acquisition Proposal and any material modification or proposed modifications thereto. BioStar and Cortech shall both immediately cease and cause to be terminated any existing discussions with any person that relate to any Acquisition Proposal and shall request the return or destruction of any confidential information previously disclosed to such person and shall use commercially reasonable efforts to ensure that such information is destroyed or returned. An "Acquisition Proposal" is any offer or proposal (other than an offer or proposal between Cortech and BioStar) contemplating or otherwise relating to any Acquisition Transaction. An "Acquisition Transaction" shall mean any transaction or series of related transactions involving: (i) any merger, consolidation, share exchange, business combination, issuance of securities, acquisition of securities, tender offer, exchange offer or other similar transaction (a) in which Cortech or BioStar is a constituent corporation, (b) in which a person or "group" (as defined in the Exchange Act and the rules promulgated thereunder) of persons directly or indirectly acquires Cortech or BioStar or more than 50% of Cortech's business or BioStar's business or directly or indirectly acquires beneficial or record ownership of securities representing more than 20% of the outstanding securities of any class of voting securities of any of Cortech or BioStar, or (c) in which any of Cortech or BioStar issues securities representing more than 20% of the outstanding securities of any class of voting securities of BioStar or Cortech, respectively; (ii) any sale, lease, exchange, transfer, license, acquisition or disposition of more than 50% of the assets of BioStar or Cortech; or (iii) any liquidation or dissolution of BioStar or Cortech. Meetings of Stockholders. Pursuant to the Reorganization Agreement, BioStar will take all action necessary in accordance with applicable law to convene and hold the BioStar Special Meeting to vote upon the approval of the Merger Proposal and the BioStar Certificate Proposal. BioStar's obligation to call, give notice of, convene and hold the BioStar Special Meeting will not be limited or otherwise affected by the withdrawal, amendment or modification of the recommendation of the board of directors of BioStar with respect to the Merger, except as is required by applicable law. Pursuant to the Reorganization Agreement, Cortech will take all action necessary in accordance with applicable law to convert and hold the Cortech Special Meeting to vote upon the approval of the Merger Proposal and the Cortech Certificate Proposal. Cortech's obligation to call, give notice of, convene and hold the Cortech Special Meeting will not be limited or otherwise affected by any withdrawal, amendment or modification of the recommendation of the Cortech Board with respect to the Merger, except as may be required by applicable law. Election of Directors. Cortech must use all reasonable efforts to nominate and appoint a five person board of directors as further set forth in the caption above entitled "-- Composition of the Cortech Board". Indemnification. Under the Reorganization Agreement, Cortech has agreed to provide indemnification to the fullest extent permitted by applicable laws, to any person who has served as a director or officer of Cortech or BioStar against losses, claims, damages or expenses arising out of the fact that such person was a director or officer of Cortech or BioStar. 62 77 Registration Rights. Pursuant to the Reorganization Agreement, Cortech shall assume all of BioStar's obligations to certain BioStar stockholders under the BioStar Restated Investors' Rights Agreement to register shares of Cortech Common Stock issued in exchange for BioStar Capital Stock in the Merger to such stockholders; provided, however, the BioStar Restated Investors' Rights Agreement shall provide that no party may request registration or participate in a registration of Cortech Common Stock thereunder until the earlier of (a) the date 90 days after the effective date of a registration statement for the first public offering of Cortech's shares following the Effective Time and (b) the first anniversary of the Effective Time. Market Stand-off Agreement. BioStar shall obtain the agreement of certain holders of BioStar Capital Stock that such holders shall not directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any Cortech Common Stock issued to such BioStar stockholders in connection with the Merger for 180 days from the Effective Time. Certain Other Covenants. The Reorganization Agreement contains certain other covenants including covenants relating to: (i) information and access, (ii) preparation and filing of the Registration Statement, (iii) obtaining regulatory approvals, (iv) public announcements, (v) tax qualification and opinion back-up certificates, (vi) resignation of Cortech's officers and certain of Cortech's directors, (vii) the Foreign Investment in Real Property Tax Act, (viii) affiliate agreements, (ix) further action and (x) obtaining required consents. TERMINATION The Reorganization Agreement may be terminated prior to the Effective Time (whether before or after approval of the Merger Proposal by the Required BioStar Stockholder Vote and the Required Cortech Stockholder Vote); (i) by mutual written consent of Cortech and BioStar; (ii) by either Cortech or BioStar if the Merger shall not have been consummated by May 31, 1998 (unless the failure to consummate the Merger is attributable to a failure on the part of the party seeking to terminate the Reorganization Agreement to perform any material obligation required to be performed by such party at or prior to the Effective Time); (iii) by either Cortech or BioStar if a court of competent jurisdiction or other governmental body shall have issued a final and nonappealable order, decree or ruling, or shall have taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger; (iv) by either Cortech or BioStar if (i) the BioStar Stockholders' Meeting shall have been held and completed and (ii) the Merger Proposal shall not have been approved at such meeting by the Required BioStar Stockholder Vote; (v) by either Cortech or BioStar if (i) the Cortech Stockholders' Meeting shall have been held and completed and (ii) the Merger Proposal shall not have been approved at such meeting by the Required Cortech Stockholder Vote; (vi) by Cortech (at any time prior to the approval of the Merger Proposal and the BioStar Certificate Amendment by the Required BioStar Stockholder Vote) if a BioStar Triggering Event (as such term is defined below) shall have occurred; (vii) by BioStar (at any time prior to the approval of the Merger Proposal by the Required Cortech Stockholder Vote) if a Cortech Triggering Event (as such term is defined below) shall have occurred; (viii) by Cortech if (a) any of BioStar's representations and warranties contained in the Reorganization Agreement shall be or shall have become materially inaccurate, (b) if any of BioStar's covenants contained in the Reorganization Agreement shall have been breached, and such inaccuracy or breach would cause the condition set forth in clauses (i) or (ii) under "-- Conditions to the Merger -- Cortech and Merger Sub" to not be satisfied or (c) if Cowen withdraws its fairness opinion because of a material 63 78 change in the underlying assumptions of the financial projections provided to Cowen by BioStar; provided, however, that if an inaccuracy in BioStar's representations and warranties or a breach of a covenant by BioStar is curable by BioStar and BioStar is continuing to exercise all reasonable efforts to cure such inaccuracy or breach, then Cortech may not terminate the Reorganization Agreement on account of such inaccuracy or breach until 20 days after delivery of written notice of the inaccuracy or breach to BioStar by Cortech, if the inaccuracy or breach has not at that time been cured or May 31, 1998, whichever shall first occur; or (ix) by BioStar if any of Cortech's representations and warranties contained in the Reorganization Agreement shall be or shall have become materially inaccurate, or if any of Cortech's covenants contained in the Reorganization Agreement shall have been breached, and such inaccuracy or breach would cause the condition set forth in clauses (i) or (ii) under "-- Conditions to the Merger -- BioStar" to not be satisfied (except as BioStar may consider any breach of the covenant set forth in clause "(xv)" under "-- Conditions to the Merger -- BioStar" to be a material breach); provided, however, that (except with respect to a breach of the covenant set forth in clause "(xv)" under "-- Conditions to the Merger -- BioStar" which shall be considered a breach incapable of cure) if an inaccuracy in Cortech's representations and warranties or a breach of a covenant by Cortech is curable by Cortech and Cortech is continuing to exercise all reasonable efforts to cure such inaccuracy or breach, then BioStar may not terminate the Reorganization Agreement on account of such inaccuracy or breach until 20 days after delivery of written notice of the breach or inaccuracy to Cortech by BioStar, if the inaccuracy or breach has not at that time been cured or May 31, 1998, whichever shall first occur. A "Triggering Event" of a party shall be deemed to have occurred if: (i) the board of directors of the party shall have failed to recommend, or shall for any reason have withdrawn or shall have amended or modified in a manner adverse to the other party its unanimous recommendation in favor of, the Merger or approval of the Reorganization Agreement; (ii) the party shall have failed to include in this Joint Proxy Statement/Prospectus the unanimous recommendation of its board of directors in favor of approval of the Reorganization Agreement and the Merger; (iii) the board of directors of the party fails to unanimously reaffirm its recommendation in favor of approval of the Reorganization Agreement and the Merger within five business days after the other party requests in writing that such recommendation be reaffirmed; (iv) the board of directors of the party shall have approved, endorsed or recommended any Acquisition Proposal; (v) the party shall have entered into any letter of intent or similar document or any contract relating to any Acquisition Proposal; (vi) the party shall have failed to hold the relevant stockholders' meeting as promptly as practicable and in any event within 45 days after this registration statement is declared effective under the Securities Act; (vii) a tender or exchange offer relating to securities of the party shall have been commenced and the party shall not have sent to its security holders, within five business days after the commencement of such tender or exchange offer, a statement disclosing that the party recommends rejection of such tender or exchange offer; or (viii) an Acquisition Proposal is publicly announced, and the party (A) fails to issue a press release announcing its opposition to such Acquisition Proposal within five business days after such Acquisition Proposal is announced or (B) otherwise fails to actively oppose such Acquisition Proposal. EXPENSES AND TERMINATION FEES Pursuant to the Reorganization Agreement, except as provided below, all fees and expenses incurred in connection with the Reorganization Agreement and the transactions contemplated by the Reorganization Agreement shall be paid by the party incurring such expenses, whether or not the Merger is consummated; provided, however, that Cortech and BioStar shall share equally all fees and expenses, other than attorneys' fees, incurred in connection with the filing, printing and mailing of this registration statement and this Joint Proxy Statement/Prospectus and any amendments or supplements thereto. The Reorganization Agreements provides that if it is terminated by Cortech pursuant to clause (vi) or (viii) under the caption "Termination," then BioStar must pay to Cortech, in cash, a nonrefundable termination fee in the amount of $500,000 plus the amount of professional fees and expenses which Cortech has incurred in connection with the Merger, up to $150,000. If the Reorganization Agreement is terminated by BioStar pursuant to clause (vii) or (ix) under "Termination," then Cortech shall pay to BioStar, in cash, a 64 79 nonrefundable termination fee in the amount of $500,000, plus the amount of professional fees and expenses which BioStar has incurred in connection with the Merger, up to $150,000. Cowen has acted as a financial advisor to the Cortech Board in connection with the Merger. Pursuant to the terms of the letter agreement with Cowen, Cowen has been paid a non-refundable retainer fee and fairness opinion fee totalling $250,000. If the Merger is consummated, Cortech has agreed to pay Cowen an additional advisory fee of $150,000 in consideration for Cowen's professional services. Cortech also has agreed to reimburse Cowen for its reasonable out-of-pocket expenses and to indemnify Cowen and certain related persons against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of its engagement. Lehman has acted as financial advisor to the BioStar Board in connection with the Merger. Pursuant to the terms of the letter agreement with Lehman, BioStar will pay Lehman $ , including shares of BioStar Series F Preferred Stock, for its financial advisory services. In addition, BioStar has agreed to reimburse Lehman for its reasonable out-of-pocket expenses and to indemnify Lehman and certain related persons against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of its engagement. 65 80 PROPOSAL TO AMEND THE CORTECH CERTIFICATE OF INCORPORATION In addition to the Merger Proposal, at the Cortech Special Meeting the stockholders of Cortech as of the Cortech Record Date are being asked to approve the Cortech Certificate of Amendment (attached hereto as Appendix B) which will effect (i) a corporate name change for Cortech and (ii) a reverse split of the issued and outstanding Cortech Common Stock. Although these actions are further described below, it should be noted that the Cortech Certificate of Amendment would not be implemented in the event that the Cortech Certificate of Amendment is approved but the Merger Proposal is not approved. CORPORATE NAME CHANGE As part of its consideration of the Merger and the Reorganization Agreement, the Cortech Board has unanimously approved an amendment to the Cortech Certificate, contingent upon the effectiveness of the Merger and stockholder approval, to change the corporate name of Cortech to "BioStar Holdings, Inc." (the "Name Change"). The Name Change would entail a new quotation symbol of "BSTR" for Cortech Common Stock on the Nasdaq National Market (provided that the combined company maintains its listing on the Nasdaq National Market). REVERSE SPLIT The Cortech Board has unanimously approved an amendment to the Cortech Certificate to effect a reverse split of the Cortech Common Stock (the "Reverse Split"). The Reverse Split, if approved and implemented, would cause all issued and outstanding shares of Cortech Common Stock to be split, on a reverse basis, one-for-[ ]. However, the Reverse Split would not affect the number of authorized shares of Cortech Common Stock. Accordingly, the Reverse Split would effectively increase the number of available authorized shares of Cortech Common Stock. The effective date of the Reverse Split would be the date on which the Certificate of Amendment is filed with the Secretary of State of Delaware. Implementation of the Reverse Split is contingent upon approval of the Cortech Certificate Proposal and the Merger Proposal by the Cortech stockholders. Assuming such implementation, the effective date of the Reverse Split is anticipated to be at or about the Effective Time. As described below, the primary objective of the Cortech Board in effecting the Reverse Split is to increase the per share market price of Cortech Common Stock. A significant collateral effect would be to increase the number of authorized but unissued shares of Cortech Common Stock. Trading in Cortech Common Stock is presently quoted on the Nasdaq National Market. Cortech has been advised by Nasdaq that the continued quotation of Cortech Common Stock on the Nasdaq National Market is in jeopardy due to a bid price for Cortech Common Stock of less than $1.00 per share. The Reverse Split is intended to increase the post-Merger per share bid price of Cortech Common Stock in order to satisfy Nasdaq's related requirement. In the event that the Merger Proposal is approved and the Cortech Certificate Proposal is not implemented following the Cortech Special Meeting (for example, because the Cortech Certificate Proposal is not approved at the Cortech Special Meeting), Cortech would propose a reverse stock split of Cortech Common Stock for approval at an Annual Meeting of the Cortech stockholders to be held as soon as reasonably practicable following the Cortech Special Meeting. There can be no assurances that Cortech will be able to maintain its Nasdaq National Market Listing (whether as a result of failure to meet the minimum bid price requirement or other requirements imposed by the Nasdaq National Market). The absence of the quotation of trading in Cortech Common Stock on the Nasdaq National Market would have an adverse effect on the market for, and the market price of, Cortech Common Stock. The Reverse Split will have the significant collateral effect of increasing the number of authorized but unissued shares of Cortech Common Stock. This would permit Cortech to use such shares in connection with Cortech's employee benefit plans, the options, warrants and rights formerly relating to BioStar Capital Stock which will be assumed by Cortech in the Merger and possible future issuances. At the Cortech Record Date, there were issued and outstanding [ ] shares of Cortech Common Stock and options and warrants to acquire an additional [ ] shares of Cortech Common Stock. The number of shares of Cortech Common Stock to be issued in connection with the Merger will not exceed 28,500,000 shares (pre-Reverse 66 81 Split). Accordingly, only [ ] of the 50,000,000 shares of Cortech Common Stock authorized would be available for possible future issuances absent the Reverse Split. The Cortech Board believes that the Reverse Split is beneficial to Cortech's future prospects since Cortech Common Stock will not continue to be eligible for inclusion on the Nasdaq National Market if the Reverse Split does not take place or if the market price for the Cortech Common Stock does not otherwise meet the $1.00 minimum bid price. In addition, the Reverse Split will provide the combined company flexibility in meeting its possible needs by enabling it to raise additional capital through the issuance of Cortech Common Stock or securities convertible into or exercisable for Cortech Common Stock, make additional stock awards under Cortech's employee benefit plans (and the employee benefit plans of the combined company) and/or employ Cortech Common Stock as a form of consideration for acquisitions. Other than in connection with the Merger, Cortech does not presently intend to issue any additional shares for any specific purpose (except in connection with Cortech's employee benefit plans, employee benefit plans of the combined company and the options, warrants and rights formerly relating to BioStar Capital Stock which will be assumed by Cortech in connection with the Merger). For the foregoing reasons, the Cortech Board has determined that a recapitalization through the Reverse Split, which would be implemented at or about the Effective Time, would be in the best interests of Cortech and its stockholders. EFFECTS OF THE REVERSE SPLIT General Effects. The principal effect of the Reverse Split would be to decrease the number of outstanding shares of Cortech Common Stock. Specifically, the [ ] shares of Cortech Common Stock issued and outstanding on the Cortech Record Date would, as a result of the Reverse Split, be converted into approximately [ ] shares of Cortech Common Stock (with the precise number depending upon the extent of fractional shares resulting from the Reverse Split, which will be converted to cash based upon the market price for a share of Cortech Common Stock on the trading day prior to implementation of the Reverse Split). After giving effect to the Merger (i.e., assuming the issuance of an aggregate of 28,500,000 shares of Cortech Common Stock in connection with the Merger), the [ ] shares of Cortech Common Stock issued and outstanding would, as a result of the Reverse Split, be converted into approximately [ ] shares of Cortech Common Stock (with the precise number depending upon the extent of fractional shares). Since the number of shares of Cortech Common Stock authorized for issuance by the Cortech Certificate following the Reverse Split will remain at 50,000,000 shares, the Reverse Split will result in approximately [ ] "new" (or post-Reverse Split) shares of Cortech Common Stock ("New Shares") available for issuance by Cortech. Effect on Market for Cortech Common Stock. On [ ], 1998, the closing price of Cortech Common Stock quoted on the Nasdaq National Market was $[ ] per share. By decreasing the number of shares of Cortech Common Stock otherwise outstanding without altering the aggregate economic interest in Cortech represented by such shares, the Cortech Board believes that the per share market price for Cortech Common Stock will be increased to the price required for continued inclusion of the shares on the Nasdaq National Market. Effect on Cortech's Stock Options and Warrants. The total number of shares of Cortech Common Stock issuable upon the exercise of options and warrants to acquire such shares, and the exercise price thereof, shall be proportionally adjusted to reflect the Reverse Split. Effect under Cortech's Rights Plan. Following the implementation of the Reverse Split, each share of Cortech Common Stock will continue to have one preferred share purchase right (a "Right") associated with it; however, the number of shares of preferred stock issuable upon the exercise of each Right shall be proportionally adjusted to reflect the Reverse Split (i.e., following the effectiveness of the Reverse Split, each Right, under certain circumstances, would be eligible to purchase up to [ ] one-hundredths of a share of preferred stock). See "Description of Cortech Capital Stock -- Stockholder Rights Plan". 67 82 Changes in Stockholders' Equity. The Reverse Split would reduce Cortech's stated capital, which consists of the par value per share of Cortech Common Stock multiplied by the number of such shares outstanding, from the amount which would otherwise exist following the Effective Time (assuming the effectiveness of the Merger and the share amounts otherwise set forth above, the Reverse Split would reduce Cortech's stated capital by approximately $[ ]. Although the par value of Cortech Common Stock would remain at $.002 per share following the Reverse Split, stated capital would be decreased because the number of shares outstanding would be reduced. Correspondingly, Cortech's additional paid-in capital, which consists of the difference between Cortech's stated capital and the aggregate amount paid to Cortech upon the issuance by Cortech of all then outstanding shares of Cortech Common Stock, would be increased. Appraisal Rights. Pursuant to the DGCL, Cortech's stockholders are not entitled to appraisal rights with respect to the Reverse Split. FEDERAL INCOME TAX CONSEQUENCES The following summary of the federal income tax consequences of the Reverse Split is based on current law, including the Code, and is for general information only. The tax treatment for any stockholder may vary depending upon the particular facts and circumstances of such stockholder. Certain stockholders, including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, non-resident aliens, foreign corporations and persons who do not hold Cortech Common Stock as a capital asset, may be subject to special rules not discussed below. ACCORDINGLY, EACH STOCKHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE REVERSE SPLIT, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL OR FOREIGN INCOME TAXES AND OTHER LAWS. The receipt of whole New Shares (excluding fractional New Shares) in the Reverse Split should be non-taxable for federal income tax purposes. Consequently, a stockholder receiving New Shares will not recognize either gain or loss, or any other type of income, with respect to whole New Shares received as a result of the Reverse Split. In addition, the tax basis of such stockholder's shares of Cortech Common Stock prior to the Reverse Split will carry over as the tax basis of the stockholder's New Shares. The holding period of the New Shares should also include the stockholder's holding period of the Cortech Common Stock prior to the Reverse Split, provided that such Cortech Common Stock was held by the stockholder as a capital asset on the effective date of the Reverse Split. Any stockholder who receives cash in lieu of a fractional New Share pursuant to the Reverse Split will recognize gain or loss equal to the difference between the amount of cash received and the portion of the aggregate tax basis in his or her shares of Cortech Common Stock allocable to such fractional New Share. If the shares of Cortech Common Stock were held as a capital asset on the effective date of the Reverse Split, then the stockholder's gain or loss will be a capital gain or loss. Such capital gain or loss will be a long-term capital gain or loss if the stockholder's holding period for the shares of Cortech Common Stock is longer than eighteen months, a short-term capital gain or loss if the stockholder's holding period is twelve months or less and mid-term gain or loss if the stockholder's holding period is longer than twelve months and less than eighteen months. Based on certain exceptions contained in regulations issued by the Internal Revenue Service, Cortech does not believe that it or its stockholders would be subject to backup withholding or informational reporting with respect to cash distributed in lieu of fractional New Shares. EXCHANGE OF SHARES On or after the effective date of the Reverse Split, Cortech will mail to each Cortech stockholder of record a letter of transmittal. Cortech stockholders will be able to receive a certificate representing New Shares and, if applicable, cash in lieu of a fractional New Share only by transmitting to the Exchange Agent such stockholder's stock certificate(s) for shares of Cortech Common Stock outstanding prior to the Reverse Split, together with the properly executed and completed letter of transmittal, and such evidence of ownership of such shares as Cortech may require. Cortech stockholders will not receive certificates for New 68 83 Shares unless and until the certificates representing their shares of Cortech Common Stock outstanding prior to the Reverse Split are surrendered. Cortech stockholders should not forward their certificates to the Exchange Agent until the letter of transmittal is received and should surrender their certificates only with such letter of transmittal. Holders of BioStar Capital Stock prior to the Merger will receive a letter of transmittal which combines the procedure for exchanging their certificates representing BioStar Capital Stock for certificates representing New Shares. Payment in lieu of a fractional New Share will be made to any Cortech stockholder entitled thereto promptly after receipt by Cortech or its Exchange Agent of a properly completed letter of transmittal and stock certificate(s) for all of his or her shares of Cortech Common Stock (or BioStar Capital Stock, as the case may be) outstanding prior to the Reverse Split. There will be no service charge payable by Cortech stockholders in connection with the exchange of certificates or in connection with the payment of cash in lieu of the issuance of a fractional New Share. These costs will be borne by Cortech. REQUIRED VOTE Approval and adoption of the Cortech Certificate Proposal (which includes the Name Change and the Reverse Split) requires the affirmative vote of the holders of a majority of the shares of Cortech Common Stock issued and outstanding on the Cortech Record Date and entitled to vote. Therefore, the effect of an abstention or broker nonvote on the proposal is the same as a vote against the proposal. BOARD RECOMMENDATION THE CORTECH BOARD HAS UNANIMOUSLY APPROVED THE CORTECH CERTIFICATE OF AMENDMENT, WHICH INCLUDES THE NAME CHANGE AND THE REVERSE SPLIT, AND RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE CORTECH CERTIFICATE PROPOSAL. 69 84 AMENDMENT OF THE BIOSTAR CERTIFICATE OF INCORPORATION The BioStar Board has approved and submitted for a vote with the BioStar stockholders an amendment (the "BioStar Certificate of Amendment") of the Restated Certificate of Incorporation of BioStar. A copy of the proposed amendment is attached as Exhibit B to the Reorganization Agreement attached hereto as Appendix A. Conditioned upon the satisfaction or waiver of the various conditions to closing the Merger in the Reorganization Agreement, the BioStar Certificate of Amendment provides that the holders of BioStar preferred stock will only receive the consideration for their shares set forth in the Reorganization Agreement. The Merger is conditioned upon approval of the BioStar Certificate of Amendment by the BioStar preferred stockholders. If the BioStar Certificate of Amendment is not approved then the Merger will not be implemented. EFFECT OF AMENDMENT Holders of BioStar preferred stock are entitled, under certain circumstances, to receive payment of a preferential amount prior to any payments or distributions in respect of BioStar common stock. Under BioStar's Restated Certificate of Incorporation, the preferred stock preference is not payable in the event of a merger in which BioStar stockholders obtain more than 50% of the voting power of the entity "surviving or continuing" after such merger. BioStar stockholders will hold more than 50% of the outstanding voting power of Cortech following the Merger. Because of the legal structure of the Merger, however, Cortech (rather than BioStar) could be deemed to be such "surviving or continuing" entity. The BioStar Certificate of Amendment clarifies that, despite the legal structure of the Merger, holders of BioStar preferred stock will not receive in connection with the Merger any payments or amounts in preference to the BioStar common stock, but will only receive the consideration for their shares specified in the Reorganization Agreement. REQUIRED VOTE Approval and adoption of the BioStar Certificate of Amendment requires the affirmative vote of the holders of a majority of the outstanding shares of BioStar common stock and preferred stock, voting together as a single class (on an as-converted basis), and the affirmative vote of the holders of a majority of the shares of each series of BioStar preferred stock, voting as separate classes. The effect of an abstention or broker nonvote on the proposal is the same as a vote against the proposal. Pursuant to the BioStar Voting Agreements, certain directors, officers and other affiliates of BioStar, who together hold approximately 65% of the BioStar common stock and BioStar preferred stock voting as a single class, and 100% of the Series A Preferred Stock, 100% of the Series B Preferred Stock, 100% of the Series C Preferred Stock, at least 50% of the Series D Preferred Stock and at least 38% of the Series E Preferred Stock voting as separate classes, outstanding as of the BioStar Record Date, have agreed to vote in favor of the BioStar Certificate Proposal. See "Approval of the Merger and Related Transactions -- Voting Agreements". THE BIOSTAR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE BIOSTAR CERTIFICATE AMENDMENT. 70 85 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION On December 22, 1997, Cortech, BioStar and Merger Sub entered into the Reorganization Agreement pursuant to which BioStar would become a wholly owned subsidiary of Cortech at the Effective Time and the stockholders of BioStar would receive shares of Cortech Common Stock in exchange for their BioStar Capital Stock. The Cortech Common Stock to be issued or reserved for issuance to holders of BioStar Capital Stock, BioStar Options and BioStar Warrants amounts to approximately 60% of the Cortech Common Stock issued and outstanding immediately after the Merger (assuming the exercise in full of all BioStar Options and BioStar Warrants). For financial reporting purposes, the transaction would be accounted for as a reverse acquisition whereby BioStar is deemed the acquiror of Cortech since the former stockholders of BioStar would have voting control of Cortech after the transaction. The following unaudited pro forma condensed consolidated balance sheet gives effect to the consummation of the Merger as if it had occurred on December 31, 1997. The following unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 1997 gives effect to the Merger as if it had occurred on January 1, 1997. The unaudited pro forma condensed consolidated financial information and notes thereto do not purport to represent what the Company's results of operations would have been if the Merger had occurred on such dates. The pro forma adjustments are based upon currently available information and upon certain assumptions that Cortech and BioStar management believe are reasonable. The unaudited pro forma condensed consolidated financial information and accompanying notes should be read in conjunction with the financial statements and related notes thereto of both Cortech and BioStar, and other financial information pertaining to Cortech and BioStar, including "Cortech Management's Discussion and Analysis of Financial Condition and Results of Operations" and "BioStar Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Joint Proxy Statement/Prospectus. 71 86 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 (IN THOUSANDS)
CORTECH BIOSTAR -------------------------------------- -------------------------------------- UNAUDITED PRO FORMA PRO FORMA PRO FORMA HISTORICAL ADJUSTMENTS AS ADJUSTED HISTORICAL ADJUSTMENTS AS ADJUSTED AS ADJUSTED ---------- ----------- ----------- ---------- ----------- ----------- ----------- ASSETS: Cash and cash equivalents...... $ 11,562 $ -- $11,562 $ 1 $ -- $ 1 $ 11,563 Short term investments......... 3,841 -- 3,841 -- -- -- 3,841 Trade accounts receivable, net.......................... -- -- -- 1,663 -- 1,663 1,663 Inventories.................... -- -- -- 1,413 -- 1,413 1,413 Prepaid expenses and other..... 308 -- 308 285 -- 285 593 -------- -------- ------- -------- ------- -------- -------- Total current assets......... 15,711 -- 15,711 3,362 -- 3,362 19,073 -------- -------- ------- -------- ------- -------- -------- Laboratory and manufacturing equipment.................... -- -- -- 3,040 -- 3,040 3,040 Leasehold improvements......... 8,026 (2,324)(1) 159 123 -- 123 282 (5,543)(2) Office furniture and equipment.................... 2,300 (2,043)(2) 257 617 -- 617 874 -------- -------- ------- -------- ------- -------- -------- 10,326 (9,910) 416 3,780 -- 3,780 4,196 Less accumulated depreciation and amortization............. (9,592) 2,006 (1) -- (1,624) -- (1,624) (1,624) 7,586 (2) -------- -------- ------- -------- ------- -------- -------- 734 (318) 416 2,156 -- 2,156 2,572 -------- -------- ------- -------- ------- -------- -------- Purchased patents.............. -- -- -- 920 -- 920 920 Deferred patent and trademark costs........................ -- -- -- 815 -- 815 815 -------- -------- ------- -------- ------- -------- -------- -- -- -- 1,735 -- 1,735 1,735 Accumulated amortization....... -- -- -- (1,159) -- (1,159) (1,159) -------- -------- ------- -------- ------- -------- -------- -- -- -- 576 -- 576 576 -------- -------- ------- -------- ------- -------- -------- Other assets................... -- -- -- 234 (168)(3) 66 66 -------- -------- ------- -------- ------- -------- -------- Total assets................... $ 16,445 $ (318) $16,127 $ 6,328 $ (168) $ 6,160 $ 22,287 ======== ======== ======= ======== ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable and accrued liabilities.................. $ 762 $ 2,026 (4) $ 2,788 $ 1,538 $ (88)(5) $ 2,350 $ 5,138 900 (6) Accrued compensation........... 264 -- 264 880 -- 880 1,144 Deferred revenue and other..... 36 -- 36 166 -- 166 202 Note payable and line of credit....................... -- -- -- 1,251 -- 1,251 1,251 Current portion of capital lease obligations............ -- -- -- 374 -- 374 374 Current portion of subordinated debt......................... -- -- -- 747 -- 747 747 Subordinated promissory notes........................ -- -- -- 1,565 (1,565)(5) -- -- -------- -------- ------- -------- ------- -------- -------- 1,062 2,026 3,088 6,521 (753) 5,768 8,856 -------- -------- ------- -------- ------- -------- -------- Capital lease obligations, net of current portion above..... -- -- -- 62 -- 62 62 Convertible subordinated debt......................... -- -- -- 4,500 (4,500)(7) -- -- Other long-term liabilities.... -- -- -- 858 (831)(7) 27 27 -------- -------- ------- -------- ------- -------- -------- -- -- -- 5,420 (5,331) 89 89 -------- -------- ------- -------- ------- -------- -------- Total liabilities............ 1,062 2,026 3,088 11,941 (6,984) 5,857 8,945 -------- -------- ------- -------- ------- -------- -------- Common stock................... 37 52 (8) 89 -- 1 (7) -- 89 (1)(9) Convertible preferred stock.... -- -- -- 2 (2)(10) -- -- Warrants....................... 1,077 (1,077)(8) -- -- -- -- -- Additional paid in capital..... 98,909 (85,959)(8) 12,950 20,207 5,330 (7) 26,125 39,075 (900)(6) 2 (10) 58 (11) (58)(11) (168)(3) 1 (9) 1,653 (5) Deferred compensation.......... (1) 1 (8) -- -- -- -- -- Accumulated deficit............ (84,639) (318)(1) -- (25,822) -- (25,822) (25,822) (2,026)(4) 86,983 (8) -------- -------- ------- -------- ------- -------- -------- Total stockholders' equity 15,383 (2,344) 13,039 (5,613) 5,916 303 13,342 -------- -------- ------- -------- ------- -------- -------- Total liabilities and stockholders' equity......... $ 16,445 $ (318) $16,127 $ 6,328 $(1,068) $ 6,160 $ 22,287 ======== ======== ======= ======== ======= ======== ========
72 87 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
UNAUDITED CORTECH BIOSTAR PRO FORMA PRO FORMA HISTORICAL HISTORICAL ADJUSTMENTS AS ADJUSTED ---------- ---------- ----------- ----------- Sponsored research and development revenues........... $ 3,451 $ 5,028 $ -- $ 8,479 Net sales............................................. -- 10,830 -- 10,830 ---------- ------- ---------- ---------- Total revenues................................... 3,451 15,858 -- 19,309 ---------- ------- ---------- ---------- Research and development expense...................... 7,552 3,236 -- 10,788 Cost of sales and other manufacturing costs........... -- 4,924 -- 4,924 Sales and marketing................................... -- 6,179 -- 6,179 General and administrative expense.................... 3,616 2,662 -- 6,278 ---------- ------- ---------- ---------- Total expenses................................... 11,168 17,001 -- 28,169 ---------- ------- ---------- ---------- Royalties and grants.................................. -- 94 -- 94 Interest income....................................... 939 4 -- 943 Interest expense...................................... -- (888) 470(12) (295) 123(13) ---------- ------- ---------- ---------- 939 (790) 593 742 ---------- ------- ---------- ---------- Net loss......................................... $ (6,778) $(1,933) $ 593 $ (8,118) ========== ======= ========== ========== Basic and diluted net loss per share.................. $ (0.37) $ (0.18) Weighted average common shares outstanding............ 18,521,758 26,096,950(8) 44,618,708
- --------------- (1) Represents the write-off of leasehold improvements and related accumulated amortization of Cortech's leased facilities, as it is assumed BioStar will not occupy such leased space. (2) Represents the adjustment of the remaining tangible assets to estimated fair market value. (3) Represents historical costs incurred by BioStar related to the Merger which will be offset against additional paid-in capital upon consummation of the Merger. (4) Represents additional costs to be incurred by Cortech related to severance agreements ($1.3 million), continuing operating lease obligations ($226,000) and estimated costs to close the Merger of $500,000. (5) Represents the conversion of BioStar subordinated promissory notes and related accrued interest into BioStar preferred stock immediately prior to the Effective Time. The actual conversion will include accrued interest through the date of the Merger. (6) Represents additional costs estimated to be incurred by BioStar in connection with the Merger. (7) Represents the conversion of BioStar convertible subordinated debt and related accrued interest into BioStar preferred stock immediately prior to the Effective Time. The actual conversion will include accrued interest through the date of the Merger. (8) Represents the issuance of approximately 26.1 million shares of Cortech Common Stock upon the consummation of the Merger. The amount of Cortech shares issued does not include Cortech shares to be reserved for issuance in connection with the assumption of BioStar Options. As the Merger is to be accounted for as a reverse acquisition, Cortech's stockholders' equity balances are adjusted to reflect the fair market value of the Cortech assets less the fair market value of the liabilities. (9) Represents the elimination of the historical BioStar common stock balance, as adjusted for the conversion of subordinated promissory notes and convertible subordinated debt, together with accrued interest. (10) Represents the conversion of BioStar's convertible preferred stock into BioStar common stock immediately prior to the Effective Time. (11) Represents the issuance of 160,000 shares of BioStar preferred stock (valued at $0.36 per share) immediately prior to the Effective Time in connection with BioStar's cancellation of the convertible contingent payment instrument. (12) Represents the elimination of interest expense on BioStar convertible subordinated debt as such debt is assumed converted into BioStar preferred stock as of January 1, 1997. (13) Represents the elimination of interest expense on BioStar convertible promissory notes as such notes are assumed converted into BioStar preferred stock as of January 1, 1997. 73 88 CORTECH BUSINESS OVERVIEW Cortech is a biopharmaceutical company whose principal focus has been the discovery and development of novel therapeutics for the treatment of inflammatory disorders. Specifically, Cortech has directed its research and development efforts toward protease inhibitors and bradykinin antagonists. These efforts have produced certain intellectual property rights. See "-- Cortech's Work with Protease Inhibitors" and "-- Cortech's Work with Bradykinin Antagonists". In response to disappointing test results and its loss of collaborative partner support, Cortech has implemented a series of reductions in force over the past three-and-one-half years which has reduced the number of full-time, regular employees from more than 200 to fewer than 15 and effectively discontinued all internal efforts to advance its research and development activities. In addition, Cortech is currently de-commissioning its laboratories, has sold most of its scientific and technical equipment and, unless BioStar opts to retain such assets, plans to sell most of its office furniture and equipment and, where possible, its leasehold improvements. As a result of these actions, Cortech no longer has the staff or operative facilities required to re-commence internal research and development activities. Cortech has retained a core group of professionals who, among other things, are actively engaged in ongoing efforts to realize appropriate value from Cortech's tangible and intangible assets. It is uncertain, however, whether Cortech will be able to retain employees with sufficient knowledge and experience to realize appropriate value from Cortech's intangible assets. In light of the above, Cortech's management has focused on evaluating various strategic alternatives. As a result, Cortech entered into the Reorganization Agreement with BioStar on December 22, 1997. CORTECH'S WORK WITH PROTEASE INHIBITORS Background. Proteases are enzymes that cleave peptide bonds within proteins. Since proteins are one of the fundamental building blocks of biological systems, proteases are among the most important regulators of biological activity that have been described. As a result of an increased understanding of the causative role proteases play in a number of disease processes, protease inhibition has become a very important area of drug discovery. Cortech's work has focused primarily on the discovery and synthesis of inhibitors of human neutrophil elastase ("HNE"), a serine protease capable of degrading a variety of connective tissue proteins, most notably elastin. Elastin is found in the lungs, vasculature and skin, and therapy directed against HNE may have therapeutic application in acute and chronic respiratory, cardiovascular and skin disorders. As a result of its research and development efforts in this field, Cortech has developed proprietary technology which it has demonstrated has the potential to be applied to the discovery and synthesis of a broader range of therapeutically interesting protease inhibitors. During inflammation, neutrophils are activated and migrate to sites of inflammation to help kill microorganisms and eliminate inflammatory debris. Neutrophils release HNE which disrupts the lining of blood vessels (endothelium) and allows the neutrophils to reach their target destination. Because HNE is so potent at digesting protein and thereby damaging tissue, the body possesses a number of defenses against excessive HNE release, limiting its effect in minor inflammatory states. In certain severe inflammatory conditions, however, HNE production overwhelms the body's natural defenses, resulting in tissue destruction. High levels of HNE release have also been found in cases of organ dysfunction, such as those associated with acute respiratory distress syndrome ("ARDS"). Further, HNE appears to play a significant role in a number of chronic diseases marked by tissue destruction, including cystic fibrosis and emphysema. HNE also appears to be involved in less severe forms of tissue destruction, such as rheumatoid arthritis, psoriasis and periodontal disease. CE-1037 -- HNE Inhibitor for Parenteral Administration. Cortech's early work in the area of protease inhibition led to the establishment in 1987 of a strategic partnering relationship with Marion Laboratories, Inc. ("Marion") under which Cortech granted to Marion worldwide rights to develop, manufacture and market any products resulting from Cortech's HNE inhibitor program, subject to a royalty payable to Cortech based 74 89 on net sales, and Marion substantially funded the development of such products. Although certain rights were granted back to Cortech in 1993 and 1996, this relationship continued in force through subsequent merger transactions engaged in by Marion (and its successor) which brought about the formation of Marion Merrill Dow Inc., and subsequently Hoechst Marion Roussel, Inc. ("HMRI"). Cortech's work with HMRI (references to HMRI hereafter include, as applicable in context, its predecessors) pursued discovery and development of a parenterally administered inhibitor of HNE for use in the treatment of ARDS and cystic fibrosis. As a result of this work, Cortech's scientists produced a lead compound, designated "CE-1037", which Cortech ultimately advanced, with HMRI's support, through Phase I and into Phase II clinical trials. HMRI continued to fund Cortech's development of CE-1037 (ultimately providing $14.1 million in funding) until December 1996 when HMRI terminated its agreement with Cortech and returned all rights to CE-1037 to Cortech. HMRI terminated the agreement following an analysis of the results from two preliminary, preclinical, genotoxicity experiments which suggested that CE-1037 might have genotoxic properties. When the disappointing results of the genotoxicity experiments became available, a small pilot study in ARDS was underway. Cortech and HMRI decided to suspend the clinical trial in order to evaluate the genotoxicity results and conduct a repeat experiment, if warranted. Following HMRI's termination of its agreement with Cortech, Cortech undertook a repeat (but more comprehensive) test which was conducted at an independent contract facility. The results of this repeat test recently became available and showed no genotoxic effects of CE-1037. In the meantime, Cortech has also evaluated data from the small cohort of patients in the ARDS trial, and such data suggest that CE-1037 may deserve further study in this and other acute respiratory indications. Notwithstanding these tentative findings, there can be no assurance that CE-1037 would be proven safe and efficacious in clinical trials, that the regulatory approvals necessary for its commercialization (if it is ever advanced to this stage) would be obtained or that it could be manufactured at acceptable costs and in appropriate quantity. Furthermore, Cortech does not intend to undertake further development of CE-1037 without a collaborative partner. Although Cortech is currently seeking to secure such a partner or purchaser of Cortech's related technology rights, there can be no assurance that Cortech will be able to establish such a collaboration or effect any transaction involving a sale of technology rights on favorable terms, if at all. HNE Inhibitors for Oral Administration. HNE has been implicated in a number of chronic diseases of the respiratory tract including chronic obstructive pulmonary disease and emphysema. Optimally, these conditions would require a compound that could be administered orally for a prolonged period of time. Thus, Cortech's research and development in the area of elastase inhibition was expanded to include compounds suitable for oral administration. In March 1995, Cortech signed a three year research agreement with Ono Pharmaceutical Co. Ltd., ("Ono") of Osaka, Japan to develop an orally active HNE inhibitor using technology developed by Cortech prior to initiation of the collaboration. Under the terms of the agreement, Ono substantially funded Cortech's research on oral, HNE inhibitors ultimately providing a total of approximately $10.0 million in funding from 1995-1997. The agreement also granted Ono an exclusive, royalty-free license to make, use and sell a resulting product in Japan, Korea, Taiwan and China (the "Ono Territory"), with Cortech retaining all rights outside of the Ono Territory. In November 1996, Cortech reallocated some of its scientists to the oral elastase project in light of the progress made over the preceding 18 months. In return, Ono accelerated certain payments due under its agreement with Cortech. In late 1996, disappointments from Cortech's collaborations with HMRI on CE-1037 and SmithKline Beecham on Bradycor(TM) (see "-- Cortech's Work with Protease Inhibitors -- CE-1037 -- HNE Inhibitor for Parenteral Administration" and "-- Cortech's Work with Bradykinin Antagonists") increased the pressure on Cortech to conserve cash. Subsequently, in April 1997, Cortech and Ono amended their agreement to transfer all responsibilities for research activities to Ono during the final six months of the collaborative project (from September 15, 1997 through March 14, 1998). During the third quarter of 1997, Cortech's remaining research staff focused their efforts primarily on elastase inhibition in order to fulfill Cortech's responsibilities under its agreement with Ono. On October 1, 1997, after fulfilling 75 90 these responsibilities, Cortech began to implement a further, corporate downsizing (to a staff of less than 15 full-time persons). Although Cortech retains rights outside of the Ono Territory to any compounds developed pursuant to the agreement with Ono, including those that might result from Ono's efforts during the final six months of the collaborative project, there can be no assurance that any research and development efforts with respect to HNE inhibitors (including the efforts of Ono) will prove successful, that any potential product would be proven safe and efficacious in clinical trials, that the regulatory approvals necessary for the commercialization of any product (if any product is ever advanced to this stage) would be obtained or that any product could be manufactured at acceptable costs and with appropriate quantity. Cortech does not intend to undertake further development of HNE inhibitors without a collaborative partner. Although Cortech is currently seeking to secure such a partner or a purchaser of Cortech's related technology rights, there can be no assurance that Cortech will be able to establish such a collaboration or effect any transaction involving a sale of technology rights on favorable terms, if at all. Other Protease Targets. As part of its protease inhibitor research efforts, Cortech scientists synthesized and tested a number of compounds. Certain of these compounds have been shown to have activity against other serine elastases, such as proteinase-3 and endogenous vascular elastase. Serine elastases have been shown to play an important role in vascular injury, and Cortech believes that its portfolio of compounds may potentially provide useful therapeutic interventions for certain acute and chronic vascular, skin and respiratory diseases. A small, focused effort continues in this area through contractual arrangements with selected experts at academic medical centers. Cortech has also developed a proprietary technology which has the potential to be applied to the discovery and synthesis of inhibitors of a broader range of therapeutically interesting serine and cysteine proteases such as mast cell tryptase and picorna virus proteases, interleuken-1 beta converting enzyme, other caspases involved in apoptosis and cell death and cathepsins B, K, L and S. Notwithstanding these initial findings, there can be no assurance that any of these compounds will be proven safe and efficacious in clinical trials, that the regulatory approvals necessary for their commercialization (if any such compounds are ever advanced to this stage) would be obtained or that it could be manufactured at acceptable costs and with appropriate quantity. Furthermore, Cortech does not intend to undertake further development of any of these compounds without a collaborative partner. Although Cortech is currently seeking to secure such a partner or purchaser of Cortech's related technology rights, there can be no assurance that Cortech will be able to establish such a collaboration or effect any transaction involving a sale of technology rights on favorable terms, if at all. CORTECH'S WORK WITH BRADYKININ ANTAGONISTS Background. Inflammation is the body's response to injury of any kind, including injury caused by infections, immune responses or physical trauma. Controlled inflammation is beneficial because it facilitates the clearance of pathogens (disease-causing agents) and the repair of damaged tissue. However, because inflammation is a comprehensive response involving numerous pathologic mediators, the strength of the response often converts normal, controlled inflammation into an abnormal, destructive process. When this occurs, inflammation can cause acute or chronic disease, often accompanied by pain, edema (swelling) or tissue destruction leading to organ failure and death in severe cases. Bradykinin is generated immediately following tissue injury or infection. It is a pivotal inflammatory mediator, and its diverse effects include pain, edema, vascular leak, and hypotension or low blood pressure that can lead to shock, organ dysfunction and death. The body normally inactivates bradykinin within seconds of its generation. However, in instances of severe injury, bradykinin production outstrips the body's capacity to inactivate it, thereby generating sustained inflammation, pain and edema. Preclinical and clinical work continues to support the role of bradykinin as an important mediator of inflammation, particularly in brain injury following trauma or acute ischemia. Cortech's efforts in connection with bradykinin antagonists have led to the discovery and synthesis of bradykinin antagonist monomers, dimers and heterodimers. The latter compounds link a bradykinin antagonist with an opioid agonist to encompass the spectrum of pain and inflammation without central nervous system penetration and its accompanying side effects. These heterodimers may have therapeutic potential in the 76 91 management of perioperative pain. In the last two years, however, Cortech's efforts have focused on the development of two of its bradykinin antagonists, Bradycor, a peptide dimer, and CP-0597, a peptide monomer. Bradycor(TM) (Deltibant or CP-0127). Bradycor is Cortech's lead, first-generation bradykinin antagonist which may potentially have therapeutic application in the management of traumatic brain injury ("TBI"). The rationale for its use in TBI is based on the important contribution of inflammatory processes to the full expression of the injury. A number of these inflammatory processes are mediated by bradykinin receptor mechanisms, including neutrophil activation and migration, stimulation of vascular endothelial cells and interactions with neuronal and non-neuronal cell populations found within the brain parenchyma. Following brain injury, these processes result in the production of inflammatory cytokines, endothelial retraction, blood brain barrier disruption and neuronal death. Thus, compounds such as Bradycor which can block these bradykinin mediated effects may potentially be efficacious in ameliorating the inflammatory aspects of TBI. Until mid-1995, Cortech's work on Bradycor concentrated primarily on the treatment of sepsis, but two Phase II clinical trials, completed in 1994 and 1995, failed to provide sufficient evidence of efficacy to warrant additional development in that indication. Concurrent with the sepsis studies, Cortech also undertook a small, pilot Phase II study in patients with large focal cerebral contusions (a type of injury that represents a subset of the spectrum of TBI). In that study, Bradycor had significant beneficial effects, compared with placebo, on intracranial pressure, neurological status and the need for surgical intervention. In addition, Bradycor was well tolerated and showed no clinically significant adverse effects in these patients. In November 1995, Cortech entered into a worldwide product development and license agreement with SmithKline Beecham ("SB") for the development of Bradycor for the treatment of TBI and possibly stroke. Under the terms of this agreement, SB undertook a multicenter, placebo-controlled, Phase II clinical trial of Bradycor in patients with severe TBI (the "TBI Study"). Results of the TBI Study, which became available in March 1997, failed to demonstrate a statistically significant benefit of Bradycor on intracranial pressure, the primary endpoint of the TBI Study. Based on these results, SB and Cortech agreed to discontinue the planned development of Bradycor. Moreover, SB, after providing Cortech with $4.0 million in funding for the development of Bradycor, terminated its agreement with Cortech. Notwithstanding the initial results of the TBI Study, an analysis of long-term functional outcome by the American Brain Injury Consortium, which was completed during the third quarter of 1997, showed positive trends in functional outcome for patients treated with Bradycor which were statistically significant in the most severely injured patients. In addition, patients treated with Bradycor in the TBI Study showed modest (but not statistically significant) positive trends in intracranial pressure and the requirement for other interventions to control intracranial pressure. During the term of the agreement between SB and Cortech, SB also conducted a number of preclinical and other early phase clinical studies to broaden the profile of Bradycor. One of SB's preclinical studies in rats yielded adverse findings which were inconsistent with the findings of Cortech's toxicology program and not supported by the safety profile observed in the clinic. These adverse findings led to the premature suspension of the TBI Study with 133 patients available for analysis rather than the 160 patients planned. However, repeat rat studies failed to duplicate the initially observed mortality or to provide an explanation for the adverse findings. Furthermore, these results when considered in the context of the entire body of preclinical and clinical data available on the compound remain anomalous. In the event that development efforts with respect to Bradycor are continued, there can be no assurance that Bradycor would be proven safe and efficacious in clinical trials, that the regulatory approvals necessary for its commercialization (if Bradycor is ever advanced to this stage) would be obtained or that it could be manufactured at acceptable costs and with appropriate quantity. Cortech does not intend to undertake further development of Bradycor without a collaborative partner. Although Cortech is currently seeking to secure such a partner or a purchaser of Cortech's related technology rights, there can be no assurance that Cortech will be able to establish such a collaboration or effect any transaction involving a sale of technology rights on favorable terms, if at all. 77 92 In February 1992, Cortech entered into a series of agreements with CP-0127 Development Corporation ("CDC") that govern the development of products utilizing Bradycor. See "-- CP-0127 Development Corporation". Second Generation Bradykinin Antagonist Research. Cortech has also developed a series of peptide bradykinin antagonists that are 100 to 1,000 times more potent than Bradycor. Compared to Bradycor, these compounds have longer durations of action in vivo and are expected to be less costly to manufacture. Cortech has identified a lead compound, CP-0597, which has been targeted for the treatment of acute ischemic stroke where inflammatory consequences of the injury are felt to be similar to those following traumatic injury. Acute ischemic stroke is the term applied when blood supply to the brain is acutely compromised by the obstruction of an artery. This obstruction leads to ischemia (insufficient blood flow and loss of oxygen) of the brain tissue. As a result of the ischemia, there is neuronal death, neurological impairment and death of brain tissue. The microvasculature in the brain is acutely sensitive to ischemia and reacts with endothelial swelling and changes in microvascular tone which further compromise blood supply. There is blood brain barrier disruption in the ischemic territory and an inflammatory response both at the vascular and neuronal levels. Results from preclinical experiments demonstrating the neuroprotective effects of CP-0597 were reported in the July 1997 issue of Stroke. These results indicate that CP-0597 may have significant therapeutic potential in the treatment of stroke. Accordingly, Cortech has continued a small highly focused research effort with that compound through contractual arrangements with academic institutions. Cortech does not, however, intend to undertake further development of CP-0597 without a collaborative partner. Although Cortech is currently seeking to secure such a partner to advance CP-0597 through remaining preclinical and clinical development and to help commercialize any drug(s) which may result or, alternatively, to sell Cortech's related technology rights, there can be no assurance that Cortech will be able to establish such a partnership or effect any transaction involving a sale of technology rights on favorable terms, if at all. Furthermore, there can be no assurance that CP-0597 would be proven safe and efficacious in clinical trials, that the regulatory approvals necessary for its commercialization (if it is ever advanced to this stage) would be obtained or that it could be manufactured at acceptable costs and with appropriate quantity. PRODUCT DEVELOPMENT RISKS Cortech's compounds are in an early stage of research and development. All of the compounds in Cortech's portfolio would require extensive additional research and development prior to submission of any regulatory application for commercial use. Cortech is seeking collaborative arrangements to support any further work on its research portfolio or, alternatively, to sell Cortech's technology rights. There can be no assurance that Cortech will be able to establish such collaborative arrangements or to effect a transaction involving a sale of technology rights on acceptable terms, if at all. Even if Cortech enters into collaborative arrangements and/or receives funds for research and development, there can be no assurance that research or product development efforts would be successfully completed, that the compounds in Cortech's portfolio would be proven to be safe and efficacious in clinical trials, that required regulatory approvals for commercialization (if products are ever advanced to this stage) could be obtained, that products could be manufactured at acceptable cost and with appropriate quality or that any approved products could be successfully marketed or would be accepted by patients, health care providers and third-party payors. PATENTS, TRADE SECRETS AND LICENSES Cortech believes that patents and other proprietary rights are crucial to its intellectual property portfolio. It is Cortech's policy to seek appropriate patent protection of proprietary technologies and compounds important to the development of its business. In addition to patents, Cortech relies upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain its competitive position. The value of Cortech's intellectual property will depend in part on its ability to obtain patents, maintain trade secrets and operate without infringing on the proprietary rights of others in the United States and in other countries. 78 93 Cortech has patent protection related to the following: protease inhibitors, bradykinin antagonists and immunology (vaccines and treatments). Cortech holds seven United States patents and currently has fourteen United States patent applications pending which concern protease inhibitors. Cortech holds five United States patents, has three United States patent applications pending and has one patent application which has been allowed which concern bradykinin antagonists. In addition, Cortech holds 26 foreign patents and has 40 foreign patents pending concerning protease inhibitors and bradykinin antagonists. The patent positions of pharmaceutical and biopharmaceutical firms, including Cortech, are uncertain and involve complex factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before or after the patent is issued. Consequently, there can be no assurance that any of Cortech's pending applications will result in the issuance of patents or, if any patents are issued, whether they will provide significant proprietary protection or will be circumvented or invalidated. Since patent applications in the United States are maintained in secrecy until patents issue and since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, there can be no assurance that Cortech or any licensor was the first creator of inventions covered by pending patent applications or that Cortech or such licensor was the first to file patent applications for such inventions. Cortech is aware of a patent that has issued that contains claims which may, if valid, block Cortech from selling one or more compounds in the immunology area. There can be no assurance that Cortech's patents, if issued, would be held valid and infringed by a court of competent jurisdiction. An adverse outcome with regard to a third party claim could subject Cortech to significant liabilities to third parties, require disputed rights to be licensed from third parties or require Cortech to cease using such technology. A number of pharmaceutical and biopharmaceutical companies and research and academic institutions have filed patent applications or received patents in Cortech's fields. Some of these applications or patents may be competitive with Cortech's applications or may conflict in certain respects with claims made under Cortech's applications. Such conflict could result in a significant reduction of the coverage of Cortech's patents, if issued. In addition, if patents are issued to other companies that contain competitive or conflicting claims and such claims are ultimately determined to be valid, there can be no assurance that Cortech would be able to obtain licenses to these patents at a reasonable cost or be able to develop or obtain alternative technology. Cortech also seeks to protect unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation. It is Cortech's policy to require its employees, consultants, members of the Board of Directors, outside scientific collaborators and sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with Cortech. These agreements provide that all confidential information developed or made known to the individual during the course of the individual's relationship with Cortech is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual shall be the exclusive property of Cortech. There can be no assurance, however, that these agreements will not be breached or will provide meaningful protection or adequate remedies in the event of unauthorized use of Cortech's trade secrets or disclosure of such information. Cortech also has taken appropriate physical security measures to protect its intellectual property. There can be no assurance, however, that such security measures will be adequate. CP-0127 DEVELOPMENT CORPORATION In February 1992, Cortech entered into a series of agreements with CDC that govern the development of products utilizing Bradycor. The agreements grant CDC the right to utilize Bradycor in the United States, Canada and Europe for certain indications, while Cortech retained rights to Bradycor in other parts of the world. Cortech has the right to market, sell and license the technology licensed to CDC or to sell products derived therefrom and is subject to a royalty obligation in favor of CDC. Although Cortech has continued efforts to secure a corporate partner in connection with Bradycor, Cortech is not currently engaged in active development of any compounds covered by the agreements with CDC. Kenneth R. Lynn, Chairman of the Cortech Board and Chief Executive Officer of Cortech, and Bert Fingerhut, a member of the Cortech Board, serve as two of the three members of the Board of Directors of CDC. 79 94 MARKETING STRATEGY Cortech's compounds are in the early stages of research and development. In the event that any of Cortech's compounds were to be approved for marketing, this would be accomplished primarily through arrangements with other pharmaceutical or biotechnology companies. Comprehensive sales and technical support services would be necessary to market Cortech's products, and Cortech does not anticipate establishing significant capabilities in these areas in the foreseeable future. To the extent Cortech enters into co-marketing, co-promotion or similar arrangements, any revenues received by Cortech will be dependent on the efforts of third parties, and there can be no assurance that such efforts will be successful. Sales of any products for which Cortech obtains regulatory approval will be dependent in part on the availability of reimbursements to the consumer from third-party payors, such as government and private insurance programs. MANUFACTURING The manufacture of sufficient quantities of new drugs can be an expensive, time-consuming and complex process and may require the use of materials with limited availability or require dependence on sole-source suppliers. In the event that any of Cortech's compounds reach the stage of development involving manufacturing, Cortech will be reliant upon third parties or its corporate partners for the manufacture of compounds. There can be no assurance that such third-party arrangements can be established on a timely or commercially reasonable basis, if at all. Where such arrangements are established, Cortech will depend on such third parties to perform their obligations effectively and on a timely basis. There can be no assurance that such parties will perform acceptably and any failures by third parties may delay clinical trial development or the submission of products for regulatory approval, impair Cortech's ability to deliver products on a timely basis, or otherwise impair Cortech's competitive position, which could have a material adverse effect on Cortech's business, financial condition and results of operations. If Cortech does not find a suitable manufacturing partner or contractor, it may be required to incur substantial financial obligations to construct or acquire manufacturing facilities. COMPETITION The pharmaceutical and biopharmaceutical industries are engaged in intense competition involving multiple technologies and strategies for compound identification and development. Many companies are focused on research in the same areas as Cortech. Cortech's most significant competitors are fully integrated pharmaceutical companies and more-established biotechnology companies. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical companies. In addition, Cortech faces competition from academic institutions, governmental agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for product and clinical development and marketing. Furthermore, these companies and institutions compete with Cortech in recruiting and retaining highly qualified scientific and management personnel. Many of Cortech's competitors have substantially greater financial, technical and human resources than Cortech and have significant products approved or in development. In addition, many of these competitors have significantly greater experience than Cortech in undertaking preclinical testing and human clinical trials of new pharmaceutical products and obtaining FDA approval for products. Furthermore, if Cortech is permitted to commence commercial sales of products, it will also be competing with respect to manufacturing efficiency and marketing capabilities. Any of Cortech's products that successfully gain regulatory approval must then compete for market acceptance and market share. For certain of Cortech's potential products, an important competitive factor will be the timing of market introduction. Accordingly, Cortech expects that important competitive factors will be the relative speed with which companies can develop products, complete the clinical testing and approval processes and supply commercial quantities of the product to the market. With respect to clinical testing, competition may delay progress by limiting the number of clinical investigators and patients available to test Cortech's potential products. 80 95 HNE inhibitors have been the target of research and development efforts by a number of large pharmaceutical companies. While no company has succeeded in developing a small molecular weight HNE inhibitor to the point of filing an application for marketing approval, there can be no assurance that any of these programs will not achieve success in the future. In addition, alternative approaches to the use of HNE inhibitors are being developed. At least four other companies have developed bradykinin antagonists and may be engaged in product development activities. Numerous companies are developing alternative strategies to treat inflammation. A number of these are in preclinical and clinical development. Any of these approaches could compete with Cortech's HNE inhibitor programs. GOVERNMENT REGULATION The FDA is the primary agency regulating the research, development, manufacture, sale and marketing of drugs in the United States From the time at which a promising compound is identified, regulations dictate its development, approval, marketing and sale. Product development and approval within this regulatory framework takes a number of years and involves the expenditure of substantial resources. Many products that initially appear promising are never approved because they do not meet the safety and efficacy requirements of the FDA. Regulatory requirements may change at any stage of Cortech's product development and may affect approval, delay an application, or require additional expenditures by Cortech. If approval is obtained, failure to comply with ongoing regulatory requirements, or new information that negatively impacts the safety or effectiveness of the approved drug, could cause the FDA to withdraw approval to market the product. The time period between when a promising new compound is identified and when human testing is initiated is generally referred to as the preclinical development period. A series of pharmacologic studies are also performed during preclinical development to identify the essential characteristics of the compound's behavior. In addition, both in vitro and in vivo animal toxicity studies are required to characterize the toxicity profile of the compound. Preclinical studies are regulated by the FDA under a series of regulations called GLP regulations. Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring those studies to be repeated. During this time, a manufacturing process which is capable of producing the compound in an adequately pure and well characterized form for human use is developed. Production of compounds for use in humans is governed by a series of FDA regulations known as GMP regulations, which regulate all aspects of the manufacturing process. The entire body of preclinical development work is summarized in a submission to the FDA called a Notice of Claimed Exemption for an IND. FDA regulations allow human clinical trials to begin 30 days following the submission of the IND, unless the FDA requests additional information, clarification or additional time to review the IND. There is no assurance that the submission of an IND will allow a company to commence clinical trials. Once trials have started, the company or the FDA may decide to stop the trials because of concerns about the safety of the product or the adequacy of the trial design. Such action can substantially delay individual trials, as well as the entire development program for that compound and, in some cases, may require abandonment of a product. Clinical testing of new compounds in humans is designed to establish both safety and efficacy in treating a specific disease or condition. These studies are usually conducted in three phases of testing. In Phase I, a small number of healthy subjects or patients with the specific condition being targeted are given the new compound to determine the pharmacokinetic and pharmacologic actions of the drug in humans, the side effects associated with increasing doses and if possible, to gain early evidence of effectiveness. In Phase II, small numbers of patients with the targeted disease are given the compound to test its efficacy in treating the targeted disease, to determine the common short term side effects and risks associated with the drug, and to establish effective dose levels. Phase III studies are larger studies designed to confirm the compound's efficacy and safety for the targeted disease and to provide an adequate basis for physician labeling. When a drug is being developed for a condition that is life- or organ-threatening, or for which there is no alternative therapy, the FDA may, in certain cases, grant an accelerated approval process. However, there is no assurance any of Cortech's products would be eligible for this accelerated approval process. 81 96 Once adequate data have been obtained in clinical testing to demonstrate that the compound is both safe and effective for the intended use, all of the data available is submitted to the FDA in an NDA. The FDA reviews this application and, once it decides that adequate data are available which show that the new compound is both safe and effective, approves the drug for marketing. The approval process may take several years and is a function of a number of variables including the quality of the submission and data presented, the potential contribution that the compound will make in improving the treatment of the disease in question, and the extent of agreement between the sponsor and the FDA on the product labeling. There can be no assurance that any new drug will successfully proceed through this approval process or that it will be approved in any specific period of time. The FDA may, during its review of an NDA, ask for additional data, and may also require postmarketing testing, including potentially expensive Phase IV studies. In addition, postmarketing surveillance to monitor the safety and effectiveness of the drug must be done by the sponsor. The FDA may in some circumstances impose additional restrictions on the use and or promotion of the drug that may be difficult and expensive to administer. Before marketing approval is granted, the facility in which the drug product is manufactured must be inspected by the FDA and deemed to be adequate for the manufacture, holding and distribution of drugs in compliance with GMPs. Manufacturers must continue to expend time, money and effort in the area of production, and quality control, labeling, advertising and promotion of drug product to ensure full compliance with GMP requirements. Failure to comply with applicable requirements can lead to FDA demands that production and shipment cease, that products be recalled, or to enforcement actions that can include seizures, injunctions, or criminal prosecution. Such failures or new information that negatively impact the safety and effectiveness of the drug that becomes available after approval may lead to FDA withdrawal of approval to market the product. To market its products abroad, Cortech also must satisfy regulatory requirements implemented by foreign regulatory authorities. The foreign regulatory approval process includes all of the risks associated with FDA approval set forth above, and may introduce additional requirements or risks. There is no assurance that a foreign regulatory body will accept the data developed by Cortech for any of its products. Approval by the FDA does not ensure approval in other countries, nor does approval by any other country ensure approval decisions by FDA. In Europe, human pharmaceutical products are subject to extensive regulation of the testing, manufacture, safety, efficacy, labeling, storage, record keeping, advertising and promotion of human pharmaceutical products. Effective in January 1995, the European Union enacted new regulations providing for a centralized licensing procedure, which is mandatory for certain kinds of products, and a decentralized (country by country) procedure for all other products. A license granted under the centralized procedure authorizes marketing of the product in all of the member states of the European Union. Under the decentralized procedure, a license granted in one member state can be extended to additional member states pursuant to a simplified application process. The assessment of products filed under the centralized procedure is coordinated by the EMEA. In addition to regulations enforced by the FDA, Cortech is also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, regulations promulgated by the United States Department of Agriculture, and other related federal, state or local regulations. Cortech's research and development involves the controlled use of hazardous materials, chemicals, viruses and various radioactive compounds. Although Cortech believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, Cortech could be held liable for any damages that result and any such liability could exceed the resources of Cortech. 82 97 THIRD-PARTY REIMBURSEMENT The business and financial condition of pharmaceutical and biotechnology companies will continue to be affected by the efforts of government and third-party payors to contain or reduce the cost of health care through various means. For example, in certain foreign markets pricing or profitability of prescription pharmaceuticals is subject to government control. In particular, individual pricing negotiations are often required in each country of the European Union, even if approval to market the drug under the EMEA's centralized procedure is obtained. In the United States, there have been, and Cortech expects that there will continue to be, a number of federal and state proposals to implement similar government control. In addition, an increasing emphasis on managed care in the United States has increased and will likely continue to increase the pressure on pharmaceutical pricing. While Cortech cannot predict whether any such legislative or regulatory proposals will be adopted or the effect such proposals or managed care efforts may have on its business, the announcement or adoption of such proposals or efforts could have a material adverse effect on Cortech's business, financial condition and results of operations. Further, to the extent that such proposals or efforts have a material adverse effect on other pharmaceutical companies that are prospective corporate partners for Cortech, Cortech's ability to establish and maintain strategic alliances may be adversely affected. In addition, in both the United States and elsewhere, sales of prescription pharmaceuticals are dependent in part on the availability of reimbursement to the consumer from third-party payors, such as government and private insurance plans that mandate predetermined discounts from list prices. In addition, third-party payors are increasingly challenging the prices charged for medical products and services. If Cortech succeeds in bringing one or more products to the market, there can be no assurance that these products will be considered cost effective and reimbursement to the consumer will be available or will be sufficient to allow Cortech to sell its products on a competitive basis. HUMAN RESOURCES At its peak in July 1994, Cortech employed 206 full-time, regular employees. Over the past three-and-one-half years, Cortech has implemented a series of reductions in force which reduced the number of full-time, regular employees to 13 as of February 1, 1998. These employees are primarily engaged in management, business development and administrative efforts including the archiving of records, decommissioning of laboratories and liquidation of non-cash tangible assets. PROPERTIES As of February 1, 1998, Cortech occupied approximately 50,000 square feet of leased laboratory, warehouse and administrative space in Denver, Colorado. These leases expire on these facilities over the period from May 1998 to May 1999 and are renewable for up to an additional two years. Cortech is currently in discussions with several parties regarding the sale of its leasehold improvements and is seeking to vacate the premises. In addition, BioStar may have an interest in occupying some of the space leased by Cortech. LEGAL PROCEEDINGS Cortech is not a party to any material litigation or legal proceedings. 83 98 CORTECH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with Cortech's Financial Statements and Notes thereto included elsewhere in this Joint Proxy Statement/Prospectus. When used in this discussion, the word "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, but are not limited to, the risks discussed below, the risks discussed in the sections of this Joint Proxy Statement/Prospectus entitled "Risk Factors" and "Cortech Business" and the risks discussed elsewhere in this Joint Proxy Statement/Prospectus. The following discussion should be read in conjunction with the Cortech Financial Statements, including the notes thereto, included elsewhere in this Joint Proxy Statement/Prospectus. GENERAL Cortech is a biopharmaceutical company whose primary focus has been the discovery and development of novel therapeutics for the treatment of inflammatory disorders. Specifically, Cortech has directed its research and development efforts principally toward protease inhibitors and bradykinin antagonists. These efforts have produced certain intellectual property rights. See "Cortech Business -- Cortech's Work with Protease Inhibitors" and "-- Cortech's Work with Bradykinin Antagonists." In response to disappointing test results and its loss of collaborative partner support, Cortech has (i) implemented a series of reductions in force over the past three-and-one-half years (which has reduced the number of full time, regular employees from more than 200 to fewer than 15) and (ii) effectively discontinued all internal efforts to advance its research and development activities. In addition, Cortech is currently decommissioning its laboratories, has sold most of its scientific and technical equipment and, unless the Merger is implemented and BioStar opts to retain such assets, plans to sell most of its office furniture and equipment and, where possible, its leasehold improvements. As a result of these actions, Cortech no longer has the staff or operative facilities required to recommence internal research and development activities. Cortech has retained a core group of professionals who, among other things, are actively engaged in ongoing efforts to realize appropriate value from Cortech's tangible and intangible assets. It is uncertain, however, whether Cortech will be able to retain employees with sufficient knowledge and experience to realize appropriate value from Cortech's intangible assets. In light of the above, Cortech's management has focused on evaluating various strategic alternatives. As a result, Cortech entered into the Reorganization Agreement with BioStar on December 22, 1997. RESULTS OF OPERATIONS Years ended December 31, 1997 and 1996: Revenues: Revenues from sponsored research and development decreased from $7.4 million in 1996 to $3.5 million in 1997. The decrease in revenues for 1997 resulted primarily from the termination of Cortech's collaborative agreements. Cortech received $1.5 million from Ono Pharmaceutical Co. Ltd. ("Ono") for work performed in 1997 under a contract to develop an oral elastase inhibitor (the "Ono Agreement"). Pursuant to the Ono Agreement, Cortech had received an additional $1.3 million in 1996 which was recorded as revenue in 1997 (as a result of work performed in 1997 by Cortech). Under the terms of the Ono Agreement, as amended in 1997, Ono has assumed all responsibilities for research activities being conducted during the final six months of the collaborative project (terminating on March 14, 1998). As a result, Ono is not required to pay Cortech the last scheduled $1.5 million in research funding previously provided for under the Ono Agreement to offset certain costs that Cortech would otherwise have incurred. Cortech expects no further payments from Ono under the Ono Agreement. Research and Development: Research and development expenses decreased from $11.3 million in 1996 to $7.6 million in 1997. The decrease is due primarily to reductions in force implemented in 1997 (which 84 99 included restructuring charges recorded of $1.4 million), and the winding down, and substantial discontinuation in late 1997, of Cortech's research and development activities. General and Administrative: General and administrative expenses were $3.6 million in 1996 and 1997. Cortech's general and administrative expenses in 1997 included $349,000 of restructuring charges and $340,000 of professional fees related to the Merger. Substantially all of Cortech's remaining employees' payroll costs are classified as general and administrative expenses. Net Loss: Cortech's net loss for 1997 increased to $6.8 million from $6.3 million in 1996. The increase was due principally to decreased revenues and the restructuring charges noted above. Years ended December 31, 1996 and 1995: Revenues: Revenues from sponsored research and development increased from $5.1 million in 1995 to $7.4 million in 1996. The increase in revenues for 1996 resulted primarily from milestone payments made by SmithKline Beecham ("SB"), of which $2.6 million was recorded as revenue, and a $1.5 million payment received from Ono under the Ono Agreement, of which $750,000 was recorded as revenue. From 1987 until December 1996, Hoechst Marion Roussel, Inc. ("HMRI") funded Cortech's development of CE-1037. During 1996, Cortech received payments of $1.1 million from HMRI. However, HMRI terminated its arrangements with Cortech in December 1996. Research and Development: Expenses for research and development decreased from $18.6 million in 1995 to $11.3 million in 1996. This decrease was due primarily to reductions in force initiated in 1995. General and Administrative: General and administrative expenses decreased from $4.7 million in 1995 to $3.6 million in 1996. This decline resulted from decreases in staffing, office space and business activity. Net Loss: The net loss for 1996 decreased to $6.3 million from $16.4 million in 1995. This decrease was due principally to decreased expenses and increased revenues noted above. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1997, Cortech had cash, cash equivalents and short-term investments totaling $15.4 million compared to $21.0 million at December 31, 1996. Cortech's net cash used in operating activities (including purchases of property, plant and equipment) totaled $6.5 million, $3.1 million and $13.3 million in 1997, 1996 and 1995, respectively. The increase in net cash used from 1996 to 1997 reflects the reduction in, and eventual complete loss of, Cortech's funded research and development collaborations as well as the payment of costs relating to reductions in force which were accrued in 1997. Cortech's expenditures, net of depreciation and non-cash charges, decreased from $13.1 million in 1996 to $9.6 million in 1997. This decrease reflects the winding down, and substantial discontinuation in late 1997, of Cortech's research and development activities as well as other effects of the reductions in force implemented in 1997. In November 1997, Cortech sold most of its scientific and technical equipment for approximately $800,000. In January 1998, Cortech sold certain leasehold improvements for $150,000 in cash and a note receivable of $125,000 payable in July 1998. There can be no assurances that any of Cortech's remaining assets can be sold for book value, if at all. In the absence of the Merger, Cortech presently expects to receive no revenues from sponsored research and development arrangements in 1998 (or future years). From its inception through December 31, 1997, Cortech raised cash totaling $97.1 million from the sale of equity securities, including $33.6 million in net proceeds from its November 1992 initial public offering and $37.7 million in net proceeds from its October 1993 follow-on public offering. Cortech has experienced net losses and negative cash flows from operations each year since inception and has incurred an accumulated deficit of $84.6 million through December 31, 1997. 85 100 Were Cortech to maintain current levels of staffing (and in the absence of a strategic transaction such as the Merger), during 1998 Cortech estimates that it would incur approximately $3.2 million in general and administrative expenses, research and development salaries and overhead. Cortech expects to incur costs in 1998 relating to the proposed Merger of approximately $500,000. In addition, costs relating to the proposed Merger of $240,000 and reduction in force costs of $184,000 will be paid in 1998 but were accrued in 1997. Although reductions in staff from current levels would decrease ordinary salary expenses in 1998 from current levels, such reductions would result in additional severance benefits (aggregating to approximately $1.3 million assuming full payment of severance benefits to all current officers and employees). During 1998, Cortech expects to receive approximately $1.0 million from interest income and the sale of assets. However, there can be no assurances that Cortech will receive such amounts. There can also be no assurances that Cortech will not be required to incur additional expenses. OTHER MATTERS Net Operating Loss Carry Forwards and Tax Credits: As of December 31, 1997, Cortech had approximately $77.2 million of net operating loss carry forwards for income tax purposes, $74.3 million of which expire from 2005 through 2012. In addition, Cortech has approximately $2.9 million of research and development tax credits available to offset future federal income tax, subject to limitations for alternative minimum tax, $2.7 million of which expire from 2005 to 2012. Cortech's use of operating loss carry forwards and tax credits is subject to limitations imposed by the Internal Revenue Code. Due to such limitations (particularly insofar as they relate to events such as the Merger), Cortech believes that the Merger, if implemented, may result in further, material limitations on Cortech's use of its operating loss carry forwards and tax credits. Impact of Year 2000: The year 2000 will impact computer programs written using two digits rather than four to define the applicable year. Any programs with time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operation, including a temporary inability to process transactions, send invoices or engage in other ordinary activities. This problem largely affects software programs written years ago, before the issue came to prominence. Insofar as Cortech has effectively discontinued all internal efforts to advance its research and development activities, Cortech does not believe that it has significant risk associated with the year 2000 problem. 86 101 CORTECH MANAGEMENT AND EXECUTIVE COMPENSATION Kenneth R. Lynn, an executive officer and director of Cortech, and Bert Fingerhut, a director of Cortech, will serve as directors of the combined company following the Merger. Set forth below is information regarding Messrs. Lynn and Fingerhut as of December 31, 1997.
NAME POSITION WITH CORTECH ---- --------------------- Kenneth R. Lynn.............................. President, Chief Executive Officer and Chairman Director Bert Fingerhut............................... Director
Kenneth R. Lynn, 44, has been a director of the Company and its President and Chief Executive Officer since February 1995 and has served as Chairman of the Board since April 1997. He is a member of the Executive, Nominating and Equity Committees. Prior to becoming the Company's Chief Executive Officer, he was the Company's Vice President, Business Development and General Counsel from February 1993 until November 1994, when he was promoted to Senior Vice President, Corporate Development and General Counsel. He served as Secretary of the Company from March 1993 through March 1995. From August 1991 to January 1993, he served as Vice President, General Counsel and Corporate Secretary at U.S. Bioscience, Inc., a pharmaceutical company. From 1984 to July 1991, he served in various legal positions at Marion Merrell Dow Inc. (now Hoechst Marion Roussel), most recently as Corporate Counsel. Mr. Lynn received his J.D. from the University of Kansas in 1981 and his M.B.A. from Rockhurst College in 1990. Mr. Fingerhut, 54, has been a director of the Company since 1988 and served as Chairman of the Board from June 1991 to April 1997. He is a member of the Executive, Audit and Compensation Committees. Mr. Fingerhut presently pursues private business and conservation interests. From 1984 to 1985, he was Special Limited Partner and Senior Vice President of Odyssey Partners, a private investment partnership. From 1965 to 1983, he was General Partner, Managing Director, Executive Vice President and Director of Research of Oppenheimer & Company, Inc., an investment banking firm. Mr. Fingerhut is Chairman of the Board of Directors of Toxics Targeting, a private company based in Ithaca, N.Y. that tracks and provides information on toxic waste sites. He is currently a member of the Executive Committee of the Governing Council of the Wilderness Society, the Vice-Chairman of the Board of Directors of the Southern Utah Wilderness Alliance, a director of the Grand Canyon Trust and Trustee of the Alaska Conservation Foundation. COMPENSATION OF DIRECTORS Each non-employee director has received options to purchase Common Stock of Cortech under the 1992 Amended and Restated Non-Employee Directors' Stock Option Plan (the "1992 Directors' Plan") as compensation for his or her services as a director and receives additional options under such plans for service on certain committees of the Board. Options were also granted to non-employee directors outside of such Plan. Outside directors receive $1,000 per Board meeting attended and $1,000 per committee meeting attended if held on a non-Board meeting occasion and an additional $6,000 annually. The 1992 Directors' Plan expired by its terms on December 31, 1997. No plan has replaced the 1992 Director's Plan. Options granted under the 1992 Directors' Plan were automatic and non-discretionary. Each person who was a non-employee director of Cortech as of the adoption date of the 1992 Directors' Plan was granted options generally covering 25,000 shares of Common Stock, with adjustments to equalize the directors' overall options in light of options previously granted to them. Such options generally became exercisable ("vest") in year-end installments of 5,000 shares. Each member of the Compensation and Audit Committees received options covering an additional 500 shares for each committee on which he served. In addition, (i) each person subsequently elected for the first time as a non-employee director was granted an option on the date of his or her initial election as a director to purchase a pro rata portion of 25,000 shares, depending upon when he or she was elected, which options generally vest in year-end installments of 5,000 shares; (ii) each person subsequently elected for the first time to the Audit or Compensation Committee was granted an option to purchase 500 shares if elected before July 1, or a portion thereof, prorated on a quarterly basis, if elected after 87 102 such date, vesting in full on December 31; (iii) each non-employee director received an annual option to purchase an additional number of shares, determined by multiplying 5,000 by a fraction, the numerator of which was $20 and the denominator of which was the fair market value per share of Cortech Common Stock on the grant date, subject to minimum and maximum limits of 2,500 and 5,000 shares, respectively, vesting quarterly over five years; and (iv) each non-employee director who was a member of Cortech's Audit or Compensation Committee received an annual option to purchase 500 shares, vesting in full on December 31. Vesting of all options was subject to continued service as a non-employee director or employee of Cortech during the vesting period and, in the case of options granted for service on a committee, to continued service on the applicable committee. As of December 31, 1997, 1,650 options had been exercised under the 1992 Directors' Plan. Mr. Fingerhut received options covering 6,000 shares at $1.47 per share during the fiscal year ended December 31, 1997. All non-employee directors are reimbursed for their expenses incurred in attending Board of Directors meetings. Directors who are employees of Cortech do not receive separate compensation for their services as directors. COMPENSATION OF EXECUTIVE OFFICERS The following table shows for the fiscal years ended December 31, 1997, 1996 and 1995 compensation awarded or paid to or earned by Kenneth R. Lynn: SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ANNUAL COMPENSATION AWARDS- -------------------------------------- SECURITIES OTHER ANNUAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS COMPENSATION(1) - --------------------------- ---- --------- -------- --------------- ------------ --------------- Kenneth R. Lynn............ 1997 $265,513 $65,000 -- -- $1,141 President, Chief 1996 265,006 65,000 -- 75,000 1,174 Executive Officer and 1995 230,499 75,000 -- 275,000 1,099 Chairman of the Board
- --------------- (1) Includes matching payments by Cortech under its 401(k) Plan and premiums paid by Cortech for group term life insurance. STOCK OPTION GRANTS AND EXERCISES Cortech grants options to its executive officers under its 1993 Equity Incentive Plan (the "1993 Plan"). As of December 31, 1997, options to purchase a total of 1,098,265 shares were outstanding under the 1993 Equity Incentive Plan. Although 370,845 shares were available for grant under the 1993 Plan as of December 19, 1997, on such date the Cortech Board effectively suspended further grants of options under the 1993 Plan to the extent that any such grant would increase the shares subject to outstanding grants above the figure as of such date. Such suspension shall remain in effect pending the proposed Merger and other actions to be considered for approval by Cortech's stockholders in connection with such Merger. During the fiscal year ended December 31, 1997, there were no options granted to Kenneth R. Lynn. The following table shows for the fiscal year ended December 31, 1997 certain information regarding options exercised and held at year end by Kenneth R. Lynn: 88 103 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT 12/31/97(#) OPTIONS AT 12/31/94($)(1) ------------------------------------------ SHARES ACQUIRED VALUE(1) EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE ---- --------------- -------- ------------------ ---------------- Kenneth R. Lynn......... -- -- 275,009/174,991 $0/$0
- --------------- (1) Based on the closing price of Cortech's Common Stock on December 31, 1997 ($0.594) minus the exercise price of the options. 89 104 CORTECH PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the ownership of Cortech's Common Stock as of January 30, 1998 by: (i) each director and nominee for director; (ii) Cortech's chief executive officer as well as Cortech's four most highly compensated executive officers other than Mr. Lynn; (iii) all executive officers and directors of Cortech as a group; and (iv) all those known by Cortech to be beneficial owners of more than five percent of its Common Stock.
SHARES OF PERCENT OF PERCENT OF CORTECH COMMON CORTECH STOCK CORTECH STOCK BENEFICIALLY OUTSTANDING OUTSTANDING BENEFICIAL OWNER OWNED(1) PRIOR TO THE MERGER AFTER THE MERGER ---------------- -------------- ------------------- ---------------- Asset Value Fund Limited Partnership(2)..... 2,770,000 14.95% 6.21% 376 Main Street P.O. Box 74 Bedminster, NJ 07921 BVF Partners L.P.(3)........................ 1,225,252 6.61 2.75 333 West Wacker Drive Suite 1600 Chicago, IL 60606 Bert Fingerhut(4)........................... 561,480 3.01 1.25 Kenneth R. Lynn(5).......................... 304,849 1.62 * Diarmuid Boran(6)........................... 90,043 * * Donald Kennedy(7)........................... 38,800 * * Allen Misher(8)............................. 32,500 * * Charles Cohen(9)............................ 16,000 * * All executive officers and directors as a group (7 persons)(10)..................... 1,043,672 6.68 2.33%
- --------------- * Less than one percent. (1) This table is based upon information supplied by officers and directors and Schedules 13D filed with the Commission. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, Cortech believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 18,523,918 shares outstanding on January 30, 1998, adjusted as required by rules promulgated by the Commission and 44,620,868 shares of Cortech Common Stock following the Merger. (2) The sole general partner of Asset Value Fund Limited Partnership ("AVF") is Asset Value Management, Inc., a Delaware corporation and a wholly owned subsidiary of Kent Financial Services, Inc., a Delaware corporation. Pursuant to a Schedule 13D/A filed February 10, 1998, Mark W. Jaindl and Frederick J. Jaindl acquired from AVF on February 10, 1998 250,000 shares and 520,000 shares of Cortech Common Stock, respectively, in a privately negotiated transaction. (3) Includes 657,796 shares held by Biotechnology Value Fund, L.P. ("BVF"). Mark N. Lampert is the sole shareholder, director and president of BVF Inc., which is the general partner of BVF Partners L.P. ("Partners"), which is the general partner of BVF. (4) Includes options to purchase 151,285 shares, which are exercisable within 60 days of the date of this table. Also includes 3,000 shares held by Mr. Fingerhut's wife and 17,000 shares by Mr. Fingerhut's minor daughter. (5) Includes options to purchase 301,416 shares, which are exercisable within 60 days of the date of this table. 90 105 (6) Includes options to purchase 88,534 shares, which are exercisable within 60 days of the date of this table. (7) Consists of options to purchase 38,800 shares, which are exercisable within 60 days of the date of this table. (8) Includes options to purchase 27,500 shares, which are exercisable within 60 days of the date of this table. (9) Consists of options to purchase 16,000 shares, which are exercisable within 60 days of this table. (10) Includes options to purchase a total of 623,535 shares, which are exercisable within 60 days of the date of this table by executive officers and directors. 91 106 BIOSTAR BUSINESS OVERVIEW BioStar develops, manufactures and markets point-of-care diagnostic tests using its proprietary, highly-sensitive, thin film technologies. BioStar's current products employ its proprietary Optical ImmunoAssay (OIA(R)) technology, a thin film, platform technology developed for the rapid detection of a variety of medical conditions. BioStar's OIA tests help caregivers, in a cost-effective and efficient manner, to identify causes of illness and select appropriate patient therapy by providing information during the initial patient encounter. Internally and through collaborative arrangements, BioStar is developing additional thin film technologies which are intended to broaden the range of applications for its existing products and to enable the introduction of new products. BioStar currently sells immunodiagnostic tests for group A streptococcus (GAS), the cause of strep throat; group B streptococcus (GBS), the leading cause of neonatal septicemia; and chlamydia, the most commonly reported sexually transmitted disease in the United States and a leading cause of female infertility. BioStar's OIA tests are generally considered to be the most sensitive, non-instrumented rapid tests available today for point-of-care testing for GAS, GBS and chlamydia. BioStar is currently developing tests, primarily through arrangements with corporate partners, for the rapid detection and diagnosis of influenza, pneumonia, clostridium difficile, gonorrhea and chlamydia (using urine specimens), as well as certain non-infectious medical conditions. Drawing upon the speed and sensitivity of BioStar's current, single-target, visually measured tests, BioStar and a corporate partner are developing an instrumented, multitarget test based on BioStar's "new concept ellipsometer" technology. BioStar believes that instrumentation may allow the development of easy-to-use, quantitative tests in point-of-care or automated delivery formats. BioStar believes this development will be significant since quantitative tests would provide numeric results (as opposed to merely a positive or negative result), thereby broadening the potential application of BioStar's thin film technologies. BioStar's current products use the ability of the human eye to detect changes of thickness on the mirror-like surface of a silicon chip, which are seen as a change in surface color. BioStar's OIA tests currently being sold, and certain tests under development, are performed by placing patient specimens on the reflective surface of a chip coated with appropriate reagents. If targeted organisms are present in the specimen, even at low levels, the surface of the chip changes thickness in minutes. Targets can be detected in a wide variety of samples, including throat and nasal swabs, urine and whole blood. BioStar's GAS, GBS and chlamydia tests are sold by BioStar's dedicated marketing and sales organization, which targets the United States outpatient markets, including physician offices, clinics and student and public health centers; and BioStar's domestic and international distributor network, which targets hospital and reference laboratory accounts in major markets worldwide. Since 1992, BioStar's sales force and distribution partners have sold over nine million OIA-based tests worldwide. In addition to selling OIA-based tests, BioStar's dedicated, nationwide sales force also sells products to the outpatient market which are licensed from an outside supplier. An integral part of BioStar's strategy is to work with corporate partners to develop market opportunities and access important resources. In this regard, BioStar has established strategic relationships with a number of companies, including Biota Scientific Management Pty Ltd ("Biota"), an Australian pharmaceutical company, Asahi Chemical Industry Co., Ltd. ("Asahi"), one of Japan's largest chemical manufacturers, and Murex Diagnostics, Inc. ("Murex"), the United States subsidiary of a publicly-traded Canadian company. BioStar believes that its relationships with these and other potential partners will enable BioStar to enhance its menu of diagnostic products and accelerate its ability to penetrate the worldwide point-of-care markets for both manual and instrumented testing sites. In addition, BioStar is pursuing collaborations with strategic partners to apply its versatile thin film technologies to develop screening and monitoring products for applications in industries such as food, beverage and environmental testing and life sciences research. 92 107 INDUSTRY OVERVIEW In vitro diagnostic testing is the process of analyzing the constituents of a wide variety of body fluids to identify the presence of markers for diseases or other human health conditions. The worldwide human health in vitro diagnostics market consists of reference laboratory and hospital testing, clinic and physician office markets. Traditionally, diagnostic testing has been performed in large, high-volume commercial or hospital-based laboratories using instruments operated by skilled technicians involving multi-step protocols and lengthy reaction times. These testing methods are often inefficient and can negatively impact the cost and quality of patient care because the amount of sample handling increases operating costs and the delay in providing test results reduces the ability of health care workers to manage patient care effectively and efficiently. For example, many traditional infectious disease diagnosis methods use culture-based assays such as agar culture. These assays are complicated, must be performed by laboratories and can take up to several days to provide a result. One of the largest categories of in vitro diagnostic tests performed today is immunodiagnostic testing. Immunodiagnostic tests involve complex biological reactions and test for molecules that are found in very low concentrations. Immunodiagnostic tests cover a wide variety of medical conditions, including diagnosing infectious diseases, measuring hormones in the endocrine system, monitoring therapeutic drug levels, testing for drug abuse, determining the overall immune status, measuring sensitivity to allergens and measuring various markers associated with cancers. Recent technological advances in immunodiagnostic testing have focused on shortening test reaction times, providing higher sensitivity and specificity, lengthening the shelf-life and increasing the accuracy of tests. These technological advances have allowed the development of new, point-of-care immunodiagnostic tests. One of the fastest growing segments of the human health in vitro diagnostics market is the market for highly accurate tests that can be used close to the point of patient care (such as clinics, physician offices, homes, patient bedsides and emergency rooms) as well as in laboratories. It has been estimated that the total worldwide market for point-of-care tests (primarily in physician office and hospital facilities) was $1.3 billion in annual sales in 1997 and will grow over 10% annually through the year 2000. The growth in the point-of-care market is primarily due to pressure on health care providers to reduce the overall cost of health care as well as the availability of technology that enables health care providers to process tests on-site, rather than sending them to remotely located laboratories. Point-of-care testing helps to reduce overall health care delivery costs and can improve patient outcomes by enabling the primary caregiver to determine a diagnosis of the medical condition during the patient's initial visit, minimizing the time to medical intervention and reducing the need for additional patient follow-up. Point-of-care diagnosis and treatment of infectious diseases can permit earlier prescription of appropriate medications (including antibiotics), shortening the duration of illness. In addition, rapid point-of-care tests for infectious diseases allow the caregiver to begin to address the critical issue of antibiotic overuse. A major recent study has shown that over one-half of the antibiotics prescribed in the United States for ambulatory, episodic respiratory disease are for patients who will not benefit from the drug as their condition is likely viral in nature. The availability of rapid, accurate results can allow physicians to make informed treatment decisions regarding antibiotic use and, through appropriate dosing, help control the emergence of drug-resistant organisms. In emergency situations, caregivers can have the timely and accurate information necessary to ensure appropriate diagnosis and treatment and to potentially reduce unnecessary use of costly inpatient care. The availability of a larger number of rapid, point-of-care tests will enable the adoption of "test and treat" strategies by caregivers for appropriate selection of therapeutic interventions for medical conditions. Commercializing products in the point-of-care diagnostics market initially requires the dedication of substantial resources to training caregivers to use tests and incorporate them into the caregiver's medical practice. In addition, diagnostic tests may require substantial ongoing customer support to assist caregivers with use of the products, regulatory compliance and product reimbursement. The human diagnostic testing industry has undergone major consolidation over the last few years. As a result, the industry is dominated by a small number of large companies or divisions of large companies that manufacture and sell numerous 93 108 diagnostic products incorporating a variety of technologies. In addition, there are many small diagnostic companies which generally have limited resources to commercialize new products. As a result of technological fragmentation and customer support requirements, BioStar believes that there may be a substantial competitive advantage for companies with differentiated technologies that can be used to generate a broad menu of diagnostic products and that have developed successful customer support systems. STRATEGY BioStar's primary objective is to apply its proprietary technologies to the development and commercialization of products for use in a variety of markets. BioStar's strategies for achieving this objective include the following: Exploit Proprietary Thin Film Technologies to Broaden Potential Market Applications. BioStar has focused its resources on developing highly accurate, rapid, manual OIA tests. BioStar believes that it can also develop new applications for its platform thin film technologies by creating alternative test formats (such as instrumented or automated tests) and developing new surface platforms (such as flow-through surfaces or flexible solid surfaces). Target Large Indication Human Health Care Opportunities. BioStar has focused its product development and sales efforts on the human infectious disease diagnostic market (which has an estimated $1 billion in annual sales) to obtain commercial validation of the OIA technology and help generate a portion of the resources to fund expansion of BioStar's product offerings. BioStar intends to target other large indication human health applications (such as cancer, respiratory and critical care diagnostic tests) through both expanded internal research and development efforts and collaborations with strategic partners. Leverage Sales and Marketing Resources. BioStar has a dedicated, nationwide marketing and sales organization which is experienced in selling diagnostic tests into the highly-competitive outpatient market. BioStar plans to leverage its sales force by expanding BioStar's product menu with more high value, quality products through internal development and the acquisition or additional in-licensing of complementary products and technologies. Use Strategic Alliances to Leverage Company Resources. BioStar is using and plans to continue to use strategic alliances to access complementary resources (such as proprietary markers, funding, marketing expertise and research and development assistance), to leverage its thin film technologies, expand its product menu and maximize the use of its sales force. For example, BioStar is currently developing with different partners an influenza test, a sexually transmitted disease panel test, a chlamydia (urine specimen) test and a gonorrhea test. BioStar has also in-licensed complementary products from Wyntek Diagnostics, Inc. ("Wyntek") for distribution by BioStar's sales organization and has entered into distribution partnerships for its OIA tests in major markets worldwide. Pursue Strategic Acquisitions. BioStar intends proactively to evaluate strategic acquisitions of companies, technologies and product lines where BioStar identifies a strategic opportunity to grow its core business or to increase revenues and profitability. Use Thin Film Technologies to Expand Beyond Human Health Diagnostics. BioStar seeks to expand its product portfolio beyond human health and point-of-care diagnostics to take advantage of opportunities in other industries. BioStar is pursuing collaborations with strategic partners to apply its versatile thin film technologies to develop screening and monitoring products for applications in industries such as food, beverage and environmental testing and life sciences research. THIN FILM TECHNOLOGIES OIA Technology. BioStar's OIA technology uses the interaction of light with thin films on an optical surface to create highly sensitive and specific immunodiagnostic "assays" or tests. BioStar's OIA technology uses the ability of the human eye to detect angstrom-level (one ten-billionth of a meter) thickness changes on the mirror-like surface of a silicon chip. This change in thickness is seen by the human eye as a change in surface color. OIA tests are performed by placing patient specimens and reagents on the reflective surface of a 94 109 silicon chip. If target organisms are present in the specimen, even at low levels, the surface of the chip changes thickness in minutes. BioStar's OIA tests typically comprise a test device, reagents, a swab and an extraction tube. The test device includes a reactive surface comprised of a solid substrate (for ease of test delivery), an optical layer of a reflective surface (to make the reaction visible to the human eye), an attachment layer (to link the biological to the reflective surface) and an active biological capture layer (to create a surface thickening). Once a specimen is applied to the surface, the capture layer specifically reacts with targets in the specimen. This results in the binding of the target to the surface. The reaction sequence includes addition of an enzyme conjugate and substrate to the reactive surface to amplify each binding event by depositing a thin layer of mass around each target molecule that has been bound to the surface. This mass enhancement step amplifies the signal and creates the thin film. The human eye sees this thickening as a color change, due to the destruction of certain wavelengths of light as layers on the surface thicken. The color change is similar to the colors produced in a soap bubble as light passes through different thicknesses of the surface film on the perimeter of the bubble. [GRAPHIC DEPICTION OF THE REACTION OF LIGHT AS IT PASSES THROUGH THE OPTICAL LAYERS OF AN UNREACTED AND A REACTED SURFACE. THE DEPICTION SHOWS A CLEAR COLOR DIFFERENTIATION.] BioStar's OIA technology has the following attributes which, when combined, help differentiate BioStar's OIA tests from competitive products: Accurate. Tests using BioStar's OIA technology have been demonstrated by independent laboratory testing to perform at levels of sensitivity and specificity superior to other commercially available rapid tests and equivalent to many other commercially available laboratory reference tests using alternative technologies. This accuracy is a functional characteristic of BioStar's thin film technology. Unlike other detection technologies, thin films use reflective surfaces that are exceptionally smooth, and which virtually eliminate the problem of non-specific binding of targets to the surface. In addition, thin film technology does not rely on the use of chromophores, which are commonly used in diagnostic tests to generate the color signals that indicate the presence or absence of the target organism. Chromophore-based technologies are not as efficient as BioStar's OIA technology in generating color signals and, therefore, they are less sensitive. Clinical Validation of the OIA Technology. The clinical performance of BioStar's OIA tests has validated the OIA technology. For example, BioStar's Strep A OIA test has been reported in peer reviewed medical literature to be more sensitive than tests using agar culture, the Food and Drug Administration's ("FDA's") laboratory "gold standard" for detecting strep throat. In addition, independent laboratory testing 95 110 has demonstrated that BioStar's Chlamydia OIA test is as sensitive as culture and the most commonly used laboratory DNA probe method. The Strep B OIA test is the only rapid assay commercially available today in the United States for testing pregnant women for GBS because other less sensitive products were voluntarily removed from the market. Rapid. Another characteristic of BioStar's thin film OIA technology is the speed with which it binds the target to the surface. By way of comparison, current OIA test results are available in five-to-24 minutes while laboratory methods for the same tests take from hours to days to obtain a result. This relative speed is due to the fact that the kinetics of thin film technologies are nearly instantaneous. Easy-to-Use. BioStar developed its OIA technology to minimize the number of operator steps to simplify operation, provide for flexible timing intervals and generate permanent results. BioStar's customers report that its OIA tests are easy-to-use relative to many other commercially available tests. Flexible Platform Technology with Multiple Formats. BioStar's OIA technology provides a flexible platform that is used for single assays (as with all current OIA tests) and multiple test panels which are currently under development. BioStar is currently focusing its research and development efforts on its OIA technology on improving operator ease-of-use and assay speed. In the third quarter of 1997, BioStar introduced OIA MAX(TM), its improved OIA test for GAS. OIA MAX was designed to increase speed and offer improved ease-of-use. BioStar is currently applying new surface manufacturing technologies, such as ion beam deposition, which enable BioStar to construct OIA tests using silicon-coated porous membrane materials. Such tests further reduce the number of operator steps as a result of reagents flowing through the surface. Potentially Applicable to Wide Variety of Markets. BioStar believes that the characteristics of the optical surface and attachment layer of its OIA technology may enable BioStar to develop a broad OIA product menu. The optical surface is versatile because it can be used with a wide variety of sample types (e.g., whole blood, serum, urine, feces, and swab extracts from vaginal, cervical, nasal, throat, and ocular sites) without a significant level of interference. Additionally, the attachment layer allows for the use of a wide variety of capture molecule types, including antibodies, antigens, nucleotides, and polymers. Feasibility studies have shown that using BioStar's OIA technology, multi-day laboratory methods for the following common human diseases may be converted to rapid point-of-care tests: pneumonia, influenza A/B (the most common pathogenic forms of the influenza virus), clostridium difficile (a leading cause of diarrhea), and gonorrhea (a common sexually transmitted disease). BioStar is in various stages of development with respect to these tests. NEW CONCEPT ELLIPSOMETER TECHNOLOGY. BioStar has developed and patented instrumented measurement technology, the "new concept ellipsometer", which uses ellipsometry in combination with BioStar's OIA technology. BioStar has produced several prototypes but has not yet completed development of products which incorporate the new concept ellipsometer. Ellipsometer technology was originally developed for the computer microprocessor manufacturing industry to measure angstrom-level thickness changes in silicon wafers for microprocessor manufacturing quality control. BioStar has adapted this measuring technique to its OIA technology to create products that make quantitative measurements. New concept ellipsometry measures the change in response of a polarized beam of light as it passes through a thin film. Ellipsometric reading of thin films increases the sensitivity of tests by an order of magnitude over visual methods which rely on the human eye. BioStar believes that the levels of sensitivity and accuracy that it may be able to achieve with new concept ellipsometry products may allow BioStar to develop tests for new markets. For example, instrumented tests would be useful for running multiple tests on patient specimens simultaneously or for running high volume tests for multiple patient specimens. This technology is not yet commercially available. PRODUCTS AND MARKETS BioStar and its distribution partners are currently selling OIA tests in major markets worldwide for GAS, GBS and chlamydia. To date, BioStar's sales force and distribution partners have sold over nine million OIA tests since BioStar first received product marketing clearance from the FDA for the original GAS test in 1992. Over 20 peer reviewed medical publications, abstracts and symposia have been presented on the favorable 96 111 technical differentiation of BioStar's OIA tests over competitive products. The OIA sensitivity differentiation is recognized by organizations such as the American Academy of Pediatrics which has stated that BioStar's OIA test for GAS "is as sensitive as standard throat cultures on sheep blood agar and more sensitive than other rapid tests for GAS". To extend the product offering for the rapid, point-of-care segment, and to complement its premium-priced, high quality assays, BioStar recently introduced three new "CLIA-waived" assays, ACCEAVA Strep A, ACCEAVA hCG Urine and ACCEAVA hCG Basic, and one moderately complex assay, ACCEAVA Mono, all of which BioStar sells under license from Wyntek. See "-- Strategic Relationships". For a discussion of the classification of products for Clinical Laboratory Improvements Amendments of 1988 (CLIA) compliance see "-- Regulation". CLIA-waived products are designed for the less demanding user and generally are not as accurate as moderately complex tests. BioStar's current point-of-care product menu includes the following:
OIA PRODUCTS ACCEAVA PRODUCTS*** ------------ ------------------- Strep A OIA Max ACCEAVA Strep A (CLIA-waived) Strep A OIA ACCEAVA hCG Urine (CLIA-waived) Strep B OIA Maternal ACCEAVA hCG Basic (CLIA-waived) Strep B OIA Infant Urine* ACCEAVA Mono (Moderately complex) Chlamydia OIA Chlamyfast** Chlamydia OIA Urethral*
- --------------- * Sold internationally only ** Sold in France only *** In-licensed from Wyntek GROUP A STREPTOCOCCUS. Group A streptococcus (GAS), the bacteria that causes strep throat, is the most frequent bacterial cause of pharyngitis in children and adolescents. Pharyngitis is characterized by painful throat and fever and is a major cause of pediatric visits. Rapid and accurate diagnosis of GAS is essential for several reasons: (i) the disease is sensitive to antibiotic therapy, (ii) it helps caregivers avoid the unnecessary use of antibiotics if the disease is not present, (iii) untreated GAS can deteriorate into life-threatening complications such as rheumatic fever, and (iv) early treatment may reduce the risk of transmission to others and lessen the economic impact on sufferers by allowing them to quickly return to their usual activities. In 1997, the United States market for GAS tests was estimated to be $100 million, and BioStar estimates that the worldwide market for GAS tests was $120 million in annual sales. The United States market for moderately complex GAS tests (such as BioStar's OIA tests) was estimated to be $70 million and the market for CLIA-waived tests was estimated to be $16 million. The remainder of the United States market is composed of sales of agar culture materials and reagents. BioStar's sales of all GAS products in 1997 represented over 83% of BioStar's total product sales. Strep A OIA MAX. BioStar's flagship product, Strep A OIA MAX (OIA MAX), the second generation of BioStar's rapid OIA test for GAS, detects more true positives than agar culture tests and is the most sensitive commercially available rapid test in the United States and management believes, worldwide. OIA MAX is sold in major markets worldwide to physician offices as well as hospitals and reference laboratories. OIA MAX results are available in five minutes. The procedure for use of OIA MAX begins with the collection of a patient sample using a standard throat swab. The patient specimen is then chemically extracted, mixed with an enzyme conjugate and placed on the OIA surface. If GAS is present, a purple color appears. OIA MAX represents an improvement over BioStar's original GAS product, Strep A OIA. OIA MAX is 38% faster, requires less handling and, because it has one less reagent step, is easier to use than Strep A OIA. OIA MAX was cleared for sale by the FDA in July 1997. 97 112 Strep A OIA. Strep A OIA is BioStar's original Strep A test and is sold in major markets worldwide to physician offices as well as hospitals and reference laboratories. Some OIA users prefer the original test format or may not yet have been trained on the OIA MAX test. BioStar expects the majority of Strep A OIA users to have converted to the OIA MAX test by the end of 1998. BioStar's Strep A OIA test represents a breakthrough technology for Strep A detection since it is the only product of its kind the FDA has allowed the claim "more sensitive than routine culture". Agar culture is one of the traditional methods for detecting GAS. Agar culture tests are performed by culturing a specimen from a patient's throat swab on bacterial media. This method requires 18-48 hours to generate results. BioStar's Strep A OIA procedure can be completed in eight minutes and has demonstrated up to a 37% greater sensitivity over routine agar culture (the basic comparison for rapid GAS tests). Moreover, BioStar's Strep A OIA test also compares favorably against enhanced broth culture (which is a more exacting standard than agar culture). The diagram below represents comparative sensitivity performance results of Strep A OIA vs. resolved enhanced broth from a series of studies performed over the last few years. SENSITIVITY PERFORMANCE COMPARISON VS. ENHANCED BROTH (DISCREPANT ANALYSIS)* [BAR CHART WHICH DEPICTS SENSITIVITY OF STREP A OIA (AT 97% SENSITIVITY) AS COMPARED WITH AGAR CULTURE (AT 80% SENSITIVITY) AND THE LEADING COMPETITIVE RAPID TEST (AT 72% SENSITIVITY)] - --------------- * Derived from the results of internal and independent studies published in a number of peer-reviewed professional medical journals. Research conducted by independent physicians and clinicians has shown that Strep A OIA consistently demonstrates greater sensitivity than any other rapid streptococcal antigen test currently available. Targeting the United States GAS market, BioStar began selling the Strep A OIA product nationally in April 1993. By the end of 1997, BioStar estimates that it had achieved a 10.5% dollar market share of the United States market for rapid GAS tests. ACCEAVA Strep A Test. ACCEAVA Strep A completes the GAS product line, complementing BioStar's OIA tests by being the first "CLIA-waived" test sold by BioStar's sales force. BioStar sells ACCEAVA Strep A under license from Wyntek. ACCEAVA Strep A is the most sensitive, CLIA-waived rapid antigen test available. Although it is not as sensitive as OIA MAX, it is sold for use in clinics and physician offices that are not CLIA moderate complexity compliant. The procedure for use of ACCEAVA Strep A begins with the collection of a patient sample using a standard throat swab. The patient specimen is then extracted. The test strip is added to the sample. If GAS is present, a blue signal line will appear. ACCEAVA Strep A was cleared for sale by the FDA in 1996 and was introduced in July 1997 by BioStar. ACCEAVA Strep A is also sold by a large diagnostic company through its distribution channel under a different trade name. GROUP B STREPTOCOCCUS. Group B streptococcus ("GBS") is the primary cause of life-threatening neonatal sepsis and meningitis in the United States. Up to 30% of all expectant mothers can be carriers of GBS. There are approximately 8,000 cases of GBS-related neonatal infections each year which result in 98 113 hundreds of deaths and approximately 1,500 children with neurological damage annually. Historically, there has been no timely and effective method to test for GBS in the crucial final hours before delivery when the newborn is most vulnerable. Other rapid tests have not been sufficiently sensitive and the culture method takes 24-48 hours to complete. Recently, the Centers for Disease Control and Prevention has recommended broth culture on vaginal-rectal samples at 36 weeks of gestation for women with GBS risk factors. GBS culture methods are sensitive and specific, but detection of GBS by culture requires viable organisms and several days to provide a result. In contrast, immunological detection methods, such as BioStar's OIA, identify the presence of GBS antigen in minutes regardless of whether the bacteria are alive. A standardized approach to GBS testing utilizing a rapid method, however, has not been implemented due to the insufficient sensitivity of previously available rapid tests for detecting GBS antigen. The use of rapid, point-of-care tests in the detection of GBS infection is being studied in laboratories worldwide. BioStar's OIA GBS tests are currently indicated as an adjunct to diagnosis. BioStar believes that the market for GBS will continue to grow as awareness of the role of GBS in infant diseases continues to grow. In 1997, the United States market for rapid GBS tests was estimated to be approximately $3 million in annual sales. In 1997, BioStar's revenues from sales of GBS products constituted approximately 11.5% of its total product sales. Strep B OIA Maternal. Strep B OIA provides agar culture-level sensitivity for the rapid detection of GBS in pregnant women. The procedure for use of Strep B OIA begins with the collection of a patient sample using a standard vaginal swab technique. The patient specimen is extracted and conjugated, then applied to the device. If GBS is present, a purple color appears within 30 minutes. Strep B OIA was cleared for sale by the FDA in 1994. Strep B OIA Infant Urine. Outside the United States, BioStar sells a GBS test for infants using urine as a sample source. This test is generally used when infants display symptoms of sepsis in the first 72 hours of life. A positive GBS urine result provides information to the neonatologist regarding the cause of neonatal symptoms. The urine protocol is slightly faster than Strep B OIA Maternal because the specimen does not require extraction. BioStar does not intend to sell this product in the United States. CHLAMYDIA. Chlamydia is the most commonly reported sexually transmitted disease in the United States and is also highly prevalent outside of the United States. According to the Centers for Disease Control and Prevention, approximately four million new cases of chlamydia infection occur in the United States each year. Up to two-thirds of infected women may be asymptomatic and up to 40% of women with untreated chlamydia will develop pelvic inflammatory disease, a leading cause of infertility. According to research published by the Journal of the American Medical Association (JAMA) in September 1994, the median time between testing and treatment is 14 days and nearly 25% of patients testing positive with chlamydia never return for treatment. Other studies published by the American Journal of Obstetrics and Gynecology in May 1993 reveal that treatment delays of as little as three days from the onset of symptoms contribute to infertility or ectopic pregnancies. A 1996 New England Journal of Medicine study showed that screening of young women for chlamydia can reduce the costly long-term complications of pelvic inflammatory diseases caused by chlamydia infections. In 1997, the United States market for chlamydia tests was estimated to be over $60 million, and BioStar estimates that the worldwide market was $100 million. BioStar's sales of chlamydia products represented 6% of its total sales in 1997. Chlamydia OIA. BioStar's Chlamydia OIA test is the only rapid test for chlamydia that provides 100% specificity (95% confidence interval 99.3%-100%) and 100% positive predictive value. In addition, Chlamydia OIA has demonstrated comparable diagnostic efficiency to single pass culture available in the United States (the basic comparison for chlamydia tests). The procedure for use of Chlamydia OIA begins with the collection of a patient sample using a standard endocervical swab. The patient specimen is extracted and then applied to the test device surface. A conjugate and substrate are added. If chlamydia is present, a purple color appears within 24 minutes. Chlamydia OIA was cleared for sale by the FDA in 1995. Chlamyfast. Chlamyfast is a version of Chlamydia OIA which BioStar developed for sale in France with International Microbio, a privately-held French company. Chlamyfast was customized to meet the unique French regulatory requirements. BioStar does not intend to market this product in the United States. 99 114 Chlamydia OIA Urethral. Chlamydia OIA Urethral is a version of Chlamydia OIA which BioStar sells outside the United States for testing males for chlamydia, using a urethral swab sample collection. BioStar does not intend to market this product in the United States (due to painful sampling procedures currently required). See "-- Strategic Relationships". PREGNANCY. In 1997, the market for pregnancy tests used in the physician office market in the United States was estimated to be over $100 million. BioStar sells ACCEAVA hCG Urine under license from Wyntek. BioStar's sales of Wyntek's ACCEAVA hCG Urine test kits constituted only a very small percentage of BioStar's total 1997 product sales. To date, BioStar has marketed this product solely to its existing customers. ACCEAVA hCG Urine. Wyntek's ACCEAVA hCG Urine test is an accurate, rapid test for the detection of human chorionic gonadotropin in urine for early detection of pregnancy. In clinical trials, ACCEAVA hCG Urine was demonstrated to be 100% sensitive and specific. The procedure for use of ACCEAVA hCG Urine includes the ability to perform midstream or cup specimen collection. Midstream specimen collection avoids the handling and pipetting of patient specimens and reduces office staff time. If hCG is present in the specimen, a blue line appears within minutes. ACCEAVA hCG Basic. In 1998, BioStar introduced Wyntek's ACCEAVA hCG Basic, a CLIA-waived "dipstick" test for early detection of pregnancy. ACCEAVA hCG Basic is based on the same technology as the ACCEAVA hCG Urine test but it is lower in cost and directed at high volume, cost-sensitive customers. INFECTIOUS MONONUCLEOSIS. Infectious mononucleosis ("Mono") is a viral disease caused by the Epstein-Barr virus. While it may infect people of any age, it is most prevalent in late adolescents and young adults (15-24 years of age). In theory, any activity involving salivary exchange can spread the disease as it is mildly contagious. The symptoms (sore throat, fever, swollen lymph nodes) and epidemiology of Mono are similar to GAS. As a result, Mono is managed in the same primary care environment as GAS. In 1997, the United States market for mononucleosis tests was estimated to be $13 million. Recent approvals for CLIA-waived status of Mono tests and pending submissions for waived status, if granted, may increase the point-of-care market for Mono diagnostic tests. BioStar did not sell any mononucleosis products in 1997. ACCEAVA Mono. Wyntek's ACCEAVA Mono test, which BioStar sells under license from Wyntek, is a rapid, moderately complex test for Mono which uses whole blood, plasma or serum samples. The procedure for use of ACCEAVA Mono begins with the collection of a patient sample using a standard finger-prick technique. The patient specimen is then diluted after which the test device is placed into the specimen solution. If Mono is present, results appear in minutes. BioStar began selling the ACCEAVA Mono test in February 1998. Wyntek has applied for CLIA-waived status on the ACCEAVA Mono test. If Wyntek is successful in obtaining CLIA-waived status, then BioStar will add the CLIA-waived version to its product menu. PRODUCTS AND TECHNOLOGY IN DEVELOPMENT. BioStar intends to expand its product menu through internal development, development in collaboration with strategic partners and acquisition of new products and technologies. BioStar is currently working with partners to develop OIA tests for influenza A/B, gonorrhea and pneumonia. BioStar has licensed the materials and completed feasibility studies to develop a clostridium difficile assay. BioStar is currently working with Asahi to develop a cartridge-based, multiple target instrumented test based on its new concept ellipsometry technology. This instrumented system is intended to expand the application of thin film technologies by enabling caregivers to run multiple assays on patient specimens at the same time. This is particularly important with medical conditions that may be caused by a variety of infectious agents, each of which requires a specific therapeutic intervention. 100 115 The following table shows BioStar's current product and technology development programs:
PRODUCT PARTNER STATUS ------- ------- ------ Influenza A/B....................................... Biota Human clinical trials Chlamydia Urine..................................... NIH In development C Difficile......................................... None Ready for clinical trials Pneumonia........................................... * Feasibility studies Gonorrhea........................................... NIH Feasibility studies Point-of-Care Instrumentation....................... Asahi In development Multi-Target Panel Tests............................ Asahi In development
- --------------- * Confidential BioStar believes that its new concept ellipsometry technology will expand the point-of-care market opportunity for its OIA tests by enabling the quantitative detection of targets in a variety of specimens at an extremely high level of sensitivity (the sub-nanogram level). This level of sensitivity is particularly important for drug and disease marker monitoring for cancer, brain trauma, allergies and thyroid function. BioStar has developed successful prototype assays utilizing blood or serum specimens for thyroid, allergy and cancer monitoring and is seeking strategic partners to pursue additional product development work. This technology is not yet commercially available and there can be no assurances that BioStar will be able to develop commercially viable products. In addition, BioStar believes that its thin film technologies may enable the development of new products in industrial applications beyond infectious diseases and human health care where detection of specific targets is critical, such as in identifying potential toxins in foods and beverages and contaminants in air and water, and performing life sciences research. BioStar intends to seek partners to co-fund development of appropriate testing systems and to market collaboratively any resulting products. Notwithstanding the foregoing, there can be no assurances that BioStar's current product and technology development programs will result in the development and commercialization of new products or technologies. SALES AND MARKETING BioStar markets and sells its products to the outpatient primary care market and the traditional microbiology laboratory market. There are over 80,000 testing sites in the United States in the outpatient primary care market, which includes: pediatric, obstetrics/gynecology, family practice and general practice physician offices; student and public health centers; and walk-in clinics. There are more than 5,000 United States laboratories in the diagnostic microbiology laboratory market, which includes hospital laboratories and private reference laboratories. BioStar's products are typically higher-priced than competitive products and are marketed on the basis of superior sensitivity, specificity and customer service. BioStar sells its products through its "flex" representative sales force and worldwide distribution partners. BioStar believes that its flex representatives, with their exclusive focus on BioStar products, provide broad support to the outpatient point-of-care markets. Each flex representative is focused on developing and maintaining a highly satisfied user base which will provide superior references to build the flex representative's account base. BioStar's flex representatives work a minimum of 20 hours per week in their territory on a "flex basis". The flex basis permits the flex representatives to choose the hours they work based on their customer's needs and their lifestyle demands. The flex representatives' compensation is incentive-based, with a base salary and a significant sales bonus structure. In 1995, BioStar announced a strategic relationship with Murex, a leading distributor of microbiological diagnostic products in the United States. Murex's 30-person sales organization represents BioStar's OIA tests in the United States hospital laboratory and reference laboratory markets. In addition, Murex sells BioStar's OIA tests through national purchasing agreements with large health care providers. As a result of Murex's national account efforts, BioStar's products are included in their contracts with AmeriNet and VHA, Inc. ("VHA"), two of the largest hospital group purchasing organizations. See "-- Strategic Relationships". 101 116 To service the international market, BioStar has initiated a 21-country distribution network comprised of 16 international distribution partners which covers critical markets in Western Europe and Asia. BioStar's agreements with its international distribution partners provide for three year terms which are generally terminable by BioStar if the distributor fails to achieve certain sales targets. MANUFACTURING BioStar's manufacturing process for its OIA tests combines high-volume processes from the semi-conductor industry with more traditional bioprocesses. BioStar currently utilizes two semi-automated production lines for the manufacturing, assembly and packaging of its OIA tests. BioStar's production capacity is 20,000 tests per day with a single ten-hour shift. Since 1992, BioStar's manufacturing group has successfully produced over ten million test devices in its Boulder, Colorado facility. BioStar expects that its manufacturing facilities will be sufficient to meet expected customer demand for the foreseeable future. BioStar employs performance-based, quality control methods in its manufacturing facility and uses a lot-controlled approach for production. BioStar is able to achieve volume-related, economy-of-scale production for its OIA tests because the components of all OIA tests are substantially the same even though they are for different disease targets. In addition, BioStar expects that per-unit test production costs will decline as more OIA tests are added to the BioStar product menu in the future, permitting BioStar to achieve greater economies of scale at higher volume. BioStar has registered its facility with the FDA and with appropriate state agencies and operates in compliance with the FDA promulgated cGMP regulatory requirements for its products. BioStar's OIA test kits typically comprise test devices, reagents, swabs and extraction tubes. The test device includes a reactive surface comprised of a solid substrate (for ease of test delivery), an optical layer of a reflective surface (to make the reaction visible to the human eye), an attachment layer (to link the biological to the reactive surface) and an active biological captive layer (to create a surface thickening). The manufacturing process starts with the construction of test chips. The solid substrate is manufactured in an automated process in which "raw" silicon wafers are batch coated with silicon nitride and the capture layer in quantities sufficient for up to 90,000 tests per lot. Once coated, the wafers are cut into individual test chips before being assembled into devices. Additional reagents are formulated, bottled and labeled for their respective test kits prior to final assembly. The final step in the manufacturing process includes kit assembly, where test devices, reagents and other test materials are packaged into finished product. The components of BioStar's OIA tests are chemical and packaging supplies that are generally available from several suppliers, except certain antibodies and absorbent paper which BioStar purchases from single suppliers. BioStar mitigates the risk of a loss of supply by maintaining a sufficient supply of such antibodies and absorbent paper to ensure an uninterrupted supply for at least six months. BioStar also believes that it can substitute a new supplier with regard to any of these components in a timely manner. There can be no assurances that BioStar will be able to substitute a new supplier in a timely manner and failure to do so could have a material adverse effect on BioStar's business, financial condition and results of operations. BioStar purchases components for the ACCEAVA Strep A test from Wyntek and performs final assembly and shipping at its Boulder facility. BioStar purchases the final, assembled ACCEAVA hCG Urine, ACCEAVA hCG Basic and ACCEAVA Mono tests from Wyntek and warehouses the tests until they are shipped to customers. STRATEGIC RELATIONSHIPS An integral part of BioStar's strategy has been and will continue to be entering into strategic alliances as a means of accessing resources or developing specific markets. The primary aspects of BioStar's corporate partnering strategy include seeking partners that (i) are interested in developing diagnostic tests to be sold in conjunction with new therapeutics; (ii) have complementary "marker" technology that when combined with the unique capabilities of BioStar's thin film technologies will allow the development of new point-of-care applications for specific proprietary markers or formats; (iii) have complementary technology whose performance can be upgraded because of BioStar's thin film technologies; (iv) have complementary products 102 117 which can be sold by BioStar's sales and marketing organization; or (v) have access to distribution channels that supplement BioStar's existing distribution channels. To date, BioStar has established strategic relationships with the following companies: Biota Scientific Management Pty Ltd. Biota is an Australian pharmaceutical company focused principally on the discovery of new human pharmaceuticals for the treatment of viral respiratory diseases and cancer. BioStar is collaborating with Biota on the development of the first rapid, point-of-care immunodiagnostic assay for the simultaneous detection of both influenza A and B. BioStar estimates that more than 350 million cases of influenza occur worldwide each year. The lack of accurate and timely diagnosis of influenza is estimated to be the leading cause of influenza complications, such as pneumonia, especially in the elderly and in people who are immunocompromised (such as cancer patients). In the United States, influenza and pneumonia, a common complication of influenza, are jointly the sixth leading cause of death. Other influenza diagnostic methods, such as enzyme immunoassay or viral culture, detect only influenza A or take hours or days to provide results. BioStar began clinical trials of the influenza OIA test in the United States in January 1998. If the trials are successful, BioStar anticipates filing for FDA clearance in the second quarter of 1998. BioStar and Biota intend that the diagnostic test will be available for sale initially in international markets when Biota's influenza therapeutic product candidate zanamivir, or GG167, for which Glaxo Wellcome plc holds the exclusive distribution rights, is launched. Pursuant to the terms of its arrangement with BioStar, Biota funded the development of the influenza OIA test in exchange for which Biota secured the exclusive right to distribute the test outside of the United States. BioStar retains worldwide manufacturing rights and will be the exclusive distributor in the United States (with Biota receiving a percentage of the profits from those sales). The exclusivity of BioStar's position is subject to BioStar's ability to maintain sales minimums. There can be no assurances that the clinical trials will be successful, and if successful, that the influenza diagnostic product will achieve broad market acceptance. Asahi Chemical Industry Co., Ltd. Asahi is one of Japan's largest chemical manufacturers and a worldwide leader in thin film technologies. Asahi's operations range from petrochemicals, plastics, synthetic rubber and synthetic fibers to construction materials, housing, computer chips, electronics-related products, liquors, foods and health care. BioStar and Asahi have entered into a multi-year contract to develop a point-of-care diagnostic system which combines BioStar's OIA and ellipsometry technologies in a rapid testing system for highly sensitive detection of multiple targets from a single specimen. The point-of-care instrument is being designed to be both qualitative and quantitative, opening up additional testing opportunities using the same system. Pursuant to the terms of its arrangement, Asahi is funding the development of the instrumented system and the reagents by BioStar in exchange for which Asahi has the royalty-bearing exclusive right to manufacture and distribute the test in Asia. BioStar retains manufacturing and distribution rights for the rest of the world. There can be no assurances that the product development program will be successful, and if successful, that the instrumented test will achieve broad market acceptance. Wyntek Diagnostics, Inc. Wyntek is a privately-held company located in San Diego, California, which has developed CLIA-waived tests for the detection of GAS and pregnancy, as well as a moderately complex test for mononucleosis. In July 1997, BioStar became a non-exclusive distributor of Wyntek's tests in the United States and distributes them through BioStar's flex representative sales force under the brand names ACCEAVA Strep A, ACCEAVA hCG Urine, ACCEAVA hCG Basic and, beginning in February 1998, ACCEAVA Mono. In November 1997, Wyntek authorized BioStar to distribute its products worldwide on a non-exclusive basis. The initial term of the distribution arrangement with Wyntek will expire in June 2000 and it may be renewed at BioStar's election for additional successive one-year terms. Wyntek also sells these tests under the trade name OSOM through a small network of regional distributors and has licensed the GAS test to Abbott Diagnostics, which is selling the test under the trade name "Signify". National Institutes of Health. BioStar is collaborating with the National Institutes of Health (NIH) on two major programs in the field of sexually-transmitted diseases. The initial program is focused on developing the first highly sensitive, rapid OIA test to diagnose chlamydia in males using a urine specimen. Although chlamydia is one of the most prevalent sexually transmitted diseases in males, it is rarely tested for or monitored in males due to the painful sampling procedures currently required. BioStar believes that a rapid 103 118 chlamydia test using a male urine specimen would allow better detection and medical management of the disease. To date, the NIH has committed over $1,500,000 toward the development of the chlamydia assay. The second NIH program is focused on the development of a rapid, point-of-care OIA assay for gonorrhea which uses female endocervical or male urethral swab specimens. BioStar received notification in early September 1997 that an additional grant of up to $850,000 would be awarded to fund development of the gonorrhea assay pending the achievement of certain milestones. BioStar may exploit the commercial rights to any tests developed through these programs. Murex Diagnostics, Inc. Murex is a leading distributor of microbiological diagnostic products in the United States. Murex's 30-person sales organization represents BioStar's OIA MAX and Strep B OIA tests (subject to performance levels) in the United States hospital laboratory and reference laboratory. Murex distributes BioStar's Chlamydia OIA test on a non-exclusive basis. In addition, as a result of Murex's national account efforts, BioStar's products are included in its contracts with AmeriNet and VHA, two of the largest hospital group purchasing organizations. BioStar's distribution agreement with Murex, which began in 1995, is in its first one-year renewal period which expires in January 1999 and may be renewed for two additional one-year periods in succession upon delivery of notice of intent to renew by Murex to BioStar. RESEARCH AND DEVELOPMENT BioStar is directing its research and development efforts towards continuously improving its platform OIA technology and new concept ellipsometry technology to address operator ease-of-use and reaction speed, creating new products and technologies which complement BioStar's existing products and technologies and optimizing the manufacturing process to reduce manufacturing costs. In that regard, BioStar has organized its research and development department into four major areas: (i) feasibility/new methods, (ii) methods development, (iii) system development, and (iv) program management. The feasibility/new methods group is responsible for performing internal studies or working with potential corporate partners to evaluate the performance of delivery technology, novel antibodies, antigens or capture reagents on different surfaces and new applications or sample types. The feasibility/new methods group includes individuals skilled in molecular biology, protein chemistry, biochemistry and basic sciences. This group creates working prototype assays of new methods or potential products. Additionally, the feasibility/new methods group technically validates all externally-sourced products. The methods development group is responsible for taking the candidate reagents identified by the feasibility/new methods group and developing thin film products for commercialization. This process includes producing a validated clinical method which can be consistently manufactured. The methods development group is further divided into groups which direct their efforts towards development of different assays. The methods development group includes individuals skilled in immunology, microbiology, virology, protein chemistry and assay development. The methods development group works closely with manufacturing, regulatory and clinical affairs groups to satisfy regulatory requirements. The system development group is responsible for the development of the instrumented system combining BioStar's OIA technology and new concept ellipsometry technology on which BioStar is collaborating with Asahi. See "-- Strategic Partners". The system development group is directing hardware suppliers for the development of the instrument and test cartridges, integrating assays with the test cartridge and instrument, leading the design group for creating the user interface and validating the performance of the instrumented test system. The system development group includes individuals skilled in optics, electronics, software, reagent integration and validation methods. The program management group is responsible for tracking, coordinating and reporting the status of BioStar's development projects, including maintaining appropriate documentation for obtaining intellectual property protection and supporting regulatory clearance. The program management group includes individuals skilled in planning, clinical laboratory testing and project management. BioStar maintains facilities to support its development efforts, microbiology and virology laboratories and product development laboratories in Boulder, Colorado. In addition, BioStar has two technical advisory boards 104 119 which assist BioStar with product menu, product development and technology related topics. See "-- Technical and Business Advisors". BioStar's research and development expenses for the years ended 1995, 1996 and 1997 were $1.4 million, $2.3 million and $3.3 million, respectively. COMPETITION Competition in the human medical diagnostics industry is, and is expected to remain, intense. The competitors range from development stage diagnostics companies to major domestic and international pharmaceutical companies. Many of these companies have financial, technical, marketing, sales, manufacturing, distribution and other resources significantly greater than those of BioStar. In addition, many of these companies have name recognition, established positions in the market and long standing relationships with customers and distributors. Moreover, the diagnostics industry has recently experienced a period of consolidation during which many of the large domestic and international pharmaceutical companies have been acquiring mid-sized diagnostics companies, further increasing the concentration of resources. There can be no assurance that new, more sensitive or rapid technologies will not be introduced that could be directly competitive with or superior to BioStar's thin film technologies. BioStar's primary competitors for rapid, point-of-care immunodiagnostic tests and the markets in which they compete with BioStar are as follows: Abbott Laboratories (GAS and chlamydia), Carter-Wallace (GAS and chlamydia), SmithKline Beckman (GAS), Becton Dickinson (GAS) and Quidel (GAS and chlamydia). These companies are larger than BioStar and have substantial resources and market presence. BioStar competes against these companies on the basis of product performance and customer service. BioStar's OIA tests have been demonstrated to be more sensitive and/or specific than any of the rapid, point-of-care immunodiagnostic tests for GAS and chlamydia currently sold by these competitors. Additionally, BioStar believes that its sales organization is capable of providing more comprehensive customer support than competitors who use third party distributors. BioStar's primary laboratory-based competitor for highly sensitive immunodiagnostic tests is Gen-Probe. Gen-Probe has GAS and chlamydia tests which are instrumented and used in high-volume laboratories. Gen-Probe is a subsidiary of a Japanese company which has substantial resources. BioStar competes against Gen-Probe on the basis of cost-effective outcomes, speed, ease-of-use and customer service. BioStar's products are as sensitive as Gen-Probe's tests and are more specific. Gen-Probe's tests require several hours reaction time and are not point-of-care tests. Therefore, in populations where initial visit follow-up rates are low, BioStar's tests offer the potential of improved treatment outcomes. BioStar's OIA tests also compete against traditional agar culture tests for GAS, GBS and chlamydia. Agar culture tests consist of commodity-based supply materials. As a result, a variety of diagnostics companies market agar culture tests. Agar culture tests historically have been considered the standard against which diagnostic tests for GAS and GBS have been measured. BioStar competes against agar culture tests on the basis of ease-of-use, reaction speed and sensitivity. The market for the diagnostic tests that BioStar has under development as well as those which BioStar has targeted for development is highly competitive and subject to rapid technological change. Other companies are devoting significant resources to developing new tests and dominating distribution channels. BioStar believes that for all of its immunodiagnostic assay products, it competes on the basis of how quickly companies can (i) develop products and demonstrate clinical feasibility, (ii) complete clinical testing, (iii) obtain regulatory approval, (iv) obtain favorable reimbursement policies, and (v) supply commercial quantities of the product to the market at a competitive price. BioStar's inability to compete favorably with respect to any of these factors could have a material adverse effect on its business, financial condition and results of operations. 105 120 PATENTS, TRADE SECRETS AND TRADEMARKS BioStar has built a strong patent and intellectual property position around its OIA technology platform covering composition, targets, assays, extraction methods and delivery systems. BioStar holds 15 United States patents which expire beginning in 1999 and ending in 2014, as well as 44 international patents covering a number of inventions which comprise the OIA technology, including the base OIA technology, optical surfaces for a variety of assays, manufacturing methods and new instruments. An additional five United States and 15 international patents are now pending. Patent applications in the United States are maintained in secrecy until patents issue, and since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries, BioStar cannot be certain that it was the first creator of inventions covered by pending patent applications or the first to file patent applications on such inventions. There can be no assurance that BioStar's pending patent applications will result in issued patents or that any of its issued patents will afford meaningful protection against a competitor. In addition, patent applications filed in foreign countries are subject to laws, rules and procedures which differ from those of the United States, and thus there can be no assurance that foreign patent applications related to United States patents will issue. Furthermore, if these patent applications issue, some foreign countries provide significantly less patent protection than the United States. The status of patents involves complex legal and factual questions and the breadth of claims issued is uncertain. Accordingly, there can be no assurance that patent applications filed by BioStar will result in patents being issued or that its patents, and any patents that may be issued to it in the future, will afford protection against competitors with similar technology. In addition, no assurances can be given that patents issued to BioStar will not be infringed upon or designed around by others or that others will not obtain patents that BioStar would need to license or design around. If existing or future patents containing broad claims are upheld by the courts, the holders of such patents could require companies to obtain licenses. If BioStar is found to be infringing third party patents, there can be no assurance that licenses that might be required for BioStar's products would be available on reasonable terms, if at all. BioStar could incur substantial costs in defending itself or its licensees in litigation brought by others or prosecuting infringement claims against third parties. If the outcome of any such litigation is unfavorable to BioStar, BioStar's business could be adversely affected. To determine the priority of inventions, BioStar may have to participate in interference proceedings declared by the United States Patent Office, which could result in substantial cost to BioStar and may result in an adverse decision as to the priority of BioStar's inventions. In addition to patent protection, BioStar relies on the law of unfair competition and trade secrets to protect its proprietary rights. BioStar considers several elements of its manufacturing process and selling techniques to be trade secrets. BioStar attempts to protect trade secrets and other proprietary information through agreements with customers and suppliers, proprietary information agreements with employees and consultants and other security measures. Although BioStar intends to protect its rights vigorously, there can be no assurance that these measures will be successful. See "Risk Factors -- Patents and Proprietary Rights". BioStar has registered its trademarks OIA(R), BioStar(R) and Better Results Mean Better Medicine(R) as trademarks on the principal federal trademark register and with the trademark registries in many countries of the world. BioStar has registrations pending for Sagax(TM), ACCEAVA(TM), and Strep A OIA MAX(TM). REGULATION The testing, manufacturing and sale of BioStar's products are subject to regulation by numerous governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies. Pursuant to the Federal Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, the FDA regulates the preclinical and clinical testing, manufacture, labeling, distribution and promotion of medical devices. BioStar will not be able to commence marketing or commercial sales in the United States of new products under development until it receives clearance from the FDA. In addition, various foreign countries in which BioStar's products are or may be sold impose local regulatory requirements. The testing for, preparation of and subsequent FDA and foreign regulatory review of required filings can be a lengthy, expensive and uncertain process. Noncompliance with applicable requirements can result in, among other things, fines, 106 121 injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant premarket clearance or premarket approval for devices, withdrawal of marketing clearances or approvals and criminal prosecution. The FDA also has the authority to request recall, repair, replacement or refund of the cost of any device manufactured or distributed by BioStar. In the United States, medical devices are classified into one of three classes (i.e., Class I, II or III) on the basis of the controls deemed necessary by the FDA to ensure their safety and effectiveness in a reasonable manner. Class I devices are subject to general controls (e.g., labeling, premarket notification and adherence to cGMP) and Class II devices are subject to general and special controls (e.g., performance standards, post-market surveillance, patient registries and FDA guidelines), Generally, Class III devices are those that must receive premarket approval by the FDA to ensure their safety and effectiveness (e.g., life-sustaining, life-supporting and implantable devices or new devices that have been found not to be substantially equivalent to legally marketed devices). The majority of BioStar's products and products under development are, and the combined company's products are expected to be, classified as Class I or Class II devices. Before a new device can be introduced in the market, the manufacturer must generally obtain FDA clearance or approval through either clearance of a 510(k) premarket notification or approval of a product marketing approval ("PMA") application. A PMA application must be filed if a proposed device is a new device not substantially equivalent to a legally marketed Class I or Class II device, or if it is a pre-amendment Class III device for which the FDA has called for PMAs. A PMA application must be supported by valid scientific evidence to demonstrate the safety and effectiveness of the device, typically including the results of clinical investigations, bench tests, laboratory and, where applicable, animal studies. The PMA application must also contain a complete description of the device and its components and a detailed description of the methods, facilities and controls used to manufacture the device. In addition, the submission must include the proposed labeling, advertising literature and any training materials. The PMA approval process can be expensive, uncertain and lengthy, and a number of devices for which FDA approval has been sought by other companies have never been approved for marketing. A 510(k) clearance will be granted if the submitted information establishes that the proposed device is "substantially equivalent" to a legally marketed Class I or Class II medical device or a preamendment Class III medical device for which the FDA has not called for PMAs. The FDA recently has been requiring more rigorous demonstration of substantial equivalence than in the past, including in some cases requiring submission of clinical data. It generally takes from four to 12 months from submission to obtain 510(k) premarket clearance but may take longer. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed device or that additional information is needed before a substantial equivalence determination can be made. A "not substantially equivalent" determination, or a request for additional information, could prevent or delay the market introduction of new products that fall into this category. For any devices that are cleared through the 510(k) process, modifications or enhancements that could significantly affect safety or effectiveness, or constitute a major change in the intended use of the device, will require new 510(k) submissions. There can be no assurance that BioStar will be able to obtain necessary regulatory approvals or clearances for its products on a timely basis, if at all, and delays in receipt of or failure to receive such approvals or clearances, the loss of previously received approvals or clearances, limitations on intended use imposed as a condition of such approvals or clearances, or failure to comply with existing or future regulatory requirements could have a material adverse effect on BioStar's business, financial condition and results of operations. Before the manufacturer of a device can submit the device for FDA approval or clearance, it generally must conduct a clinical investigation of the device. Although clinical investigations of most devices are subject to the investigational device exemption ("IDE") requirements, clinical investigations of in vitro diagnostic tests, such as all of BioStar's products and products currently under development, are exempt from the IDE requirements, including the need to obtain the FDA's prior approval, provided the testing is noninvasive, does not require an invasive sampling procedure that presents a significant risk, does not intentionally introduce energy into the subject, and is not used as a diagnostic procedure without confirmation by another medically established test or procedure. In addition, patient informed consents and approvals from the Internal Review 107 122 Board of the clinic sites must be obtained, as appropriate. The in vitro diagnostic test must be labeled "for research use only" ("RUO") or "for investigative use only" ("IUO"), and distribution controls must be established to assure that in vitro diagnostic tests distributed for research or clinical investigation are used only for those purposes. BioStar intends to conduct clinical investigations of its products under development, which will entail distributing them in the United States on an IUO basis. There can be no assurance that the FDA would agree that BioStar's IUO distribution of its in vitro diagnostic products under development will meet the requirements for IDE exemption. Furthermore, failure by BioStar or the recipients of its products under development to maintain compliance with the IDE exemption requirements could result in enforcement action by the FDA, including, among other things, the loss of the IDE exemption or the imposition of other restrictions on BioStar's distribution of its products under development, which would adversely affect BioStar's ability to conduct the clinical investigations necessary to support marketing clearance or approval. Any devices manufactured or distributed by BioStar pursuant to FDA clearance are subject to pervasive and continuing regulation by the FDA and certain state agencies. Manufacturers of medical devices for marketing in the United States are required to adhere to applicable regulations setting forth detailed cGMP requirements, which include testing control and documentation requirements. Manufacturers must also comply with MDR requirements that a manufacturer report to the FDA any incident in which its product may have caused or contributed to a death or serious injury, or in which its product malfunctioned and, if the malfunction were to recur, it would be likely to cause or contribute to a death or serious injury. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. Current FDA enforcement policy prohibits the marketing of approved medical devices for unapproved uses. BioStar is subject to routine inspection by the FDA and certain state agencies for compliance with cGMP requirements, MDR requirements and other applicable regulations. The FDA has recently finalized changes to the cGMP requirements, including the addition of design controls that will likely increase the cost of compliance. Changes in existing requirements or adoption of new requirements could have a material adverse effect on BioStar's business, financial condition and results of operations. There can be no assurance that BioStar will not incur significant costs to comply with laws and regulations in the future, or that laws and regulation will not have a material adverse effect upon BioStar's business, financial condition and results of operations. Distribution of BioStar's products outside the United States is subject to extensive government regulation. These regulations, including the requirements for approvals or clearance to market, the time required for regulatory review and the sanctions imposed for violations, vary from country to country. There can be no assurance that BioStar will obtain regulatory approvals in such countries or that it will not be required to incur significant costs in obtaining or maintaining its foreign regulatory approvals. In addition, the export by BioStar of certain of its products which have not yet been cleared for domestic commercial distribution may be subject to FDA export restrictions. Failure to obtain necessary regulatory approvals; the restriction, suspension or revocation of existing approvals or any other failure to comply with regulatory requirements would have a material adverse effect on BioStar's business, financial condition and results of operations. BioStar's customers using diagnostic tests for clinical purposes in the United States are also regulated under CLIA. CLIA is intended to ensure the quality and reliability of all medical testing in laboratories in the United States by requiring that any health care facility in which testing is performed meets specified standards in the areas of personnel qualification, administration, participation in proficiency testing, patient test management, quality control, quality assurance and inspections. The regulations have established three levels of regulatory control based on test complexity -- "waived", "moderately complex" and "highly complex". BioStar's current OIA tests and ACCEAVA Mono tests are categorized as a "moderately complex" tests for clinical use in the United States. Under the CLIA regulations, all laboratories performing high or moderately complex tests are required to obtain either a registration certificate or certification of accreditation from the HCFA. As a result of the CLIA requirements, physician office laboratories and small volume test sites may be 108 123 dissuaded from initiating, continuing or expanding patient testing, particularly if the tests are classified as moderately or highly complex tests. There can be no assurance that the CLIA regulations and future administrative interpretations of CLIA will not have an adverse impact on the potential market for BioStar's products. BioStar's ACCEAVA hCG and ACCEAVA Strep A products are categorized as CLIA "waived". Laboratories performing CLIA "waived" tests face less stringent registration and certification requirements. BioStar also is subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. There can be no assurance that BioStar will not incur significant costs to comply with laws and regulations in the future or that such laws or regulations will not have a material adverse effect upon BioStar's business, financial condition and results of operations. REIMBURSEMENT BioStar's largest market segment is the outpatient market. Payment for testing in this segment is largely based on third party payor reimbursement. The site which performs the test will submit an invoice to the patient's insurance provider (or the patient if not covered by a program). Each diagnostic procedure (and in some instances, specific technologies) is assigned a CPT code by HCFA. Third party insurance payors typically establish a specific fee to be paid for each code submitted. Third party payor reimbursement policies are generally determined with reference to the reimbursement for CPT codes for Medicare patients which themselves are determined on a national basis by HCFA. Third party payors can indirectly affect the pricing or the relative attractiveness of BioStar's products by regulating the maximum amount of reimbursement they will provide for BioStar's CPT codes. For example, the reimbursement of fees for CPT codes for diagnostic tests for Medicare patients in hospitals are included under Medicare's prospective payment system, diagnosis-related group regulations. If the reimbursement amounts for the CPT codes for diagnostic tests are decreased in the future, such a change likely would decrease the amount that caregivers are able to charge Medicare patients for such services and consequently the price BioStar can charge caregivers for its products. BioStar cannot predict the reimbursement of fees for the CPT codes for its products for Medicare patients, or any other types of patients. Any decreases in reimbursement fees could have a material adverse effect on BioStar's business, financial condition and results of operations. TECHNICAL AND BUSINESS ADVISORS BioStar periodically draws on the expertise of several advisors and consultants in fields related to BioStar's technology and business. In addition, BioStar has a Managed Care Advisory Board and a Pediatric Medical Advisory Board, which meet with BioStar periodically. Managed Care Advisory Board. The Managed Care Advisory Board was formed to assist BioStar with charting trends in managed care and developing business strategies for addressing those trends. As of January 1, 1998, the Managed Care Advisory Board was comprised of the following individuals: Kenneth Webb, M.D., MPH, has served as an advisor to BioStar since 1995. Dr. Webb joined BioStar on a full-time basis as its Medical Director in January 1998. Nancy Grove, M.D., MBA, has served as an advisor to BioStar since January 1, 1998. Dr. Grove is currently Vice President, Systems Laboratory Operations of Sutter Health Care as well as Medical Director of the Palo Alto Medical Foundation and has extensive experience in clinical and laboratory operations. Christopher Stanley, M.D. has served as an advisor to BioStar since January 1, 1998. Dr. Stanley is the Medical Director of Focus Health Services and Focus IPA (divisions of PhyCor) and is a Board-Certified Pediatrician. Elizabeth Dichter, M.P.H. has served as an advisor to BioStar since January 1, 1998. Ms. Dichter is Executive Vice President, Strategic Marketing with PCS Health Systems, Inc. (Eli Lilly and Co.). Ms. Dichter has extensive experience in public health, managed healthcare, health economics, outcomes management and pharmaceuticals. 109 124 Pediatric Medical Advisory Board. The Pediatric Medical Advisory Board meets at least quarterly to discuss with and advise BioStar on trends in the medical management of pediatric medical conditions and standards of care. As of December 31, 1997, the Pediatric Advisory Board was comprised of the following individuals: Stephen Fries, M.D. has served as an advisor to BioStar since 1993. Dr. Fries is a pediatrician and is the President of the Board of Directors at the Boulder Medical Center. Harley A. Rotbart, M.D. has served as an advisor to BioStar since 1995. Dr. Rotbart is Vice Chairman for Academic Affairs and a Professor in the Departments of Pediatrics and Microbiology at the University of Colorado School of Medicine and a Co-Director of the Children's Clinical Studies Office. Gregory Storch, M.D. has served as an advisor to BioStar since 1995. Dr. Storch is a Professor of Pediatrics and Medicine and Associate Professor of Molecular Microbiology at Washington University School of Medicine and a member of the staff at St. Louis Children's Hospital, Barnes Hospital and Shriner Hospital for Crippled Children. Kenneth Webb, M.D. has served as an advisor to BioStar since 1995. Dr. Webb joined BioStar on a full-time basis as its Medical Director in January 1998. HUMAN RESOURCES As of December 31, 1997, BioStar employed 174 individuals, 110 of whom were full time and 64 of whom were flex-time. Of these, 14 hold Ph.D.s and 11 hold other advanced degrees. None of BioStar's employees is covered by a collective bargaining agreement. BioStar believes that it maintains good relations with its employees. FACILITIES BioStar currently leases approximately 37,000 square feet of space in one building in Boulder, Colorado which is used for its administrative offices, research and development facilities and manufacturing operations. The lease expires in August 1998 with renewal options through 2008. BioStar also leases approximately 10,000 square feet of warehouse space in Longmont, Colorado under a lease which expires in August 1998. BioStar is investigating alternative locations which may be more able to meet future requirements. BioStar believes that suitable additional or alternative space will be available on commercially reasonable terms as needed. LEGAL PROCEEDINGS BioStar is not a party to any material litigation or legal proceedings. 110 125 BIOSTAR MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. BioStar's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Risk Factors" and "BioStar Business" as well as those discussed in this section and elsewhere in this Joint Proxy Statement/Prospectus. The following discussion should be read in conjunction with the BioStar Financial Statements, including the notes thereto, included elsewhere in this Joint Proxy Statement/Prospectus. GENERAL Since BioStar's inception in 1992, BioStar has been primarily involved in the research, development, manufacturing and marketing of point-of-care diagnostic tests. BioStar began commercial sales of its first diagnostic test based on its proprietary OIA technology in 1992 and currently markets tests for GAS, GBS and chlamydia. Its tests are sold by BioStar's dedicated, nationwide marketing and sales organization, which targets the outpatient market, and its domestic and international distributor network, which targets hospital and reference laboratory accounts. BioStar manufactures products for inventory based upon expected sales demand, ships products to customers within 24 hours of receipt of orders and anticipates that it will continue to do so in the future. Accordingly, BioStar does not operate with a backlog and does not anticipate it will develop a backlog in the future. BioStar has experienced significant revenue growth since its inception, primarily from sales of products and recently from contract revenues from strategic partners. In order to support these activities, BioStar has incurred significant levels of sales and marketing expenses. BioStar has entered into licensing and research and development agreements with strategic partners from which it derived a significant percentage of its revenues in 1997. Contract revenues consist of milestone payments, grant revenues, funding for feasibility testing, funding for product development and licensing fees. BioStar has also increased its revenues through the sales of four diagnostic products which it in-licenses from Wyntek. BioStar may seek to expand its relationship with Wyntek to include additional products. In addition, BioStar's growth strategy includes potential sales of other externally-sourced products. Although BioStar has experienced steady growth in revenues, there can be no assurance that, in the future, BioStar will sustain revenue growth or achieve profitability. BioStar's results of operations may fluctuate significantly from period-to-period as the result of several factors, including: (i) whether and when new products are successfully developed and introduced, (ii) market acceptance of current or new products, (iii) seasonal customer demand, (iv) whether and when BioStar receives milestone payments and license fees from strategic partners, (v) changes in reimbursement policies for the products which BioStar sells, (vi) competitive pressures on average selling prices for the products which BioStar sells, and (vii) changes in the mix of products BioStar sells. For example, in 1997, BioStar's sales of its tests for GAS represented approximately 83% of its total sales with most of the sales occurring during the first and fourth quarters, concurrent with the time of the year in which respiratory infections are prevalent. In addition, two of BioStar's products in development are also directed at respiratory infections (pneumonia and influenza). Consequently, BioStar's revenues are, and BioStar expects that they will continue to be, concentrated in the first and fourth quarters of each fiscal year. Due to the foregoing factors, BioStar believes that period-to-period comparisons of its operating results cannot be relied upon as indicators of future financial performance. RESULTS OF OPERATIONS Years Ended December 31, 1997 and 1996: Total revenue: Total revenue increased 28% to $15.9 million for the year ended December 31, 1997 from $12.4 million in 1996. The increase is primarily due to an increase in contract revenues (from $778,000 in 111 126 1996 to $5.0 million in 1997) which resulted from three new research contracts and continued funding from two previous contracts. A component of total revenues, product sales, decreased 7% to $10.8 million in 1997 from $11.6 million in 1996. The decrease was due to lower unit sales which resulted from: (a) reduced orders from BioStar's largest distributor caused by their overstocking product in late 1996; (b) the introduction of a competitor's product for GAS in mid-1996; and (c) discontinued sales of a urinary tract infection product. Additionally, the average selling price of GAS products decreased 10% due to the introduction of the ACCEAVA GAS test, which has an average selling price approximately 30% lower than BioStar's OIA-based GAS products. Cost of sales: Cost of sales includes material, labor and overhead costs associated with manufacturing products. Cost of sales decreased 3% to $4.9 million in 1997 from $5.1 million in 1996, due primarily to a decrease in total units sold. The decrease in cost of sales was less than the decrease in product sales due to fixed costs which do not vary with production volume. Research and development: Research and development expenses increased 38% to $3.2 million in 1997 from $2.3 million in 1996 primarily due to hiring additional scientific staff, consulting fees and other costs related to research performed under three new research contracts in 1997. Sales and marketing: Sales and marketing expenses consist of the costs associated with maintaining, compensating, training and supporting BioStar's sales and marketing organization. Sales and marketing expenses were unchanged at $6.2 million for both 1997 and 1996. General and administrative: General and administrative expenses increased 41% to $2.7 million in 1997 from $1.9 million in 1996, due in part to legal, accounting and other costs relating to strategic partnering activities, financing activities and slightly higher staffing levels. Other income (expense): Other income (expense) includes interest expense, including interest paid or accrued on debt and capital leases, as well as interest, royalty and other miscellaneous income. Other income (expense) increased 21% to $(790,000) in 1997 from $(651,000) in 1996 due primarily to higher interest expense resulting from higher interest rates in 1997 over 1996, and higher debt levels throughout 1997. Years Ended December 31, 1996 and 1995: Total revenue: Total revenue increased 29% to $12.4 million for the year ended December 31, 1996 from $9.6 million in 1995, primarily due to an increase in sales of GAS and GBS products. Product sales increased 22% to $11.6 million in 1996 from $9.5 million in 1995. Contract revenues increased to $778,000 in 1996 from $61,000 in 1995 from one new research contract and the continuation of a contract. Cost of sales: Cost of sales increased 36% to $5.1 million in 1996 from $3.7 million in 1995, due primarily to an increase in total units sold and an increase in production costs per unit sold. Research and development: Research and development expenses increased 65% to $2.3 million in 1996 from $1.4 million in 1995 representing an increase in staffing and related expenses needed to support BioStar's increased product and technology development efforts. Sales and marketing: Sales and marketing expenses decreased 19% to $6.2 million in 1996 from $7.7 million in 1995 primarily due to lower expenses in 1996 for the costs associated with building the infrastructure of the sales and marketing organization which was initiated in 1995. General and administrative: General and administrative expenses increased 40% to $1.9 million in 1996 from $1.3 million in 1995, primarily due to increased staffing levels and costs associated with recruiting and relocating employees. Other income (expense): Other income (expense) increased 264% to $(651,000) in 1996 from $(179,000) in 1995 primarily due to higher levels of debt. Interest income decreased 52% to $29,000 in 1996 from $61,000 in 1995 mainly due to lower cash balances, while interest expense increased 113% to $(731,000) in 1996 from $(344,000) in 1995 due to higher levels of debt. 112 127 LIQUIDITY AND CAPITAL RESOURCES Since inception, BioStar has financed its operations primarily through private placements of preferred stock and debt securities, raising net proceeds of $24,719,000 million from sales of these securities. BioStar has also received financing for operations from sales of diagnostic products, contract revenues received under arrangements with strategic partners and, to a lesser extent, through equipment financing. Through December 31, 1997, BioStar had invested $3.8 million in leasehold improvements, laboratory and computer equipment and office furnishings and equipment to support its development and administrative activities. BioStar had financed $1.8 million of these capital additions through capital lease lines. In addition, BioStar leases its laboratory and office facilities under operating leases. BioStar's principal sources of liquidity are available lines of credit and bridge financing with a bank, of which $1.5 million remained available as of February 12, 1998. BioStar anticipates that its current level of cash and borrowing capacity would allow it to operate for approximately six months before requiring additional sources of funding if it were to remain independent. Thereafter, in the absence of the Merger, BioStar would need to raise substantial additional funds in order to continue its planned growth, and BioStar would attempt to acquire such funding through public or private financings or through agreements with suitable strategic partners. The Company has obtained commitments from the holders of its subordinated promissory notes aggregating $1,510,092, that should the Merger not be consummated, they will extend the due dates to March 31, 1999. In addition, certain preferred stockholders who are also subordinated debt holders have committed to actively support and assist the Company in obtaining operating funds through March 31, 1999 and to participate in a private placement, if required, to provide adequate working capital. The Merger, anticipated to be consummated in the second quarter of 1998, would change BioStar's financial position significantly, due to Cortech's cash resources, and, in the absence of significant acquisitions or other significant changes in BioStar activities, would eliminate the need for BioStar to obtain additional funding for at least 24 months following the Effective Time. In connection with the Merger, (i) holders of $4.5 million of convertible subordinated notes have agreed to convert those notes and related accrued interest into equity, and (ii) holders of at least $1,541,535 of subordinated promissory notes have agreed to convert those notes and related accrued interest into equity. OTHER MATTERS Impact of Year 2000: The Year 2000 will impact computer programs written using two digits rather than four to define the applicable year. Any programs with time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operation, including a temporary inability to process transactions, send invoices or engage in other ordinary activities. This problem largely affects software programs written years ago, before the issue came to prominence. BioStar recently reviewed all of its software for exposure to Year 2000 issues, including network and workstation software, and does not believe that it has significant risk associated with the problem. BioStar primarily uses third-party software programs written and updated by outside firms, each of whom has stated that its software is Year 2000 compliant. To assure that all software programs can successfully work in conjunction with each other after the year 1999, BioStar plans to test all of its software during the first quarter of 1998 using a combination of past and future dates. Although no problems are expected from this test, any problems will be corrected before the end of the 1998 calendar year. The cost of modifying or replacing software to bring BioStar into compliance, if necessary, is not expected to be material. 113 128 BIOSTAR MANAGEMENT AND EXECUTIVE COMPENSATION The following table sets forth information as of February 12, 1998 regarding the directors and executive officers of BioStar who will become directors or executive officers of Cortech upon consummation of the Merger.
NAME POSITION WITH BIOSTAR ---- --------------------- Alexander E. Barkas(1)................ Chairman of the Board of Directors Teresa W. Ayers(1)(2)................. President, Chief Executive Officer and Director Noel T. Doheny........................ Executive Vice President, Commercial Development Lyndal K. Hesterberg.................. Executive Vice President, Scientific Affairs Kim L. Stebbings...................... Vice President, National Sales and Marketing Edward C. Pritchard................... Vice President, Finance and Manufacturing and Chief Financial Officer Thomas A. Bologna..................... Director
- --------------- (1) Member of the Compensation Committee of BioStar. (2) Member of the Audit Committee of BioStar. The members of the Board of Directors are elected each year at the annual meeting of BioStar's stockholders. Dr. Alexander E. Barkas, 50, was elected Chairman of the Board of Directors of BioStar in February 1997. Dr. Barkas has been a managing member of the general partner of Prospect Venture Partners, L.P., a venture capital investment firm, since June 1997. Prior to assuming this position, Dr. Barkas was a partner of the general partner of Kleiner Perkins Caufield & Byers, a venture capital investment firm, from 1991 to June 1997. Dr. Barkas is Chairman of the Board of Geron Corporation, a biopharmaceutical company, and is a member of the Board of Directors of Connetics Corp., a biopharmaceutical company. Dr. Barkas received a Ph.D. in Biology from New York University in 1986 and a B.A. in Biology from Brandeis University. Teresa W. Ayers, 44, was elected Chief Executive Officer of BioStar in February 1997 and President, Chief Operating Officer and Director of BioStar in December 1995. From August 1992 to December 1995, she served as BioStar's Vice President of Finance, Treasurer and Secretary. From 1989 to August 1992, Ms. Ayers served as Vice President of Finance, Treasurer and Secretary of Plasti-Line, Inc., a manufacturer of internally illuminated signage. From 1986 to 1989, Ms. Ayers served as Vice President of Finance of CytRx Corporation, a public biotechnology company, and CytRx Biopool, a public in vitro diagnostic company. Ms. Ayers received her B.B.A. in Business from the University of Georgia in 1976 and is a Certified Public Accountant. Noel T. Doheny, 43, has served as Executive Vice President, Commercial Development of BioStar, since July 1995. Previously, Mr. Doheny served as Vice President of New Business Development of BioStar from March 1995 to July 1995 and as Vice President of Sales of BioStar from March 1994 to March 1995. Prior to joining BioStar, Mr. Doheny served as General Sales Manager-Near Patient Testing of Ciba Corning Diagnostics (now Chiron Diagnostics) ("Ciba Corning"). From 1977 to 1993 he held a variety of business roles, including sales, worldwide marketing management, business development and general management with Ciba Corning. Mr. Doheny received his B.A. in Biology and B.A. in Chemistry from West Virginia University in 1976. Mr. Doheny completed graduate work and a teaching fellowship in Biochemistry at Georgetown University from 1976 - 1977. Dr. Lyndal K. Hesterberg, 43, has served as Vice President, Scientific Affairs of BioStar since January 1992 and was elected Executive Vice President, Scientific Affairs of BioStar in February 1997. Prior to joining BioStar, Dr. Hesterberg served as Manager, Diagnostic Product Development of Amgen, Inc. from 1986 to 1989 and Director of Product Development and Regulatory Affairs at Syrgene Products and Research, Inc. from 1982 to 1986. Dr. Hesterberg received his Ph.D. in Biochemistry from St. Louis University in 1980 114 129 and his B.S. in Biochemistry from the University of Illinois in 1976. Dr. Hesterberg was a Postdoctoral Fellow at Max Planck Institute for Biophysical Chemistry in Goettingen, West Germany from 1981 - 1982. Kim L. Stebbings, 42, has served as Vice President, National Sales and Marketing of BioStar since September 1996. Prior to joining BioStar, Ms. Stebbings held various management positions with Boehringer Mannheim Corporation from February 1983 to September 1996, most recently serving as Western Area Business Manager -- Diabetes Care Division and National Sales Manager -- Point of Care Division. Ms. Stebbings received her B.S. in Biology from St. Lawrence University in 1977. Edward C. Pritchard, 48, has served as Vice President, Finance and Manufacturing and Chief Financial Officer of BioStar since May 1977. Prior to joining BioStar, Mr. Pritchard served as Vice President, Finance and Chief Financial Officer of Renaissance Entertainment Corporation, a publicly-owned entertainment firm, from March 1995 to September 1996. From January 1991 to December 1994, Mr. Pritchard served as Vice President, Financial Planning, Finance & Administration of Centre Reinsurance, a Bermuda-based reinsurance company. From January 1988 to December 1990, Mr. Pritchard served as Financial Officer of GTE Reinsurance, a Bermuda-based captive reinsurance company. Mr. Pritchard received his M.B.A. in Finance from the University of Connecticut in 1997 and his B.A. in English from Trinity University in 1996. Thomas A. Bologna, 49, has served as a director of BioStar since May 1997. In July 1997, Mr. Bologna became President and Chief Executive Officer and a member of the Board of Directors of Ostex International, Inc., a publicly-held biotechnology company that develops, manufactures and markets products for the management of osteoporosis and other collagen-related diseases. Mr. Bologna formed Healthcare Venture Associates, a strategic consulting firm, in January 1996. From January 1994 to January 1996, Mr. Bologna was the President and Chief Executive Officer of Scriptgen Pharmaceuticals, Inc., a pharmaceutical company. Mr. Bologna served as President and co-Chief Executive Officer of Gen-Probe Incorporated, a medical diagnostics company ("Gen-Probe"), from July 1987 to January 1994, as Chief Executive Officer of Gen-Probe from March 1988 to January 1994 and as Chairman of the Board of Directors of Gen-Probe from July 1992 to January 1994. From February 1991 to September 1994, Mr. Bologna also served as acting Chief Executive Officer of Camino Laboratories, Inc., a neurosurgical products company. Mr. Bologna received a B.S. in Engineering and Science from New York University in 1970 and an M.B.A. from the Stern School of Management in 1972. COMPENSATION OF DIRECTORS It is BioStar's practice to grant, upon election to BioStar's Board of Directors, to each person who is not an officer of BioStar and does not, directly or through a primary business affiliation, own 5% or more of the outstanding BioStar Capital Stock (an "Outside Director") an option to purchase 100,000 shares of BioStar common stock under the 1995 Equity Incentive Plan as compensation for services as a director. Such options generally become exercisable ("vest") in annual installments over a four-year period. Vesting of all options is subject to continued service as a director of BioStar during the vesting period. During the fiscal year ended December 31, 1997, outside directors received options pursuant to the 1995 Equity Incentive Plan as follows: Mr. Bologna received an option to purchase 100,000 shares of BioStar common stock at an exercise price of $.23 per share and Dr. Barkas received an option to purchase 100,000 shares of BioStar common stock at an exercise price of $.23 per share. In addition, Dr. Barkas received an option to purchase an additional 100,000 shares at an exercise price of $.23 per share as compensation for his service as Chairman of the Board. The vesting of the options granted to Mr. Bologna and Dr. Barkas will accelerate in connection with the Merger aggregating 50,000 shares for Mr. Bologna and 125,000 shares for Dr. Barkas. BioStar reimburses its directors for reasonable and necessary costs associated with attending BioStar Board meetings. Mr. Bologna and BioStar entered into a consulting agreement for the period of May 1, 1997 through December 31, 1998, during which period Mr. Bologna will be paid $1,500 per full business day of services rendered by Mr. Bologna pursuant to such consulting agreement. In 1997, Mr. Bologna received $54,448 in cash for his consulting services. In addition, in consideration for Mr. Bologna entering into such consulting agreement, Mr. Bologna received an option to purchase 53,335 shares of BioStar common stock at an exercise price of $.23 per share. Subsequently, pursuant to an amendment of Mr. Bologna's consulting agreement, 115 130 Mr. Bologna and BioStar agreed to terminate Mr. Bologna's option with respect to 26,667 shares. Dr. Barkas and BioStar entered into a consulting agreement for the period of October 1, 1997 through December 31, 1998 during which period Dr. Barkas will be paid $1,500 per full business day of services rendered by Dr. Barkas pursuant to such consulting agreement. Dr. Barkas did not receive any cash compensation during 1997 for his consulting services. Directors who are not Outside Directors do not receive separate compensation for their services as directors, other than reimbursement for reasonable and necessary costs associated with attending BioStar Board meetings. COMPENSATION OF EXECUTIVE OFFICERS The following table shows for the fiscal years ended December 31, 1997, 1996 and 1995, compensation awarded or paid to, or earned by, each person who served as Chief Executive Officer or one of the four next most highly compensated executive officers (the "Named Executive Officers") of BioStar and who will serve as an executive officer of Cortech upon consummation of the Merger: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM ------------------------------------- COMPENSATION OTHER AWARDS ANNUAL SECURITIES ALL OTHER NAME AND SALARY BONUS COMPEN- UNDERLYING COMPEN- PRINCIPAL POSITION YEAR ($) ($) SATION($) OPTIONS SATION(1) ------------------ ---- -------- ------- --------- ------------ --------- Teresa W. Ayers................... 1997 $175,385 $50,000 $ $ 90 President and Chief 1996 150,000 30,000 84 Executive Officer 1995 101,923 -- 90 Lyndal K. Hesterberg.............. 1997 $146,923 $45,000 $ 90 Executive Vice President, 1996 128,846 28,385 84 Scientific Affairs 1995 100,000 -- 90 Noel T. Doheny.................... 1997 $132,163 $32,500 $ 90 Executive Vice President, 1996 130,000 18,276 84 Commercial Development 1995 126,287 10,000 90 Kim L. Stebbings(2)............... 1997 $119,904 $25,000 $29,277 Vice President, 1996 35,128 5,500 $8,500 21 National Sales and 1995 -- -- -- Marketing Edward C. Pritchard(3)............ 1997 $ 31,308 $ 5,000 Vice President, 1996 -- -- Finance and Manufacturing 1995 -- -- and Chief Financial Officer
- --------------- (1) Represents premiums paid by BioStar for group term life insurance, except for Ms. Stebbings' 1997 amount, which represents premiums paid by BioStar for group term life insurance of $90 and reimbursement for relocation expenses of $29,187. (2) Ms. Stebbings received a signing bonus in the amount of $8,500 upon joining BioStar in 1996. Ms. Stebbings' 1996 salary, on an annualized basis, was $110,000. (3) Mr. Pritchard became an executive officer in 1997. Mr. Pritchard received $24,231 in consulting fees from BioStar prior to his joining BioStar in May 1997. Mr. Pritchard's 1997 salary, on an annualized basis, was $110,000. 116 131 STOCK OPTION GRANTS AND EXERCISES BioStar grants options to its executive officers under its 1995 Equity Incentive Plan. As of February 12, 1998, options to purchase a total of 4,106,647 shares were outstanding under the 1995 Equity Incentive Plan and options to purchase 828,648 shares remained available for grant thereunder. The following tables show for the fiscal year ended December 31, 1997, certain information regarding options granted to, exercised by, and held at year end by, the Named Executive Officers: OPTION GRANTS IN LAST FISCAL YEAR
PERCENT OF TOTAL OPTIONS POTENTIAL REALIZABLE VALUE NUMBER OF GRANTED INDIVIDUAL GRANTS AT ASSUMED ANNUAL RATES OF SECURITIES TO ------------------------------ STOCK PRICE APPRECIATION UNDERLYING EMPLOYEES FOR OPTION TERM(4) OPTIONS IN FISCAL EXERCISE EXPIRATION --------------------------- NAME GRANTED(1) YEAR PRICE(2) DATE(3) 5%($) 10%($) ---- ---------- ---------- --------- ------------------ --------- ---------- Teresa W. Ayers...... 300,000 23.9% $.23 June 19, 2006 $43,394 $109,968 Lyndal K. Hesterberg......... 160,000 12.7 $.23 June 16, 2006 23,143 58,650 Noel T. Doheny....... -0- -- $.23 -0- -- -- Kim L. Stebbings..... 75,000 6.0 $.23 June 19, 2006 10,848 27,492 Edward C. Pritchard.......... 200,000 15.9 $.23 September 9, 2006 28,929 73,312
- --------------- (1) Options vest over four years with 25% vesting on the first anniversary of the date of grant and the remainder vesting pro rata on a monthly basis. The Board of Directors has the authority to reprice options. (2) The exercise price is equal to 100% of the fair market value on the date of grant as determined by BioStar's Board. (3) The options have a term of ten years, subject to earlier termination on certain events. (4) The potential realizable value is calculated based on the term of the option at the date of grant (10 years). It is calculated assuming that the fair market value of BioStar common stock on the date of grant appreciates at the indicated annual rate compounded annually for the entire term of the option and that the option is exercised and sold on the last day of its term for the appreciated stock price. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
VALUE OF NUMBER OF SECURITIES UNEXERCISED IN-THE- UNDERLYING UNEXERCISED MONEY OPTIONS AT OPTIONS AT 12/31/97(#) 12/31/97($)(1) ----------------------- ------------------- SHARES ACQUIRED VALUE(1) EXERCISABLE / EXERCISABLE / NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE ---- --------------- -------- ----------------------- ------------------- Teresa W. Ayers.............. -- -- 422,292/385,208 $19,500/$0 Lyndal K. Hesterberg......... -- -- 260,003/194,375 12,594/0 Noel T. Doheny............... -- -- 280,209/119,791 0/0 Kim L. Stebbings............. -- -- 70,312/179,688 0/0 Edward C. Pritchard.......... -- -- 0/200,000 0/0
- --------------- (1) Values calculated on the basis of the fair market value of the underlying securities at the exercise date minus the applicable per share exercise price. 117 132 EMPLOYMENT AGREEMENTS BioStar has entered into employment agreements with each of Teresa W. Ayers, President and Chief Executive Officer, Lyndal K. Hesterberg, Executive Vice President, Scientific Affairs, Noel T. Doheny, Executive Vice President, Commercial Development, Kim L. Stebbings, Vice President, National Sales and Marketing and Edward C. Pritchard, Vice President, Finance and Manufacturing and Chief Financial Officer. These agreements provide for severance payments if the employment of the individual is terminated without cause or is "Constructively Terminated" (as defined in the respective agreements). In the case of Ms. Ayers and Mr. Hesterberg, the payments would be 12 months of salary plus an additional 12 months of vesting for all stock options held by the individual at the date of termination. In the case of Mr. Doheny and Ms. Stebbings, the payments would be six months of salary plus an additional six months of vesting for all stock options held by the individual at the date of termination. In the case of Mr. Pritchard, the payments would be three months of salary plus an additional three months of vesting for all stock options held by Mr. Pritchard at the date of termination. 118 133 BIOSTAR PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of BioStar, common stock as of January 30, 1998 and as adjusted to give effect to the exchange of all outstanding shares of BioStar Capital Stock for shares of Cortech Common Stock pursuant to the Merger by (i) each person known by BioStar to be a beneficial owner of 5% or more of BioStar's outstanding common stock, (ii) each director, (iii) each executive officer named in the Summary Compensation Table above, (iv) entities affiliated with certain directors and (v) all directors and executive officers as a group:
PERCENTAGE OF PERCENTAGE OF BIOSTAR CORTECH COMMON COMMON SHARES OF BIOSTAR STOCK SHARES OF CORTECH STOCK COMMON STOCK OUTSTANDING COMMON STOCK OUTSTANDING BENEFICIALLY PRIOR TO BENEFICIALLY OWNED AFTER THE BENEFICIAL OWNER OWNED(1) MERGER(1) AFTER THE MERGER(1) MERGER(1) ---------------- ----------------- ------------- -------------------- ------------- Kleiner Perkins Caufield & Byers VI... 5,948,827(2) 14.32% 4,205,686 8.93% 2750 Sand Hill Road Menlo Park, California 94205 Mayfield VI........................... 5,916,136(3) 13.99 4,465,553 9.35 2800 Sand Hill Road Menlo Park, California 94025 Marquette Venture Partners II, L.P.... 4,559,173(4) 11.11 3,280,249 7.03 620 Lake Cook Road, Suite 450 Deerfield, Illinois 60015 Skandigen AB.......................... 4,106,032 9.76 3,376,466 7.10 Norrlandsgatan 15 S-111 43 Stockholm, Sweden The Hill Partnership.................. 3,979,297(5) 9.74 2,895,006 6.23 885 Arapahoe Avenue Boulder, Colorado 80303 BMPI Liquidating Trust................ 3,717,143 9.55 2,120,697 4.74 c/o Colorado Venture Management Inc. 4845 Pearl Street, Suite 300 Boulder, Colorado 80301 Teresa W. Ayers....................... 464,781(6) 1.18 256,187(7) * Alexander E. Barkas, Ph.D............. 125,000(8) * 68,900(9) * Thomas A. Bologna..................... 76,668(10) * 42,259(11) * Marvin H. Caruthers................... 628,024(12) 1.60 477,787 1.06 John G. Hill.......................... 3,979,297(5) 9.74 2,895,006 6.23 Wendell G. Van Auken.................. 5,916,136(4) 13.99 4,465,553 9.35 Noel T. Doheny........................ 305,208(13) * 168,231(14) * Lyndal K. Hesterberg.................. 388,125(15) * 213,935(16) * Edward C. Pritchard................... -- -- -- -- Kim L. Stebbings...................... 85,937(17) * 47,368(18) * All current directors and executive officers as a group (10 persons).... 11,969,176(19) 25.95% 8,635,227(20) 17.03%
- --------------- * Less than one percent of the outstanding shares 119 134 (1) Assumes an Exchange Ratio of 0.5512 and the exercise and conversion of all convertible promissory notes and warrants. Applicable percentage of ownership is based on 38,762,961 shares of common stock on an as-converted basis outstanding as of January 30, 1998 together with applicable options, convertible promissory notes or warrants for such stockholder and 44,620,868 shares of Cortech Common Stock following the Merger. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities, subject to the community property laws, where applicable. Shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of January 30, 1998 are deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of such person. Options exercisable within 60 days of January 30, 1998 are not treated as outstanding for purposes of computing the percentage ownership of any person other than the person holding such options. (2) Includes warrants to purchase 345,948 shares of BioStar common stock and warrants to purchase 359,961 shares of BioStar Series F Preferred Stock and promissory notes convertible into 2,064,822 shares of BioStar Series F Preferred Stock convertible or exercisable within 60 days of the date of this table. (3) Consists of 2,010,680 shares of BioStar preferred stock, warrants to purchase 433,465 shares of BioStar common stock, warrants to purchase 267,968 shares of BioStar Series F Preferred Stock and promissory notes convertible into 2,252,404 shares of BioStar Series F Preferred Stock exercisable within 60 days of January 30, 1998 held by Mayfield VI; 95,857 shares of BioStar preferred stock, warrants to purchase 20,665 shares of BioStar common stock, warrants to purchase 12,708 shares of BioStar Series F Preferred Stock and promissory notes convertible into 107,259 shares of BioStar Series F Preferred Stock exercisable within 60 days of January 30, 1998 held by Mayfield Associates; and 289,892 shares of BioStar preferred stock, warrants to purchase 62,501 shares of BioStar common stock, warrants to purchase 38,400 shares of BioStar Series F Preferred Stock and promissory notes convertible into 324,337 shares of BioStar Series F Preferred Stock exercisable within 60 days of January 30, 1998 held by Mayfield Medical Partners. Mr. Van Auken, a director of BioStar, is a general partner of the general partner of each of Mayfield VI, Mayfield Associates, and Mayfield Medical Partners (collectively, the "Mayfield Entities"). Mr. Van Auken disclaims beneficial ownership of the shares held by the Mayfield Entities except to the extent of his pecuniary interest therein arising from his general partnership in the general partner of each of the Mayfield Entities. (4) Consists of 2,218,363 shares of BioStar common and BioStar preferred stock, warrants to purchase 295,252 shares of BioStar common stock, warrants to purchase 259,956 shares of BioStar Series F Preferred Stock and promissory notes convertible into 1,675,814 shares of BioStar Series F Preferred Stock exercisable within 60 days of January 30, 1998 held by Marquette Venture Partners II, L.P., and 63,384 shares of BioStar common and BioStar preferred stock, warrants to purchase 4,687 shares of BioStar common stock, warrants to purchase 8,011 shares of BioStar Series F Preferred Stock and promissory notes convertible into 33,706 shares of BioStar Series F Preferred Stock exercisable within 60 days of January 30, 1998 held by MVP II Affiliates Fund, L.P. (5) Consists of 1,905,160 shares of BioStar preferred stock, warrants to purchase 281,251 shares of BioStar common stock, warrants to purchase 229,568 shares of BioStar Series F Preferred Stock and promissory notes convertible into 1,563,318 shares of BioStar Series F Preferred Stock exercisable within 60 days of January 30, 1998. Hill, Carmen Ventures is the general partner of The Hill Partnership. Mr. Hill, a director of BioStar, is a general partner of Hill, Carmen Ventures. Mr. Hill disclaims beneficial ownership of the shares held by The Hill Partnership except to the extent of his pecuniary interest therein arising from his general partnership interests in Hill, Carmen Ventures. (6) Includes 1,865 shares held by Ms. Ayers' spouse and 462,916 shares issuable pursuant to BioStar options exercisable within 60 days of the date of this table. (7) Includes 255,159 shares of Cortech Common Stock issuable pursuant to options exercisable within 60 days of the date of this table. (8) Includes 125,000 shares issuable pursuant to BioStar options exercisable within 60 days of the date of this table. (9) Includes 68,900 shares of Cortech Common Stock issuable pursuant to options exercisable within 60 days of the date of this table. 120 135 (10) Includes 76,668 shares issuable pursuant to BioStar options exercisable within 60 days of the date of this table. (11) Includes 42,259 shares of Cortech Common Stock issuable pursuant to options exercisable within 60 days of the date of this table. (12) Includes an aggregate of 224,284 shares of BioStar common stock, warrants to purchase 57,142 shares of BioStar common stock; warrants to purchase 33,326 shares of BioStar Series F Preferred Stock and promissory notes convertible into 293,272 shares of BioStar Series F Preferred Stock held in trusts for Dr. Caruthers' two sons (the "Caruthers Entities"). Dr. Caruthers is a director of BioStar. (13) Includes 305,208 shares issuable pursuant to BioStar options exercisable within 60 days of the date of this table. (14) Includes 168,231 shares of Cortech Common Stock issuable pursuant to options exercisable within 60 days of the date of this table. (15) Includes 335,003 shares issuable pursuant to BioStar options exercisable within 60 days of the date of this table. (16) Includes 184,654 shares of Cortech Common Stock issuable pursuant to options exercisable within 60 days of the date of this table. (17) Includes 85,937 shares issuable pursuant to BioStar options exercisable within 60 days of the date of this table. (18) Includes 47,368 shares of Cortech Common Stock issuable pursuant to options exercisable within 60 days of the date of this table. (19) Includes shares included pursuant to notes 3, 5, 6, 8, 10, 12, 13, 15, and 17. (20) Includes shares included pursuant to notes 3, 5, 7, 9, 11, 14, 16, and 18. 121 136 CERTAIN TRANSACTIONS During March 1996 and April 1996, BioStar issued Convertible Subordinated Promissory Notes in the aggregate amount of $4,500,000.50 (the "1996 Notes") and warrants to purchase up to 2,571,426 shares of BioStar common stock pursuant a certain Note and Warrant Purchase Agreement, dated March 20, 1996, as amended (the "Note and Warrant Purchase Agreement"). In February 1998, the 1996 Notes were amended to provide that two days prior to the Effective Time (the "Conversion Date"), the 1996 Notes will convert automatically into shares of BioStar Series F Preferred Stock at a price per share (the "Conversion Price") equal to the lesser of (i) $0.88 or (ii) the price per share determined by multiplying the Cortech Stock Price (as defined in such amendment) by the Exchange Ratio, less 20%. On the Conversion Date, the aggregate principal and interest due on the 1996 Notes will automatically be converted into an aggregate of 18,967,212 shares of BioStar's Series F Preferred Stock and, pursuant to the Merger, converted into an aggregate of 10,454,727 shares of Cortech Common Stock assuming an Exchange Ratio of 0.5512 (based upon BioStar's capitalization as of the date of this Joint Proxy Statement/Prospectus and assuming a per share market price for Cortech Common Stock of $0.656 (the per share market price of the Cortech Common Stock as of the Reorganization Agreement) immediately prior to the Effective Time). The 1996 Notes and related warrants to purchase shares of BioStar common stock (the "1996 Warrants") were issued to the following persons or entities, who are directors, executive officers or holders of more than five percent of the outstanding shares of one of BioStar's classes of voting securities, in such amounts as set forth opposite their names. The 1996 Warrants will expire unless exercised prior to the consummation of the Merger.
PRINCIPAL AMOUNT OF CONVERTIBLE SUBORDINATED WARRANTS TO PURCHASE SHARES NAME OF NOTEHOLDER PROMISSORY NOTES OF BIOSTAR COMMON STOCK ------------------ ------------------------ --------------------------- Mayfield Entities........................ $904,105.84 516,631 Skandigen AB............................. 730,944.00 417,683 Kleiner Perkins Caufield & Byers VI, L.P.................................... 605,411.32 345,948 Marquette Entities....................... 524,892.36 299,939 Hill Partnership III..................... 492,189.20 281,251 Caruthers Entities....................... 100,000.00 57,142
In February 1997, BioStar issued an aggregate of $1,000,000 in principal amount of Subordinated Promissory Notes (the "February 1997 Notes") to the following persons or entities, who are directors, executive officers or holders of more than five percent of the outstanding shares of one of BioStar's classes of voting securities, in such amounts as set forth opposite their names:
PRINCIPAL AMOUNT OF THE NAME OF NOTEHOLDER SUBORDINATED PROMISSORY NOTE ------------------ ---------------------------- Kleiner Perkins Caufield & Byers VI......................... $305,940.37 Marquette Entities.......................................... 227,752.99 Mayfield Entities........................................... 271,190.42 Hill Partnership III........................................ 195,116.22
The February 1997 Notes were terminated in exchange for the issuance of the June 1997 Notes (as defined below). On June 20, 1997, BioStar issued Subordinated Promissory Notes in the aggregate amount of $1,565,049.73 (the "June 1997 Notes") and warrants to purchase up to 1,778,465 shares BioStar's Series F Preferred Stock (the "June 1997 Warrants") to each of the following persons or entities, who are directors, 122 137 executive officers or holders of more than five percent of the outstanding shares of one of BioStar's classes of voting securities, in such amounts as set forth opposite their names:
PRINCIPAL SUM OF WARRANTS TO PURCHASE SHARES NAME OF NOTEHOLDER SUBORDINATED PROMISSORY NOTES OF SERIES F PREFERRED STOCK ------------------ ----------------------------- --------------------------- Skandigen AB......................... $376,420.00 427,750 Kleiner Perkins Caufield & Byers VI................................. 316,765.63 359,961 Mayfield Entities.................... 280,786.11 319,076 Marquette Entities................... 235,811.70 267,967 Hill Partnership III................. 202,020.13 229,568 Caruthers Entities................... 29,326.76 33,326
In February 1998, the June 1997 Notes were amended to provide that upon election of the noteholder at any time prior to the Conversion Date to convert such holder's June 1997 Note, such holder will be entitled to receive shares of BioStar Series F Preferred Stock at a price per share equal to the Conversion Price. As of February 12, 1998, BioStar has received notices of election to convert an aggregate of $1,706,869 in principal and interest of the 1997 Notes into approximately 5,900,613 shares of BioStar Series F Preferred Stock and, pursuant to the Merger, converted into an aggregate of 3,252,418 shares of Cortech Common Stock, assuming an Exchange Ratio of 0.5512 (based upon BioStar's capitalization as of the date of this Joint Proxy Statement/Prospectus and assuming a per share market price for Cortech Common Stock of $0.656 (the per share market price of the Cortech Common Stock as of the date of the Reorganization Agreement) immediately prior to the Effective Time). In February 1998, the June 1997 Warrants were amended to provide that upon election of the warrantholder at any time prior to the Conversion Date to exercise such holder's June 1997 Warrant, such holder will be entitled to receive shares of BioStar Series F Preferred Stock at a price per share equal to the Conversion Price; provided that if the holder does not elect to convert its related June 1997 Note, the exercise price of such holder's June 1997 Warrant will be $0.88 per share. Assuming exercise of all of such June 1997 Warrants, 1,778,465 shares of BioStar's Series F Preferred Stock will be issued pursuant to such exercises and, pursuant to the Merger, converted into an aggregate of 980,289 shares of Cortech Common Stock assuming an Exchange Ratio of 0.5512 (based upon BioStar's capitalization as of the date of this Joint Proxy Statement/Prospectus and assuming a per share market price for Cortech Common Stock of $0.656 (the per share market price of the Cortech Common Stock as of the date of the Reorganization Agreement) immediately prior to the Effective Time). 123 138 DESCRIPTION OF CORTECH CAPITAL STOCK The following description of the capital stock of Cortech and certain provisions of Cortech's Certificate of Incorporation, as amended (the "Cortech Certificate"), and Bylaws (the "Cortech Bylaws") is a summary and is qualified in its entirety by the provisions of the Cortech Certificate and the Cortech Bylaws which are filed as exhibits to the registration statement of which this Joint Proxy Statement/Prospectus forms a part. AUTHORIZED CAPITAL STOCK Cortech's authorized capital stock consists of 50,000,000 shares of Common Stock, par value $.002 per share (the "Cortech Common Stock"), and 2,000,000 shares of Preferred Stock, par value $.002 per share (the "Cortech Preferred Stock"). CORTECH COMMON STOCK The holders of Cortech Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Subject to preferences that may be applicable to any then outstanding Preferred Stock, holders of Cortech Common Stock are entitled to receive ratably such dividends as may be declared by the Cortech Board out of funds legally available therefor. Upon the dissolution or liquidation of Cortech, whether voluntary or involuntary, holders of Cortech Common Stock are entitled to receive ratably all assets remaining after payment of liabilities and the liquidation preference of any then outstanding Preferred Stock. As of January 30, 1998, 18,523,918 shares of Cortech Common Stock were issued and outstanding and no shares were held in Cortech's treasury. As of the same date, Cortech had approximately 559 stockholders of record. CORTECH PREFERRED STOCK The Cortech Board has the authority, without further vote or action by the stockholders, to issue up to 1,500,000 shares of Cortech Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any additional series of Cortech Preferred Stock or the designation of such series. The issuance of Cortech Preferred Stock could adversely affect the voting power of holders of Cortech Common Stock and the likelihood that such holders will receive dividend payments and payments upon liquidation and could have the effect of delaying, deferring or preventing a change in control of Cortech. This could have an adverse impact on Cortech's Common Stock price. As of January 31, 1998, there were no shares of Cortech Preferred Stock outstanding. Cortech has no present plans to issue any shares of Cortech Preferred Stock. The Cortech Board has designated five hundred thousand (500,000) shares of Cortech Preferred Stock Series A Junior Participating Preferred Stock, $.002 par value per share (the "Junior Preferred Stock"). Holders of Junior Preferred Stock are entitled to (i) certain dividends in preference to holders of Cortech Common Stock and subject to the rights of holders of any shares or series of Cortech Preferred Stock, (ii) 100 votes for each share held of record on all matters submitted to a vote of the stockholders and will vote together with the holders of Cortech Common Stock and (iii) in the event of a liquidation, dissolution or winding up of Cortech, $100 per share plus an amount equal to all accrued and unpaid dividends. Holders of Junior Preferred Stock possess no redemption rights. See "-- Certain Anti-Takeover Provisions". As of January 31, 1998, there were no shares of Junior Preferred Stock outstanding. CORTECH OPTIONS As of January 30, 1998, there were options outstanding to purchase an aggregate of 2,148,261 shares of Cortech Common Stock at exercise prices ranging from $0.59 to $8.75 per share with a weighted average 124 139 exercise price of $2.16 per share. The options contain provisions for the adjustment of exercise prices in certain events, including sales of Cortech Common Stock at less than the exercise price, stock dividends, stock splits, reorganizations, reclassifications or mergers. See "Cortech Management and Executive Compensation". WARRANTS As of January 30, 1998, there were warrants outstanding to purchase an aggregate of 354,844 shares of Cortech Common Stock all with an exercise price of $10.00 per share. The warrants contain provisions for the adjustment of exercise prices in certain events, including sales of Cortech Common Stock at less than the exercise price, stock dividends, stock splits, reorganizations, reclassifications or mergers. These warrant holders are entitled to certain registration rights with respect to Cortech Common Stock issued upon exercise of the warrants held by them. See "-- Registration Rights". CERTAIN ANTI-TAKEOVER PROVISIONS The Cortech Certificate and the Cortech Bylaws contain certain provisions which may have an effect of delaying, deferring or preventing a change of control of Cortech. The Cortech Certificate provides that the Cortech Board shall consist of three classes of directors, each serving for a three-year term ending in successive years. Each class consists of three directors. This provision may make it more difficult to effect a takeover of Cortech because it would generally take two annual meetings of stockholders for an acquiring party to elect a majority of the Cortech Board. As a result, a classified board of directors may discourage proxy contests for the election of directors or purchases of a substantial block of stock because it could operate to prevent obtaining control of the Cortech Board in a relatively short period of time. In addition, Cortech directors may only be removed by stockholders for cause. The Cortech Certificate provides that actions requiring stockholder approval may be approved only at a duly convened stockholders' meeting. In addition, the Cortech Bylaws provide that special meetings of stockholders may be called only by the president, by the Cortech Board or by the president or secretary at the written request of stockholders owning a majority of the outstanding capital stock entitled to vote. Also, the Cortech Bylaws require that stockholders wishing to present business for consideration at the annual stockholders' meeting provide the Company with timely prior notice of the business to be presented. Cortech is subject to Section 203 of the Delaware General Corporation Law which imposes restrictions on business combinations (as defined therein) with interested persons (defined as any person who acquires 15 percent or more of Cortech's outstanding voting stock). In general Cortech is prohibited from engaging in business combinations with an interested person for a period of three years from the date a person becomes an interested person, subject to certain exceptions. By restricting the ability of Cortech to engage in business combinations with an interested person, the application of Section 203 to Cortech may provide a barrier to hostile or unsolicited takeovers. STOCKHOLDER RIGHTS PLAN The Cortech Board has adopted a stockholders rights plan (the "Rights Plan") which provides for the distribution of one preferred share purchase right as a dividend for each outstanding share of Cortech Common Stock as of June 26, 1995 and the issuance of one such purchase right in connection with issuances of Cortech Common Stock after June 26, 1995. Each Right entitles its holder to purchase one one-hundredth of a share of Junior Preferred Stock for $20.00, subject to adjustment pursuant to the Rights Plan. All purchase rights expire on June 12, 2005. Generally, a Right may be exercised 10 days after any person or group of affiliated or associated persons acquire beneficial ownership of 15% or more of the outstanding shares of Cortech Common Stock or 10 business days after the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding shares of Cortech Common Stock unless such offer or acquisition is made with approval of the Cortech Board. The Cortech Board has determined that neither the Merger, the Reorganization Agreement nor the arrangements contemplated thereby will cause any purchase rights to become exercisable under the Rights Plan. Although such an event is not anticipated, the Cortech 125 140 Board has not taken any action to prevent any former BioStar stockholder from triggering the exercisability of such rights through any post-Merger accumulation of Cortech Common Stock (including, without limitation, shares issued pursuant to the Merger). REGISTRATION RIGHTS In connection with the CDC Offering, each CDC Investor is entitled to certain piggyback registration rights with respect to the shares of Cortech Common Stock which such CDC Investor holds or may acquire on exercise of the warrants received in the CDC Offering or the Cortech Common Stock which may be used by Cortech to exercise its option to repurchase the CDC shares, subject to the terms and conditions of the Subscription Agreement. Pursuant to the Subscription Agreement, whenever Cortech proposes to register any of its securities under the Securities Act, with certain exceptions, the holders of shares as to which there are piggyback rights are entitled, subject to certain restrictions, to include their shares in such registration. Cortech is required to bear the expenses of the registration of the CDC Investors' registrable securities; provided, however, that such CDC Investors will bear their pro rata share of all underwriting discounts and commissions incurred. 126 141 COMPARISON OF STOCKHOLDERS' RIGHTS In connection with the Merger, the BioStar stockholders will be converting their shares of BioStar Capital Stock into shares of Cortech Common Stock. Both Cortech and BioStar are Delaware corporations, but the Cortech Certificate and the Cortech Bylaws differ from the BioStar Certificate and the BioStar Bylaws in several significant respects. Because of the differences in the charter documents of Cortech and BioStar, the rights of a holder of Cortech Common Stock differ from the rights of a holder of BioStar common stock. Below is a summary of some of the important differences between the charter documents of Cortech and BioStar. It is not practical to summarize all of such differences in this Joint Proxy Statement/Prospectus, but some of the principal differences which could materially affect the rights of stockholders include the following: CLASS VOTES The DCGL does not require separate class votes of all voting classes in order to approve charter amendments generally. However, Section 242 of the DCGL does provide that each class of stock, even a nonvoting class of stock, shall vote on charter amendments that increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of such class or adversely affect the rights of holders of shares of such class. The Cortech Certificate provides for additional class voting for its Series A Junior Participating Preferred Stock. Cortech may not amend the Cortech Certificate in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect such shares adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of the Series A Junior Participating Preferred Stock, voting together as a single class. The Cortech Certificate does not provide for any additional class voting other than for the Series A Junior Participating Preferred Stock. The BioStar Certificate provides that BioStar shall not, without first obtaining the approval of the holders of at least a majority of the then-outstanding shares of BioStar's Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock, voting together as a single class: (i) sell, convey, or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly owned subsidiary corporation) or effect any transaction or series of related transactions in which more than 50% of the voting power of BioStar is disposed of; (ii) alter or change the rights, preferences or privileges of the shares of Series A, Series B, Series C, Series D, Series E or Series F Preferred Stock so as to adversely affect the shares; or (iii) create any new class or series of stock or any other securities convertible into equity securities of BioStar having a preference over, or being on a parity with, the Series A, Series B, Series C, Series D, Series E or Series F Preferred Stock with respect to voting, dividends, or upon liquidation. CLASSIFIED BOARD OF DIRECTORS A classified board is one on which a certain number, but not all, of the directors are elected on a rotating basis each year. The DGCL permits, but does not require, a classified board of directors, pursuant to which the directors can be divided into as many as three classes with staggered terms of office, with only one class of directors standing for election each year. Unlike the BioStar charter documents which provide that directors shall be elected at each annual stockholders' meeting for a term of one year, the Cortech charter documents provide for a classified board of directors, with only one class out of three being elected each year. REMOVAL OF DIRECTORS Under the DGCL, if a corporation has a classified board, the stockholders may remove a director only for cause, unless the certificate of incorporation provides otherwise. The Cortech Certificate does not provide otherwise; therefore, any and all directors may only be removed with cause by a majority vote of the stockholders entitled to vote. By contrast, the BioStar Certificate provides that a majority vote of the stockholders entitled to vote may remove a director with or without cause. 127 142 LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 102 of the DGCL allows a corporation to include in its certificate of incorporation a provision that limits or eliminates the personal liability of directors to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Section 102 of the DGCL does not, however, permit a corporation to limit or eliminate the personal liability of a director for (i) any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) intentional or negligent payment of unlawful dividends or unlawful stock purchases or redemptions or (iv) any transaction from which the director derived an improper personal benefit. Both the Cortech Certificate and the BioStar Certificate provide for limitations on the personal liability of directors to the extent permitted by the DGCL. Cortech and BioStar provide for similar indemnification of directors, officers and employees. Both companies' bylaws provide that the company shall, to the maximum extent and in the manner permitted by the law, indemnify each of its directors, officers and employees against expenses (including attorney's fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that such person is or was an agent of the corporation. Under Section 145 of the DGCL, other than an action brought by or in the right of the corporation, such indemnification is available if it is determined that the proposed indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceedings, had no reasonable cause to believe his or her conduct was unlawful. In actions brought by or in the right of the corporation, such indemnification is limited to expenses (including attorneys' fees) actually and reasonably incurred and is permitted only if the indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such person is adjudged to be liable to the corporation, unless and only to the extent that the court in which the action was brought determines that, despite the adjudication of liability but in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses which the court deems proper. To the extent that the proposed indemnitee has been successful in defense of any action, suit or proceeding, he must be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the action. AMENDMENTS TO THE CERTIFICATE OF INCORPORATION Under the DGCL, a corporation's certificate of incorporation can be amended by the affirmative vote of the board of directors and approved by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote thereon, unless the certificate of incorporation requires the vote of a larger portion of the shares. The Cortech Certificate requires approval only by a majority of the outstanding shares entitled to vote. By contrast, the BioStar Certificate provides that holders of BioStar preferred stock have a right to a separate class vote, in addition to the vote of BioStar stockholders as a whole, with respect to certain amendments to the BioStar Certificate which would affect the rights and privileges of the holders of BioStar preferred stock. POWER TO CALL SPECIAL STOCKHOLDERS' MEETING; ACTION BY CONSENT Under the DGCL, a special meeting of stockholders may be called by the board of directors or by any other person authorized to do so in the corporation's certificate of incorporation or Bylaws. The Cortech Bylaws provide that special meetings of stockholders may be called only by the President, the Secretary, the Cortech Board or, at the written request of stockholders owning a majority of outstanding shares of Cortech Common Stock. The Cortech Certificate provides that any action taken by stockholders must be effected at an annual or special meeting and may not be effected by written consent without a meeting. The BioStar bylaws provide that special meetings of stockholders may be called by the President and shall be called by the President or Secretary of BioStar upon written request of either a majority of the BioStar Board or holders of a 128 143 majority in interest in the BioStar Capital Stock outstanding. The BioStar bylaws allow stockholders to take action by written consent without a meeting. INSPECTION OF STOCKHOLDERS' LIST The DGCL allows any stockholder to inspect the stockholders' list for a purpose reasonably related to such person's interest as a stockholder. DIVIDENDS AND REPURCHASES OF SHARES The DGCL permits a corporation, unless otherwise restricted by its certificate of incorporation, to declare and pay dividends out of its surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared or for the preceding fiscal year as long as the amount of capital of the corporation is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets. Neither the Cortech Certificate nor the BioStar Certificate contains any such restrictions on the corporation's ability to declare and pay dividends. In addition, the DGCL generally provides that a corporation may redeem or repurchase its shares only if such redemption or repurchase would not impair the capital of the corporation. The ability of a Delaware corporation to pay dividends on, or to make repurchases or redemptions of, its shares is dependent on the financial status of the corporation standing alone and not on a consolidated basis. In determining the amount of surplus of a Delaware corporation, the assets of the corporation, including stock of subsidiaries owned by the corporation, must be valued at their fair market value as determined by the board of directors, regardless of their historical book value. AMENDMENT OF BYLAWS Section 109 of the DGCL provides that the stockholders entitled to vote have the power to adopt, amend or repeal bylaws and that a corporation may confer, in its certificate of incorporation, such powers on the board of directors. In addition to the stockholders' rights pursuant to Section 109, both the Cortech Certificate and the BioStar Certificate provide that the corporation's board of directors may make, alter or repeal its respective bylaws. APPROVAL OF CERTAIN CORPORATE TRANSACTIONS Under the DGCL, any merger, consolidation or sale, lease or exchange of all or substantially all of the assets (an "Extraordinary Event") must be approved by the board of directors and by the affirmative vote of a majority of the outstanding shares entitled to vote. The Cortech Certificate does not provide for any additional vote that would be required to approve such a transaction. The BioStar Certificate provides that in addition to an affirmative vote of a majority of the outstanding shares of capital stock entitled to vote, approval of a majority of the then outstanding shares of BioStar preferred stock, voting as a separate class, is required with respect to an Extraordinary Event. CERTAIN BUSINESS COMBINATIONS Section 203 of the DGCL prohibits a corporation from engaging in any business combination with an interested stockholder (defined as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person associated with, affiliated with or controlling or controlled by such entity or person) for a period of three years after the time that the stockholder became an interested stockholder unless (i) prior to that time, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder, (ii) upon consummation of the transaction pursuant to which the person became an interested stockholder, such stockholder owned 85% or more of the outstanding voting stock at the time the transaction commenced (excluding shares owned by directors and officers and shares owned by employee stock option plans in which the participants cannot determine confidentially whether or not the shares would be tendered in response to a tender or an exchange offer) or (iii) at or subsequent to the time of the transaction, the business 129 144 combination is approved by the corporation's board of directors and by a vote at a meeting (and not by written consent) of at least two-thirds of the outstanding voting stock not owned by the interested stockholder. Section 203 only applies to Delaware corporations that have a class of voting stock (i) listed on a national securities exchange, (ii) authorized for quotation by the Nasdaq Stock Market, Inc. or (iii) held of record by more than 2,000 stockholders. A Delaware corporation may elect in its original certificate of incorporation, or by amending its certificate of incorporation or bylaws, not to be governed by Section 203. Any such amendment must be approved by the stockholders and may not be further amended by the board of directors. Since Cortech is authorized for quotation by the Nasdaq Stock Market, Inc., Cortech is subject to the antitakeover provisions of Section 203 of the DGCL. Section 203 does not currently apply to BioStar since BioStar does not meet any of the criteria set forth above. Cortech has not elected to be excluded from being governed by Section 203. APPRAISAL RIGHTS Under the DGCL, a stockholder of a corporation participating in certain major corporate transactions may, under varying circumstances, be entitled to appraisal rights pursuant to which such stockholder may receive cash in an amount equal to the "fair value" of the shares held by such stockholder (as determined by the Delaware Court of Chancery) in lieu of the consideration such stockholder may otherwise receive in the transaction. Under the DGCL, appraisal rights are not available to: (i) stockholders with respect to a merger or consolidation by a corporation, the shares of which are either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or are held of record by more than 2,000 holders if such stockholders receive only (a) shares of the surviving corporation or shares of any other corporation which are either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or are held of record by more than 2,000 holders and (b) cash in lieu of fractional shares; or (ii) stockholders of a corporation surviving a merger if no vote of the stockholders of the surviving corporation is required to approve the merger because, among other things, the number of shares to be issued in the merger does not exceed twenty percent (20%) of the shares of the surviving corporation outstanding immediately prior to the merger and if certain other conditions are met. APPRAISAL RIGHTS ARE AVAILABLE TO STOCKHOLDERS OF BIOSTAR WITH RESPECT TO THE MERGER. SEE "APPROVAL OF THE MERGER AND RELATED TRANSACTIONS -- RIGHTS OF DISSENTING STOCKHOLDERS". DISSOLUTION Under the DGCL, a dissolution must be initiated by the board of directors and approved by the affirmative vote of a majority of the outstanding stock of the corporation entitled to vote thereon. REGISTRATION RIGHTS Pursuant to BioStar's Investors' Rights Agreement, holders of BioStar Registrable Securities currently have registration rights. The Investors' Rights Agreement provides that the holders of Registrable Securities (as defined therein) may (i) demand that the combined company effect two registrations (subject to certain restrictions and limitations, including limitations as to the number of shares which must request registration); (ii) include their shares with any registration effected by the combined company (subject to certain restrictions and limitations); and (iii) request that the combine company effect an unlimited number of registrations pursuant to a Registration Statement on Form S-3 (subject to certain restrictions and limitations). Upon the consummation of the Merger, Cortech will assume BioStar's obligations under the Investors' Rights Agreement. Pursuant to the terms of the Reorganization Agreement, the Investors' Rights Agreement 130 145 will be restated to provide that the holders of Registrable Securities may not request registration until the earlier of (i) ninety (90) days after the effective date of a registration statement for the first public offering of securities by the combined company after the Effective Time of the Merger and (ii) the first anniversary of the Effective Time of the Merger. In addition, the Investors' Rights Agreement will provide that holders may not include their Registrable Securities in a company-initiated registration until the earlier of (i) ninety (90) days after the effective date of a registration statement for the first public offering of securities of Cortech following the Effective Time of the Merger and (ii) the first anniversary of the Effective Time of the Merger. STOCKHOLDER PROPOSALS Proposals of stockholders of Cortech which are intended to be presented by such stockholders at Cortech's 1998 annual meeting of stockholders were to have been received by the Secretary of Cortech no later than December 17, 1997 in order to be included in the proxy statement and form of proxy relating to that meeting. EXPERTS The financial statements of Cortech, Inc. in the Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The financial statements of BioStar, Inc. as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, included in this Joint Proxy Statement/Prospectus have been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for Cortech by Pillsbury Madison & Sutro LLP, San Diego, California. Certain legal matters in connection with the Merger will be passed upon for BioStar by Cooley Godward LLP ("Cooley"), Boulder, Colorado. Cooley owns an aggregate of approximately 25,343 shares of BioStar Capital Stock and $7,258.36 in principal amount of promissory notes which will be converted into approximately 16,344 shares of BioStar Series F Preferred Stock two days prior to Effective Time, based upon the assumptions set forth in the Unaudited Pro Forma Financial Statements. See "Unaudited Pro Forma Financial Information." REPRESENTATIVES OF INDEPENDENT PUBLIC ACCOUNTANTS Representatives of Arthur Andersen LLP and Ernst & Young LLP, respectively, expect to be present at the Cortech Special Meeting and the BioStar Special Meeting. While such representatives have stated that they do not plan to make a statement at such meetings, they will be available to respond to appropriate questions from stockholders in attendance. 131 146 INDEX TO FINANCIAL STATEMENTS
PAGE ---- CORTECH, INC. Report of Independent Public Accountants.................... F-2 Balance Sheets as of December 31, 1997 and 1996............. F-3 Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995....................................... F-4 Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995.......................... F-5 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995....................................... F-6 Notes to Financial Statements............................... F-7 BIOSTAR, INC. Report of Independent Auditors.............................. F-17 Balance Sheets as of December 31, 1997 and 1996............. F-18 Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995....................................... F-19 Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1997, 1996 and 1995.................... F-20 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995....................................... F-21 Notes to Financial Statements............................... F-23
F-1 147 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Cortech, Inc.: We have audited the accompanying balance sheets of CORTECH, INC. (a Delaware corporation), as of December 31, 1997 and 1996, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. During the fourth quarter of 1997, the Company terminated its on-site research and development activities. The Company has retained certain personnel who are engaged primarily in efforts to realize appropriate value from the Company's tangible and intangible assets (Note 1). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cortech, Inc., as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Denver, Colorado, February 12, 1998. F-2 148 CORTECH, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS
DECEMBER 31, -------------------- 1997 1996 -------- -------- CURRENT ASSETS: Cash and cash equivalents (Note 2)........................ $ 11,562 $ 7,792 Short-term investments (Note 2)........................... 3,841 13,186 Prepaid expenses and other................................ 308 845 -------- -------- Total current assets.............................. 15,711 21,823 -------- -------- PROPERTY AND EQUIPMENT, at cost (Note 2): Laboratory and pilot production equipment................. -- 7,101 Leasehold improvements.................................... 8,026 8,026 Office furniture and equipment............................ 2,300 2,483 -------- -------- 10,326 17,610 Less -- Accumulated depreciation and amortization......... (9,592) (13,950) -------- -------- 734 3,660 -------- -------- Total Assets...................................... $ 16,445 $ 25,483 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.......................................... $ 600 $ 680 Accrued liabilities....................................... 162 206 Accrued vacation and other compensation................... 264 185 Unearned income........................................... -- 1,323 Advances from corporate partner........................... 36 964 -------- -------- Total current liabilities......................... 1,062 3,358 -------- -------- COMMITMENTS AND CONTINGENCIES (Notes 6 and 7) STOCKHOLDERS' EQUITY (Notes 3 and 4): Preferred stock, $.002 par value, 2,000,000 shares authorized, none issued................................ -- -- Common stock, $.002 par value, 50,000,000 shares authorized, 18,523,918 and 18,518,079 shares issued and outstanding, respectively.............................. 37 37 Warrants.................................................. 1,077 2,330 Additional paid-in capital................................ 98,909 97,659 Deferred compensation..................................... (1) (40) Accumulated deficit....................................... (84,639) (77,861) -------- -------- Total stockholders' equity........................ 15,383 22,125 -------- -------- Total Liabilities and Stockholders' Equity........ $ 16,445 $ 25,483 ======== ========
The accompanying notes to financial statements are an integral part of these statements. F-3 149 CORTECH, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 1997 1996 1995 ---------- ---------- ---------- REVENUES: Sponsored research and development: Ono............................................... $ 2,798 $ 3,500 $ 2,677 SB................................................ 653 2,550 -- Related parties (Note 3).......................... -- 1,372 1,463 Technology license revenue (Note 3).................. -- -- 1,000 ---------- ---------- ---------- Total revenues............................... 3,451 7,422 5,140 ---------- ---------- ---------- EXPENSES: Research and development (Notes 2 and 7)............. 7,552 11,339 18,551 General and administrative........................... 3,616 3,614 4,695 ---------- ---------- ---------- Total expenses............................... 11,168 14,953 23,246 ---------- ---------- ---------- Operating loss............................... (7,717) (7,531) (18,106) ---------- ---------- ---------- Interest income........................................ 939 1,192 1,685 ---------- ---------- ---------- NET LOSS............................................... $ (6,778) $ (6,339) $ (16,421) ========== ========== ========== Basic net loss per share (Note 2).................... $ (0.37) $ (0.35) $ (0.92) ========== ========== ========== Weighted average common shares outstanding (Note 2)................................................ 18,521,758 18,224,818 17,753,626 ========== ========== ==========
The accompanying notes to financial statements are an integral part of these statements. F-4 150 CORTECH, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
COMMON STOCK ADDITIONAL ------------------- PAID-IN DEFERRED ACCUMULATED SHARES AMOUNT WARRANTS CAPITAL COMPENSATION DEFICIT ---------- ------ -------- ---------- ------------ ----------- BALANCES, December 31, 1994.............. 17,725,504 $35 $3,407 $94,925 $(193) $(55,101) Reversal of deferred compensation in connection with resignation of two directors............................ -- -- -- (13) 13 -- Exercise of common stock options for cash at $1.75 to $2.60 per share..... 41,454 -- -- 74 -- -- Amortization of deferred compensation......................... -- -- -- -- 83 -- Issuance of common stock to consultant for services valued at $2.59 per share................................ 9,638 -- -- 25 -- -- Issuance of common stock at $1.91 to $2.31 per share pursuant to employee stock purchase plan.................. 46,860 1 -- 89 -- -- Compensation expense related to common stock option issuances............... -- -- -- 53 -- -- Net loss............................... -- -- -- -- -- (16,421) ---------- --- ------ ------- ----- -------- BALANCES, December 31, 1995.............. 17,823,456 36 3,407 95,153 (97) (71,522) Exercise of common stock options for cash at $1.75 to $2.875 per share.... 474,033 1 -- 828 -- -- Amortization of deferred compensation......................... -- -- -- -- 57 -- Issuance of common stock at $1.33, $1.91, $2.55 and $2.18 per share pursuant to employee stock purchase plan................................. 20,590 -- -- 37 -- -- Issuance of common stock options in exchange for termination of royalty obligation valued at $1.00 per share................................ -- -- -- 78 -- -- Issuance of common stock in exchange for termination of right of first offer valued at $2.44 per share...... 200,000 -- -- 486 -- -- Expiration of certain CDC warrants..... -- -- (1,077) 1,077 -- -- Net loss............................... -- -- -- -- -- (6,339) ---------- --- ------ ------- ----- -------- BALANCES, December 31, 1996.............. 18,518,079 37 2,330 97,659 (40) (77,861) Reversal of deferred compensation in connection with resignation of a director and other................... -- -- -- (7) 3 -- Amortization of deferred compensation......................... -- -- -- -- 36 -- Issuance of common stock at $0.66 per share pursuant to employee stock purchase plan........................ 5,839 -- -- 4 -- -- Contribution of certain warrants....... -- -- (175) 175 -- -- Expiration of certain CDC warrants..... -- -- (1,078) 1,078 -- -- Net loss............................... -- -- -- -- -- (6,778) ---------- --- ------ ------- ----- -------- BALANCES, December 31, 1997.............. 18,523,918 $37 $1,077 $98,909 $ (1) $(84,639) ========== === ====== ======= ===== ========
The accompanying notes to financial statements are an integral part of these statements. F-5 151 CORTECH, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $ (6,778) $ (6,339) $(16,421) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.......................... 1,545 2,093 4,344 Issuance of stock in exchange for termination of right of first offer....................................... -- 486 -- Issuance of common stock for services.................. -- -- 25 Loss on disposition of equipment....................... 530 14 52 Research and compensation expense related to grant of options, including amortization of deferred compensation......................................... 32 137 149 Decrease (increase) in prepaid expenses and other...... 537 (435) (6) (Increase) decrease in accounts payable................ (80) 75 (1,387) (Decrease) increase in advances from corporate partner.............................................. (928) 964 -- Increase (decrease) in accrued liabilities, accrued vacation and other compensation...................... 35 (97) (13) (Decrease) increase in unearned income................. (1,323) 750 573 -------- -------- -------- Net cash used in operating activities............. (6,430) (2,352) (12,684) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment....................... (39) (690) (601) Proceeds from sales of property and equipment............. 890 7 -- Purchases of short-term investments....................... (15,505) (18,587) (34,477) Sales of short-term investments........................... 24,850 22,354 41,465 -------- -------- -------- Net cash provided by investing activities......... 10,196 3,084 6,387 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock.................... 4 37 90 Proceeds from exercise of common stock options............ -- 829 74 -------- -------- -------- Net cash provided by financing activities......... 4 866 164 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 3,770 1,598 (6,133) CASH AND CASH EQUIVALENTS, beginning of period.............. 7,792 6,194 12,327 -------- -------- -------- CASH AND CASH EQUIVALENTS, end of period.................... $ 11,562 $ 7,792 $ 6,194 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: Contribution of 562,576 warrants to the Company........... $ 175 $ -- $ -- ======== ======== ========
The accompanying notes to financial statements are an integral part of these statements. F-6 152 CORTECH, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (1) ORGANIZATION Cortech, Inc. ("Cortech" or the "Company") is a biopharmaceutical company whose principal focus has been the discovery and development of novel therapeutics for the treatment of inflammatory disorders. The Company has directed its research and development efforts towards protease inhibitors and bradykinin antagonists. Due to the termination of the Company's collaborative agreements and the resulting corporate downsizings, the Company no longer has the scientific staff that would be required to continue its research and development activities on-site. Such on-site research and development activities were terminated in late 1997. However, Cortech has retained a core staff of professionals who are engaged primarily in ongoing efforts to realize appropriate value out of Cortech's tangible and intangible assets. Cortech is also decommissioning its laboratories, has sold most of its scientific and technical equipment and, unless the merger discussed below is implemented and BioStar, Inc. ("BioStar") elects to retain such assets, plans to sell most of its office furniture and equipment, and, where possible, its leasehold improvements. The Company announced in December 1997, that a definitive merger agreement was signed with BioStar, Inc. ("BioStar") of Boulder, Colorado. BioStar develops, manufactures and markets point-of-care diagnostic tests using its proprietary, highly-sensitive, thin film technologies. BioStar's current products employ its Optical Immuno Assay (OIA(R)) technology, a thin film, platform technology developed for the rapid detection of a variety of medical conditions. Under the agreement, and pursuant to the merger transaction contemplated thereby (the "Merger"), Cortech would issue up to 28,500,000 shares of its common stock to BioStar's stockholders in exchange for all of the equity interests in BioStar and BioStar would become a wholly-owned subsidiary of the Company. The relative ownership of the merged entity would be held approximately 40% by Cortech shareholders and approximately 60% by BioStar shareholders (assuming the exercise in full of all options and warrants to be assumed by Cortech in connection with the Merger). Accordingly, the Merger would be accounted for as a reverse acquisition. The transaction, which is subject to approval by the stockholders of both companies as well as other closing conditions, is anticipated to be completed in the second quarter of 1998. (2) SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash, Cash Equivalents and Short-term Investments For purposes of the statements of cash flows, the Company generally considers all highly liquid debt instruments with an original maturity of less than three months to be cash equivalents. Cash equivalents consist of government obligations or investments collateralized by government obligations. Short-term investments are carried at cost plus accrued interest, which approximates market value, and consist entirely of United States government obligations. Under Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company's short-term investments are classified as available-for-sale. These securities mature on various dates through February 1998. At December 31, 1997, these securities had an amortized cost of $3.8 million, which approximated fair market value. F-7 153 CORTECH, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Property and Equipment Depreciation of property and equipment is provided on the straight-line method over estimated useful lives of three to seven years. Amortization of leasehold improvements is provided on the straight-line method over the expected lease terms, which currently do not exceed two years. Betterments, renewals and extraordinary repairs that extend the life of an asset are capitalized; other repairs and maintenance are expensed. The cost and accumulated depreciation applicable to assets retired are removed from the accounts and the gain or loss on disposition recognized in income. The Company's policy is to depreciate its property and equipment over its remaining useful life and to evaluate the remaining life and recoverability of such property and equipment in light of current conditions. During 1997, the Company recorded a restructuring charge of approximately $1.7 million, which included a $580,000 permanent impairment of the value of the Company's scientific and office equipment. The Company sold the majority of its scientific and office equipment to an unrelated third party during the fourth quarter. The restructuring charge is included in research and development expense ($1.4 million) and general and administrative expense ($349,000) in the accompanying statements of operations. Research and Development Expenses Costs incurred in connection with research and development activities are expensed as incurred. These costs consist of direct and indirect costs associated with specific projects as well as fees paid to various entities that perform certain research on behalf of the Company. As discussed in Note 1, on-site research and development activities were terminated by the Company in the fourth quarter of 1997. Sponsored Research and Development Revenue The Company recognizes revenue from sponsored research and development as research activities are performed or as development milestones are completed under the terms of the research and development agreements. Costs incurred in connection with the performance of sponsored research and development are expensed as incurred and were approximately $2,882,000, $8,258,000, and $4,140,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Such costs are included in research and development expense in the accompanying statements of operations. Basic Net Loss Per Share Basic net loss per share is computed using the weighted average number of shares of common stock outstanding during the period. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which the Company is required to adopt for the year ended December 31, 1997. SFAS No. 128 requires restatement of amounts previously reported as net loss per share. Application of SFAS No. 128 did not have an impact on previously reported net loss per share amounts. Income Taxes The Company follows the provisions of SFAS No. 109 "Accounting for Income Taxes" which requires the recognition of deferred tax assets and liabilities related to the expected future tax consequences of events that have been recognized in the Company's financial statements and tax returns. However, if it is more likely than not that some portion or all of the net deferred tax assets will not be realized, a valuation allowance is established and the tax benefit is not recognized in the statements of operations. F-8 154 CORTECH, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (3) SPONSORED RESEARCH AND DEVELOPMENT Ono Pharmaceutical Co., Ltd. ("Ono") In March 1995, Cortech entered into a research agreement with Ono to develop an orally active human neutrophil elastase inhibitor using Cortech's protease inhibitor research capabilities. Upon entering into the agreement, Ono paid the Company $500,000 for research previously conducted by the Company. Under the agreement as amended in 1996, Ono paid $4.3 million in 1996 and an additional $1.5 million was paid in March 1997 for work that was performed in the second and third quarters of 1997. Under the terms of the agreement, as amended in April, 1997, Ono has assumed all responsibilities for research activities during the final six months of the collaborative project, which will terminate on March 14, 1998. As a result of this reallocation of responsibilities, Ono is no longer required to pay the Company the last scheduled $1.5 million in research funding previously provided for under the agreement to offset certain costs that the Company would otherwise have incurred under the agreement. Cortech expects no further payments from Ono under the agreement. Under the terms of the agreement, Ono will have an exclusive, royalty-free license to make, use and sell a resulting product in Japan, Korea, Taiwan and China. Cortech has retained all other rights. Hoechst Marion Roussel, Inc.("HMRI") The Company had an agreement with HMRI whereby HMRI funded certain research and development being conducted by the Company. In December 1996, HMRI terminated the agreement and returned all rights to Cortech. No further funding was provided by HMRI in 1997 and none will be provided in the future. HMRI accounted for $1,372,000 and $1,463,000 of the Company's sponsored research and development revenues for the years ended December 31, 1996, and 1995, respectively. In return for providing this research funding, the Company granted HMRI warrants to purchase common stock of the Company (Note 4). The Company records any cash received in connection with the issuance of the warrants as a component of equity in the accompanying financial statements. In October 1997, HMRI sold the warrants to an unrelated third party who subsequently contributed them to the capital of the Company. Also during October 1997, HMRI sold all Cortech common stock held by HMRI to the same unrelated third party. In August 1996, the Company issued 200,000 shares of unregistered common stock to HMRI to purchase the "right of first offer" it had previously granted to HMRI. The right of first offer, granted as part of a transaction between the parties entered into in February 1988, had covered all new technologies developed by the Company. SmithKline Beecham("SB") In November 1995, Cortech entered into a worldwide product development and license agreement with SB for the development of Bradycor. In March 1997, SB and the Company agreed to terminate their collaboration when a Phase II trial of Bradycor in patients with traumatic brain injury failed to demonstrate a statistically significant effect of the compound on intracranial pressure, the primary endpoint of the trial. SB made a one-time payment to Cortech of $1.0 million for an exclusive license to Bradycor in 1995, and paid Cortech $4.0 million during 1996. No payments were received in 1997 and Cortech expects no further payments from SB under the agreement. F-9 155 CORTECH, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (4) STOCKHOLDERS' EQUITY Preferred Stock The Company is authorized to issue 2,000,000 shares of $.002 par value preferred stock which may be issued with various terms in one or more series, as the Board of Directors may determine. On June 2, 1995, the Company's Board of Directors approved the adoption of a Preferred Share Rights plan under which stockholders received one Right to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock ("Junior Preferred Stock") for each outstanding share of Cortech common stock of record held at the close of business on June 26, 1995. The rights were distributed as a non-taxable dividend and will expire in June 2005. The rights would separate from shares of Cortech common stock and become exercisable at $20.00 each, subject to future adjustment, only if a person or group acquires 15 percent or more of the Cortech common stock. Cortech's Board of Directors may terminate the plan or redeem the rights, at a nominal redemption price, prior to the time a person acquires more than 15 percent of the Cortech common stock. The Company has designated 500,000 shares of its Preferred Stock as Junior Preferred Stock. Stock Option Plans In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting for Stock-Based Compensation." This new standard encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments based on a fair-value method of accounting. Companies that do not choose to adopt the new expense recognition rules of SFAS No. 123 will continue to apply the existing rules contained in Accounting Principles Board ("APB") Opinion No. 25, but will be required to provide pro forma disclosures of the compensation expense determined under the fair-value provisions of SFAS No. 123, if material. APB No. 25 requires no recognition of compensation expense for most of the stock-based employee compensation arrangements provided by the Company, namely, broad-based employee stock option grants and stock purchase plans where the exercise price is equal to the market price at the date of grant. The Company adopted the disclosure provisions of SFAS No. 123 for the years ended December 31, 1997, 1996 and 1995. The Company will continue to follow the accounting provisions of APB No. 25 for stock-based compensation and will furnish the pro forma disclosures required under SFAS No. 123. At December 31, 1997, the Company has four stock option plans, which are described below. The Company applies APB No. 25 and related Interpretations in accounting for its plans. Had compensation cost for the Company's four stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company's net loss and loss per share would have been increased to the pro forma amounts indicated below:
1997 1996 1995 --------- --------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Basic net loss -- as reported............ $(6,778) $(6,339) $(16,421) Basic net loss -- pro forma.............. $(7,577) $(7,005) $(16,887) Basic loss per share -- as reported...... $ (0.37) $ (0.35) $ (0.92) Basic loss per share -- pro forma........ $ (0.41) $ (0.38) $ (0.95)
The Company's 1986 Stock Option Plan ("1986 Plan") authorizes the grant of stock options to officers and employees of the Company to purchase an aggregate of 1,500,000 shares of common stock. Although 407,100 shares were available under the 1986 Plan as of December 19, 1997, on such date the Board of F-10 156 CORTECH, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Directors effectively suspended future grants of options under the 1986 Plan to the extent that any such grant would increase the shares subject to outstanding grants above the figure as of such date. Such suspension shall remain in effect pending the proposed Merger and other actions to be considered for approval by the Company's stockholders in connection with such Merger. The Company's 1993 Equity Incentive Plan ("1993 Plan"), approved by the stockholders on May 10, 1994, authorizes the issuance of 1,700,000 shares through the grant of options to purchase common stock, stock bonuses, and rights to purchase restricted stock. The options outstanding as of December 31, 1997, generally become exercisable in varying amounts over a five-year period from the date of grant. Although 370,845 shares were available under the 1993 Plan as of December 19, 1997, on such date the Board of Directors effectively suspended further grants of options under the 1993 Plan to the extent that any such grant would increase the shares subject to outstanding grants above the figure as of such date. Such suspension shall remain in effect pending the proposed Merger and other actions to be considered for approval by the Company's stockholders in connection with such Merger. The stock options granted from either plan may be incentive stock options ("ISO") or nonstatutory stock options ("NSO"). The Board of Directors may set the rate at which the options become exercisable and determine when the options expire, subject to limitations discussed below. However, no options shall be exercisable after the tenth anniversary of the date of grant or, in the case of ISOs, three months following termination of employment, except in cases of death or disability, for which the time of exercisability is extended. In the event of a dissolution, liquidation or other corporate reorganization, all stock options outstanding under the 1986 Plan and the 1993 Plan would become exercisable in full (the proposed Merger would not effect such an acceleration). ISOs may not be granted at an exercise price of less than the fair market value of the common stock at the date of grant. If an ISO is granted to an employee who owns more than 10% of the Company's total voting stock, such exercise price shall be at least 110% of fair market value of the common stock, and the ISO shall not be exercisable until after five years from the date of grant. The exercise price of each NSO may not be less than 85% of the fair market value of the common stock at the date of grant. The ISOs outstanding as of December 31, 1997, generally become exercisable in varying amounts over a two-to-five year period from the date of grant. NSOs also generally become exercisable over a two-to-five year period. Each of these plans also provides for stock appreciation rights, which may be granted with respect to any stock option. No stock appreciation rights have been granted as of December 31, 1997. During 1991, a Nonemployee Directors' Stock Option Plan was approved which authorized the grant of stock options to purchase up to 150,000 shares of common stock to the nonemployee directors of the Company. The exercise price of the options is equal to the fair market value of the shares on the date of grant, which is generally the later of initiation of the plan or the date of election to the Board of Directors. In March 1993, the Board of Directors suspended further grants under this plan. Vesting of the options occurred upon the participation by a director in a Board meeting. As of December 31, 1997, options to purchase 108,000 shares of common stock had been granted and were fully vested. Such options were granted at exercise prices ranging from $1.75 to $2.60 per share. The Company recorded the difference between the fair market value of the underlying common stock and the exercise price as compensation expense on the date the options vested. The Company's 1992 Nonemployee Directors' Stock Option Plan authorizes the granting of options to purchase up to 400,000 shares of common stock to the nonemployee directors of the Company. The plan was originally approved by the stockholders on May 17, 1993, and an amendment to the plan was approved by the stockholders on May 10, 1994. During 1997, 1996 and 1995, respectively, options to purchase 27,500, 28,750, and 36,000 shares of common stock were granted to nonemployee directors. During 1994, in order to effect a repricing of certain of these options, options to purchase 162,250 shares of common stock were amended to F-11 157 CORTECH, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) become options to purchase 148,535 shares of common stock at an exercise price of $1.75 per share. The amended options generally become exercisable from one to two years later than as originally granted. The Company recorded deferred compensation in 1993 of approximately $114,000 based on the amount that the fair market value of the Company's common stock exceeded the exercise price on the date the options were approved by the stockholders. The Company began in July 1993 to amortize such deferred compensation over approximately five years and has recorded compensation expense of approximately $6,000, $15,000, and $18,000 in 1997, 1996 and 1995, respectively. There are currently options to purchase 190,535 shares of common stock outstanding under the plan at exercise prices ranging from $1.47 to $8.75 per share. By its terms, the plan terminated on December 31, 1997 (although such event does not affect outstanding options granted under the plan). The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
1997 1996 1995 ---- ----- ----- Expected Life (years)....................................... 1.0 8.7 7.0 Interest Rate............................................... 5.54% 6.13% 5.38% Volatility.................................................. 93.1% 111.1% 117.6%
A summary of the status of the Company's 1986 plan, 1993 plan and nonemployee directors' stock option plans as of December 31, 1997, 1996 and 1995 and changes during the years ending on those dates is presented below:
1997 1996 1995 ---------------------------- ---------------------------- ---------------------------- WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ------- --------- ---------------- --------- ---------------- --------- ---------------- Outstanding at beginning of year............... 2,442,701 $2.08 2,611,602 $2.02 2,270,748 $2.58 Granted............... 46,800 $1.39 489,345 $1.99 813,779 $2.13 Exercised............. -- -- (458,133) $1.74 (41,454) $1.79 Forfeited/Cancelled... (489,992) $2.08 (200,113) $2.05 (431,471) $2.99 --------- --------- --------- Outstanding at end of year.................. 1,999,509 $2.06 2,442,701 $2.08 2,611,602 $2.02 ========= ========= ========= Options exercisable at year-end.............. 1,441,568 $2.09 1,278,836 $2.08 1,095,860 $1.92 ========= ========= ========= Weighted-average fair value of options granted during the year.................. $ 0.52 $ 1.78 $ 1.92
The Company has granted other options to certain directors and consultants:
1997 1996 1995 -------------------------- -------------------------- --------------------------- WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ------- ------- ---------------- ------- ---------------- -------- ---------------- Outstanding at beginning of year...................... 160,584 $3.92 141,734 $4.16 381,484 $4.13 Granted................... -- -- 38,750 $1.25 -- -- Exercised................. -- -- (15,900) $1.80 -- -- Forfeited/Cancelled....... (15,000) $6.00 (4,000) $2.60 (239,750) $3.99 ------- ------- -------- Outstanding at end of year...................... 145,584 $3.71 160,584 $3.92 141,734 $4.16 ======= ======= ======== Options exercisable at year-end.................. 131,755 $3.86 137,002 $4.27 135,027 $4.44 ======= ======= ======== Weighted-average fair value of options granted during the year.................. -- $ 2.73 --
F-12 158 CORTECH, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes information about stock options outstanding at December 31, 1997.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------- ------------------------------ NUMBER WEIGHTED-AVERAGE NUMBER RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE --------------- ----------- ---------------- ---------------- ----------- ---------------- $ .69 - $1.00............ 24,000 8.41 $0.95 20,000 $1.00 $1.38 - $2.00............ 1,273,654 7.26 $1.73 942,217 $1.75 $2.06 - $3.00............ 772,483 6.95 $2.53 541,150 $2.55 $3.06 - $3.75............ 25,372 6.81 $3.50 20,372 $3.49 $8.00 - $8.75............ 49,584 4.31 $8.06 49,584 $8.06 --------- --------- 2,145,093 1,573,323 ========= =========
During 1992, the Company granted options to purchase 50,000 shares of the Company's common stock at $2.60 per share to the former president of the Company. These options began vesting upon the occurrence of certain events. The Company recorded $170,000 in deferred compensation based on the difference between the fair value of the underlying common stock on the date the specified event occurred and the exercise price of $2.60 per share. Deferred compensation is being amortized over the applicable vesting periods. In connection with these options, the Company has recorded amortization expense of approximately $20,000 in 1997 and $34,000 in each of 1996 and 1995. Stock Purchase Plan In December 1992, the Board of Directors approved an employee stock purchase plan. Under the terms of the plan, 300,000 shares of the Company's common stock have been authorized for purchase by eligible employees as specified by the Board of Directors. Eligible employees shall be granted the right to purchase shares with a percentage of such employees' earnings at the lesser of 85% of the fair market value of the common stock on the offering date or exercise date. Under the plan, employees purchased 5,839 shares of the Company's common stock in 1997 at $0.66 per share; 20,590 shares in 1996 at $1.33, $1.91, $2.55 and $2.18 per share and 46,860 shares in 1995 at $1.91, $2.18 and $2.31 per share. In November 1997, the employee stock purchase plan was effectively suspended pending further action by the Board of Directors. For disclosure purposes under SFAS No. 123, compensation cost is recognized for the fair value of the employees' purchase rights, which was estimated using the Black-Scholes model with the following assumptions.
1997 1996 1995 ---- ----- ----- Expected Life (years)....................................... 1.0 1.0 1.0 Interest Rate............................................... 5.54% 6.13% 5.38% Volatility.................................................. 93.1% 111.1% 117.6%
The weighted-average fair value of those purchase rights granted in 1997, 1996 and 1995 was $0.33, $1.49 and $1.59, respectively. F-13 159 CORTECH, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Warrants Warrants to purchase shares of the Company's common stock, are as follows:
NUMBER OF SHARES ------------------------------------ EXERCISE PRICE DIRECTORS PER SHARE AND OFFICERS OTHERS TOTAL -------------- ------------ --------- --------- Outstanding and exercisable at December 31, 1995....................................... $ 4.00-$10.00 20,889 1,736,219 1,757,108 Expired.................................... $ 4.00-$ 6.00 -- (477,344) (477,344) ------- --------- --------- Outstanding and exercisable at December 31, 1996....................................... $ 4.00-$10.00 20,889 1,258,875 1,279,764 Expired.................................... $ 4.00-$ 8.00 (20,889) (904,031) (924,920) ------- --------- --------- Outstanding and exercisable at December 31, 1997....................................... $10.00 -- 354,844 354,844 ======= ========= =========
The remaining warrants expire on December 31, 1998 (Note 7). Registration Rights Investors in the CP-0127 Development Corporation ("CDC") offering (Note 7) are entitled to certain piggyback registration rights with respect to shares of common stock they hold or may acquire on exercise of the warrants received in the CDC offering or the common stock which may be used by the Company to exercise its option to repurchase the CDC shares. At December 31, 1997, CDC investors owned 750 shares of Cortech common stock and owned warrants for the purchase of 354,844 common shares. Furthermore, 219,689 common shares acquired through the exercise of warrants carry similar piggyback registration rights. (5) INCOME TAXES As of December 31, 1997, the Company has approximately $77.2 million of net operating loss ("NOL") carry forwards for income tax purposes and approximately $2.9 million of research and development tax credits available to offset future federal income tax, subject to limitations for alternative minimum tax. The NOLs and credit carry forwards are subject to examination by the tax authorities and expire in various years from 1998 through 2012, with approximately $74.3 million of the NOL and $2.7 million of the credits expiring from 2005 through 2012. The components of the net deferred income tax asset at December 31, 1997 and 1996 were as follows:
INCREASE 1997 (DECREASE) 1996 ------------ ----------- ------------ Net operating loss carry forwards.......... $ 29,998,000 $ 2,418,000 $ 27,580,000 Research and development credits........... 2,880,000 45,000 2,835,000 Depreciation expense....................... 2,358,000 224,000 2,134,000 Compensated absences....................... 25,000 (45,000) 70,000 Less: Valuation allowance.................. (35,261,000) (2,642,000) (32,619,000) ------------ ----------- ------------ $ -- $ -- $ -- ============ =========== ============
The Company has not yet achieved profitable operations. Accordingly, management believes the deferred tax assets as of December 31, 1997 and 1996, do not satisfy the realization criteria set forth in SFAS No. 109 and has recorded a valuation allowance for the entire net tax asset. By recording a valuation allowance for the entire amount of future tax benefits, the Company has not recognized a benefit provision for income taxes in its statements of operations. The difference between the Company's recorded income tax benefit and that computed by applying the statutory Federal income tax rate F-14 160 CORTECH, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) to its net loss before income taxes is due primarily to the valuation allowance established to offset the Company's net deferred tax asset. The valuation allowance increased $2.6 million in 1997 due primarily to increases in the Company's net operating losses and research and development credits. Included in the net operating loss carry forward is approximately $1.7 million related to income tax deductions for the Company's stock option plans. The tax benefit of such deductions will be recorded as an increase to additional paid-in capital when realized. The Tax Reform Act of 1986 contains provisions that may limit the NOL and credit carry forwards available to be used in any given year upon the occurrence of certain events, including significant changes in ownership interest. A change in ownership of a company of greater than 50% within a three-year period results in an annual limitation on the company's ability to utilize its NOLs and tax credits from tax periods prior to the ownership change. Due to changes in ownership that took place in 1993 and changes that would take place upon the proposed Merger (see Note 1), the Company's use of operating loss and tax credit carry forwards is subject to such limitations. (6) COMMITMENTS The Company has various noncancellable operating leases for its office and laboratory space. Rent expense for these facilities was approximately $427,000, $443,000, and $585,000 in 1997, 1996 and 1995, respectively. Future minimum cash obligations under these leases are as follows:
YEARS ENDING DECEMBER 31, ------------------------- 1998.................................. $201,000 1999.................................. 25,000 ----------- $226,000 ===========
(7) CP-0127 DEVELOPMENT CORPORATION In February 1992, the Company completed a private placement of 709,687 units (as discussed below) to unrelated third parties representing total subscriptions of approximately $8,516,000. Under the terms of the subscription agreements, one third of the total amount subscribed was paid at closing (approximately $2,839,000); one third was paid April 30, 1992; and the final installment was paid July 31, 1992. Each unit was comprised of one share of CDC common stock and three warrants, of which one warrant expired on December 31, 1996 and one warrant expired on December 31, 1997. Each remaining warrant represents the right to purchase one half of one share of the Company's common stock for $10.00 per share and expires on December 31, 1998 (Note 4). The net proceeds received by CDC have been allocated to CDC as consideration for its common stock and to the Company for the issuance of the warrants in the amounts of approximately $5,284,000 and $3,232,000, respectively. Such allocation was based on the relative fair market value of the Company's warrants and the CDC common stock. In connection with the formation of CDC, the Company granted to CDC, under the terms of a technology license agreement, an exclusive license to certain technology for human pharmaceutical use within the United States, Canada and Europe for $1,000,000. CDC, in turn, granted to Cortech a world-wide exclusive right and license to the technology that is developed by Cortech. CDC has 709,687 common shares issued and outstanding at December 31, 1997. All such stockholders acquired their shares through the purchase of the above units. In connection with the technology license agreement referred to above, the Company entered into a research and development agreement with CDC whereby the Company performed research and development activities to further develop the licensed technology and was paid for such services on a cost reimbursement basis. CDC also paid the Company for its allocable share of certain overhead costs. The cost to fully develop F-15 161 CORTECH, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) the licensed technology has exceeded the research and development funding provided by CDC. Such additional costs have been and would continue to be borne by the Company and/or its corporate partners. As of December 31, 1997, the Company was not engaged in active development of any compounds covered by the license agreement. The Company would be responsible for manufacturing and marketing of CDC's products, if any, in the United States, Canada and Europe and would be required to make royalty payments to CDC based on future product revenues, if any, subject to the purchase option discussed below. The Company has been granted an option by the purchasers of the CDC common stock to purchase all, but not less than all, of the 709,687 shares of CDC common stock outstanding. The purchase option is exercisable at any date before December 31, 1998, and is based on an exercise price of $75.40 per share of CDC common stock in 1998. The option may be exercised in cash, common stock of the Company or any combination thereof. The Company's chief executive officer is also an officer of CDC. In addition, the Company's chief executive officer and one of the Company's directors are also directors of CDC. (8) EMPLOYEE RETIREMENT PLAN The Company provides a defined contribution 401(k) plan for eligible employees. Employee contribution to the plan is voluntary. In 1994, the Company voluntarily began contributing an amount equal to 25% of a covered employee's contribution to a maximum of 1% of compensation. The Company's contributions to the plan totaled $21,000 in 1997, $32,000 in 1996 and $45,000 in 1995. F-16 162 REPORT OF INDEPENDENT AUDITORS The Board of Directors BioStar, Inc. We have audited the accompanying balance sheets of BioStar, Inc. as of December 31, 1997 and 1996, and the related statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BioStar, Inc. at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Denver, Colorado February 12, 1998 F-17 163 BIOSTAR, INC. BALANCE SHEETS ASSETS
DECEMBER 31 ---------------------------- 1997 1996 ------------ ------------ Current assets: Cash...................................................... $ 1,281 $ 87,472 Trade accounts receivable, net of allowance for doubtful accounts of $100,000 for 1997 and $125,318 for 1996..... 1,663,427 1,442,477 Other receivables......................................... 126,403 160,538 Inventories (Note 3)...................................... 1,412,710 1,650,476 Prepaid expenses.......................................... 159,248 184,785 ------------ ------------ Total current assets............................... 3,363,069 3,525,748 ------------ ------------ Property and equipment: Laboratory and manufacturing equipment.................... 3,040,311 2,521,747 Office equipment.......................................... 518,433 415,239 Furniture and fixtures.................................... 98,778 166,815 Leasehold improvements.................................... 123,304 109,695 ------------ ------------ 3,780,826 3,213,496 Accumulated depreciation and amortization................. (1,624,166) (1,606,300) ------------ ------------ 2,156,660 1,607,196 ------------ ------------ Patents and trademarks: Purchased patents......................................... 920,431 920,431 Deferred patent and trademark costs....................... 814,650 641,538 ------------ ------------ 1,735,081 1,561,969 Accumulated amortization.................................. (1,159,474) (1,031,281) ------------ ------------ 575,607 530,688 ------------ ------------ Other assets................................................ 234,125 118,133 ------------ ------------ Total assets....................................... $ 6,329,461 $ 5,781,765 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Accounts payable.......................................... $ 1,217,909 $ 955,635 Accrued compensation...................................... 879,662 594,526 Accrued liabilities....................................... 320,715 306,185 Deferred revenue.......................................... 165,843 25,000 Note payable.............................................. 251,301 -- Current portion of capital lease obligations (Note 7)..... 374,072 518,031 Current portion of subordinated debt (Note 6)............. 747,047 596,427 Line of credit (Note 6)................................... 1,000,000 450,000 Subordinated promissory notes (Note 6).................... 1,565,050 -- ------------ ------------ Total current liabilities.......................... 6,521,599 3,445,804 ------------ ------------ Total long-term liabilities................................. 5,420,603 6,109,082 ------------ ------------ Commitments and contingencies (Note 7) Stockholders' deficit (Note 4): Convertible preferred stock, $.0001 par value, 20,327,784 shares authorized, 15,605,320 shares issued and outstanding in 1997 (15,559,606 in 1996)................ 1,561 1,556 Common stock, $.0001 par value, 41,644,443 shares authorized, 1,963,708 shares issued and outstanding in 1997 (2,402,755 in 1996)................................ 196 240 Additional paid-in capital................................ 20,207,268 20,232,433 Accumulated deficit....................................... (25,821,766) (23,888,517) Less treasury stock at cost, 0 shares in 1997 (516,667 in 1996)................................................... -- (118,833) ------------ ------------ Total stockholders' deficit........................ (5,612,741) (3,773,121) ------------ ------------ Total liabilities and stockholders' deficit........ $ 6,329,461 $ 5,781,765 ============ ============
See accompanying notes. F-18 164 BIOSTAR, INC. STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31 ----------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Net sales.......................................... $10,829,631 $11,589,030 $ 9,529,535 Contract revenues.................................. 5,027,930 778,148 61,497 ----------- ----------- ----------- Total revenue...................................... 15,857,561 12,367,178 9,591,032 Operating costs and expenses: Cost of sales.................................... 4,924,467 5,066,519 3,723,414 Research and development......................... 3,235,601 2,345,169 1,417,924 Sales and marketing.............................. 6,179,280 6,241,660 7,726,880 General and administrative....................... 2,661,633 1,885,449 1,346,985 ----------- ----------- ----------- Total operating costs and expenses................. 17,000,981 15,538,797 14,215,203 ----------- ----------- ----------- Loss from operations............................... (1,143,420) (3,171,619) (4,624,171) ----------- ----------- ----------- Other income (expense): Royalties and miscellaneous...................... 93,882 50,544 103,653 Interest income.................................. 4,182 28,821 61,124 Interest expense................................. (887,893) (730,859) (343,781) ----------- ----------- ----------- Total other expense, net........................... (789,829) (651,494) (179,004) ----------- ----------- ----------- Net loss........................................... $(1,933,249) $(3,823,113) $(4,803,175) =========== =========== =========== Basic and diluted net loss per share............... $ (1.00) $ (2.23) $ (2.55) =========== =========== =========== Weighted average shares outstanding................ 1,935,341 1,710,914 1,881,477 =========== =========== ===========
See accompanying notes. F-19 165 BIOSTAR, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE TREASURY STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL AT COST ------------------- ------------------ PAID-IN ACCUMULATED ------------------- SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT ---------- ------ --------- ------ ----------- ------------ -------- -------- Balance at December 31, 1994.......... 15,559,606 $1,556 1,829,089 $183 $20,129,436 $(15,262,229) -- $ -- Purchase of treasury stock............ -- -- -- -- -- -- (516,667) (118,833) Issuance of common stock upon exercise of stock options and stock bonuses............................. -- -- 247,925 25 37,362 -- -- -- Net loss.............................. -- -- -- -- -- (4,803,175) -- -- ---------- ------ --------- ---- ----------- ------------ -------- -------- Balance at December 31, 1995.......... 15,559,606 1,556 2,077,014 208 20,166,798 (20,065,404) (516,667) (118,833) Issuance of common stock upon exercise of stock options and stock bonuses............................. -- -- 325,741 32 65,635 -- -- -- Net loss.............................. -- -- -- -- -- (3,823,113) -- -- ---------- ------ --------- ---- ----------- ------------ -------- -------- Balance at December 31, 1996.......... 15,559,606 1,556 2,402,755 240 20,232,433 (23,888,517) (516,667) (118,833) Issuance of preferred stock to Lehman Brothers Inc........................ 45,714 5 -- -- 79,995 -- -- -- Issuance of common stock upon exercise of stock options and stock bonuses............................. -- -- 77,620 8 13,621 -- -- -- Retirement of treasury stock.......... -- -- (516,667) (52) (118,781) -- 516,667 118,833 Net loss.............................. -- -- -- -- -- (1,933,249) -- -- ---------- ------ --------- ---- ----------- ------------ -------- -------- Balance at December 31, 1997.......... 15,605,320 $1,561 1,963,708 $196 $20,207,268 $(25,821,766) -- $ -- ========== ====== ========= ==== =========== ============ ======== ======== TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ------------- Balance at December 31, 1994.......... $ 4,868,946 Purchase of treasury stock............ (118,833) Issuance of common stock upon exercise of stock options and stock bonuses............................. 37,387 Net loss.............................. (4,803,175) ----------- Balance at December 31, 1995.......... (15,675) Issuance of common stock upon exercise of stock options and stock bonuses............................. 65,667 Net loss.............................. (3,823,113) ----------- Balance at December 31, 1996.......... (3,773,121) Issuance of preferred stock to Lehman Brothers Inc........................ 80,000 Issuance of common stock upon exercise of stock options and stock bonuses............................. 13,629 Retirement of treasury stock.......... -- Net loss.............................. (1,933,249) ----------- Balance at December 31, 1997.......... $(5,612,741) ===========
See accompanying notes. F-20 166 BIOSTAR, INC. STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 ----------------------------------------- 1997 1996 1995 ----------- ----------- ----------- OPERATING ACTIVITIES Net loss............................................ $(1,933,249) $(3,823,113) $(4,803,175) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment...................................... 763,121 732,252 452,010 Amortization of patents and trademarks............ 128,193 67,479 183,999 Deferred rent credit.............................. (38,993) (30,068) (21,401) Changes in operating assets and liabilities: Trade accounts receivable...................... (220,950) 200,522 (729,896) Other receivables.............................. 34,135 (78,508) (35,650) Inventories.................................... 237,766 (122,527) (414,949) Prepaid expenses............................... 25,537 45,745 (110,435) Other assets................................... (35,992) (10,918) (30,779) Accounts payable............................... 262,274 143,185 359,806 Accrued liabilities............................ 912,144 511,211 (25,167) ----------- ----------- ----------- Net cash provided by (used in) operating activities........................................ 133,986 (2,364,740) (5,175,637) ----------- ----------- ----------- INVESTING ACTIVITIES Purchases of marketable securities.................. -- -- (2,305,400) Sales of marketable securities...................... -- -- 3,525,461 Purchase of property and equipment.................. (1,012,460) (379,488) (643,250) Capitalized patent and trademark costs.............. (173,112) (101,792) (152,694) Note receivable from officer........................ -- 106,167 -- ----------- ----------- ----------- Net cash provided by (used in) investing activities........................................ (1,185,572) (375,113) 424,117 ----------- ----------- ----------- FINANCING ACTIVITIES Issuance of common stock............................ 13,629 65,667 37,387 Issuance of subordinated debt....................... -- -- 2,500,000 Payments on subordinated debt....................... (596,427) (248,483) (408,043) Issuance of convertible subordinated debt........... -- 3,000,000 1,000,000 Issuance of subordinated promissory notes........... 1,565,050 -- -- Payments on note payable............................ (48,824) -- -- Proceeds from line of credit........................ 2,931,732 500,000 1,070,000 Payments on line of credit.......................... (2,381,732) (970,000) (150,000) Proceeds from sale-leaseback transactions........... -- 81,718 385,166 Payments on capital lease obligations............... (518,033) (572,940) (412,211) ----------- ----------- ----------- Net cash provided by financing activities........... 965,395 1,855,962 4,022,299 ----------- ----------- ----------- Net decrease in cash................................ (86,191) (883,891) (729,221) Cash at beginning of year........................... 87,472 971,363 1,700,584 ----------- ----------- ----------- Cash at end of year................................. $ 1,281 $ 87,472 $ 971,363 =========== =========== ===========
F-21 167 BIOSTAR, INC. STATEMENTS OF CASH FLOWS -- (CONTINUED) SUPPLEMENTAL CASH FLOW INFORMATION The Company incurred no capital lease obligations in 1997 and obligations of $208,136 and $115,515 in 1996 and 1995, respectively, in connection with Master Lease Agreements in which the lessors paid vendors directly for the Company to acquire equipment and furniture and fixtures. The Company paid interest of approximately $292,000, $371,000, and $342,000 for the years ended December 31, 1997, 1996 and 1995, respectively. In 1997, the Company purchased manufacturing equipment for $687,250, of which $300,125 was financed with a note from the manufacturer, payable in installments over 12 months. In 1997, the Company issued 45,714 shares of Series E Preferred Stock to Lehman Brothers Inc. in exchange for consulting services in connection with the proposed merger discussed in Note 2. In connection with issuance of Convertible Subordinated Notes in 1996, $500,000 of subordinated debt was converted to convertible subordinated debt. In 1995, the Company received shares of common stock for payment of principal and interest of $118,833 on the note receivable from an officer. See accompanying notes. F-22 168 BIOSTAR, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Purpose BioStar develops, manufactures and markets point-of-care diagnostic tests using its proprietary highly-sensitive, thin film technologies. BioStar's current products employ its Optical ImmunoAssay ("OIA(R)") technology, a thin film, platform technology developed for the rapid detection of a variety of medical conditions. BioStar's OIA tests help caregivers, in a cost-effective and efficient manner, to identify causes of illness and select appropriate patient therapy by providing information during the initial patient encounter. Internally and through collaborative arrangements, BioStar is developing additional thin film technologies which are intended to broaden the range of applications for its existing products and to enable the introduction of new products. The Company was formed on June 17, 1992 pursuant to the purchase of the assets and assumption of certain liabilities of BioStar Medical Products, Inc. ("BMPI") from the BMPI Liquidating Trust (the "Trust") under an Asset Purchase Agreement (the "Purchase Agreement"). In conjunction with the transaction, the Company issued to the Trust a Convertible Contingent Payment Instrument (the "CCPI"), which will be canceled immediately prior to the effective date of the proposed merger (see Note 2). At December 31, 1997 and 1996, all trade accounts receivable were due from customers in the health care industry. Substantially all of these customers are physicians, clinics, universities, hospitals and laboratories located in the United States. Credit losses relating to these customers have been within management's expectations. The Company does not require collateral from its customers. Sales of Group A strep products accounted for 83% of gross sales in 1997 and 1996, and 93% of gross sales in 1995. Liquidity and Management Plans The Company incurred a net loss of $1,933,249 for the year ended December 31, 1997 and has an accumulated deficit of $25,821,766. In addition, the Company had a net capital deficiency of $5,612,741 at December 31, 1997. As is more fully described in Note 2, BioStar and Cortech, Inc. ("Cortech") have entered into an Agreement and Plan of Merger and Reorganization. Cortech's principal assets are cash and short-term investments which amounted to $15,403,000 at December 31, 1997. If the merger is not successfully completed, the Company will need to raise additional funds through equity or debt placements to meet its obligations on existing debt and to sustain operations. The Company has obtained commitments from the holders of its subordinated promissory notes aggregating $1,510,092, that should the Merger not be consummated, they will extend the due dates to March 31, 1999. In addition, certain preferred stockholders who are also subordinated debt holders have committed to actively support and assist the Company in obtaining operating funds through March 31, 1999 and participate in a private placement, if required, to provide adequate working capital. Fair Value of Financial Instruments The carrying values of cash, accounts receivable and payable, debt and capital lease obligations approximate fair value. The carrying values of long-term debt are the principal balances of each debt instrument, which approximate their fair value when using discounted cash flow analysis. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. F-23 169 BIOSTAR, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition The Company recognizes sales revenue upon shipment of product and records royalty income when royalties are received. Revenues earned under collaborative research agreements are recognized as the related services are performed and research expenses are incurred. Amounts received in advance of services to be performed are recorded as deferred revenue until the related expenses are incurred. Milestone payments are recognized as revenue in the period earned. The Company has received government grants which support the Company's research efforts on specific research projects. These grants generally provide for reimbursement to the Company of approved costs incurred as defined in the various awards. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. Excess and idle capacity costs are expensed as incurred. Property and Equipment Property and equipment is stated at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Leasehold improvements and equipment under capitalized leases are amortized on a straight-line basis over the shorter of their estimated lives or the lease term. Patents and Trademarks Purchased patents were capitalized and amortized over their estimated economic lives of three years and are fully amortized. Costs related to patents and trademarks for which the Company has applied are deferred until such time as the patents or trademarks are issued or declined. Costs of patents and trademarks issued are amortized over their estimated economic lives. Costs of patents and trademarks declined are charged to operations. Stock Options The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations in accounting for outstanding stock options. Under APB 25, because the exercise price of the Company's stock options equals the fair value of the underlying stock on the date of grant, no compensation expense is recognized. Net Loss Per Common Share In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. All periods presented conform to Statement 128 requirements. As of December 31, 1997, 1996 and 1995, respectively, the Company has 15,605,320; 15,559,606 and 15,559,606 shares of preferred stock which were convertible to common, Convertible Subordinated Notes in 1997 and 1996 which can be converted to 2,571,426 preferred shares (Note 5), 5,177,569; 3,077,675 and 471,249 preferred and common stock warrants outstanding, and 3,610,406; 2,873,315 and 2,523,130 employee stock options outstanding. In the event that all these common stock equivalents were converted to common stock, there would be 28,928,429; 26,484,777 and 20,630,999 common shares outstanding for calculation of diluted earnings per share. F-24 170 BIOSTAR, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 2. MERGER AGREEMENT On December 22, 1997, the Company signed an Agreement and Plan of Merger and Reorganization with Cortech, a publicly-owned biopharmaceutical company which, until significant reductions in work force were made in 1997, had been engaged in the discovery and development of therapeutics for treatment of inflammatory disorders. Upon consummation of the merger contemplated by such Agreement, which is expected to occur in the second quarter of 1998 if approved by stockholders of both companies, the Company would become a wholly owned subsidiary of Cortech and each share of the Company's common and preferred stock would be exchanged for a pro rata share of Cortech common stock. For accounting purposes, the merger would be treated as a purchase of Cortech by the Company. All assets and obligations of Cortech would be combined with those of the Company, and the Company's current management would manage the combined entity. The costs related to the merger incurred as of December 31, 1997, of $168,719 have been deferred and are included in other assets. 3. INVENTORIES Inventories consist of the following:
DECEMBER 31 ------------------------ 1997 1996 ---------- ---------- Raw materials............................................... $ 539,413 $ 770,008 Work-in-process............................................. 139,268 290,474 Finished goods.............................................. 734,029 589,994 ---------- ---------- $1,412,710 $1,650,476 ========== ==========
4. STOCKHOLDERS' EQUITY Series A, Series B, Series C, Series D, Series E and Series F Convertible Preferred Stock The authorized and outstanding shares of convertible preferred stock and related liquidation preferences were as follows at December 31, 1997:
SHARES AS CONVERTED INTO LIQUIDATION LIQUIDATION AUTHORIZED SHARES COMMON PREFERENCE PREFERENCE DESIGNATION SHARES OUTSTANDING STOCK PER SHARE TOTAL ----------- ---------- ----------- ---------- ----------- ----------- Series A..................... 3,500,000 3,500,000 3,500,000 $1.00 $ 3,500,000 Series B..................... 5,060,750 5,000,000 5,000,000 $1.00 5,000,000 Series C..................... 1,691,786 -- -- $5.00 -- Series D..................... 2,908,889 2,908,889 2,908,889 $2.25 6,545,000 Series E..................... 4,928,359 4,196,431 4,196,431 $1.75 7,343,754 Series F..................... 2,238,000 -- -- $1.75 -- ---------- ---------- ---------- ----------- 20,327,784 15,605,320 15,605,320 $18,752,645 ========== ========== ========== ===========
The significant features of the Series A, Series B, Series C, Series D, Series E and Series F convertible preferred stock are as follows: Voting Rights -- The Series A, B, C, D, E, and F stockholders are entitled to the number of votes equal to the number of shares of common stock into which each share of preferred stock is convertible. Preferences -- The Series A, B, C, D, E, and F stockholders are entitled to quarterly noncumulative dividends, at the rate of $.10, $.10, $.50, $.23, $.175, and $.175 per share, per annum, respectively, payable only when and if declared by the Company's Board of Directors. F-25 171 BIOSTAR, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Series F will be entitled to receive, prior to Series A, B, C, D and E and common stockholders, an amount equal to the sum of $1.75 for each outstanding share, plus all declared but unpaid dividends. The Series B, Series D, and Series E stockholders will be entitled to receive, prior to Series A and Series C and common stockholders, an amount per share equal to the original Series B ($1.00), Series D ($2.25), and Series E ($1.75) issue price for each outstanding share, plus all declared but unpaid dividends. Series A and Series C stockholders will be entitled to receive, prior to common stockholders, an amount equal to the original Series A ($1.00) and Series C ($5.00) issue price for each outstanding share, plus all declared but unpaid dividends. No dividends have been declared through December 31, 1997. Immediately prior to the effective time of the proposed merger (see Note 2), the Company's Certificate of Incorporation will be amended to eliminate the liquidation preferences described above. Optional Conversion -- The Series A, B, C, D, E, and F stockholders, at their option, may convert their shares into common stock at any time based on the conversion rate in effect. The conversion rate is subject to adjustment, to prevent the dilution of Series A, B, C, D, E, and F conversion rights, pursuant to the Company's Certificate of Incorporation. Automatic Conversion -- All Series A, B, C, D, E, and F shares shall automatically be converted into common stock, based on the conversion rate in effect, upon the closing of a qualified underwritten public offering as described in the Company's Certificate of Incorporation. Upon consummation of the proposed merger (see Note 2), all preferred shares will be exchanged for shares of Cortech common stock. Redemption -- The Company has no right to redeem the Series A, B, C, D, E, or F shares. Other Series A, B, C, D, E, and F Rights As long as Series A, B, C, D, E, and F shares are outstanding, the Company will not, without the consent of a majority of the outstanding shares voting together as a single class: - Authorize any liquidation, dissolution, winding up, consolidation or merger of the Company or effect any transaction or series of related transactions in which more than 50% of the voting power of the Company is disposed. - Alter or change the rights, preferences or privileges of the Series A, B, C, D, E, or F shares so as to adversely affect the shares. - Authorize any other series of capital stock ranking prior to the Series A, B, C, D, E, or F shares or on a parity with the Series A, B, C, D, E, or F shares with respect to voting, dividends or upon liquidation. All of the above rights terminate upon the proposed merger with Cortech (see Note 2). Stock Option Plan The Company has a Stock Option Plan (the "Plan") for its employees, directors, and consultants which provides for the issuance of incentive and nonqualified options for up to 6,250,000 shares of common stock. The options shall be exercisable under conditions as determined by the Board of Directors, with the term of each option being up to ten years from the date of grant. The per share price for any option shall be determined by the Board of Directors. The exercise price of the shares covered by each incentive stock option shall not be less than the fair market value of the shares at the time of granting the incentive stock option. The exercise price of a nonqualified stock option may be less F-26 172 BIOSTAR, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) than the fair market value at the time of granting the nonqualified stock option, as determined by the Board of Directors. If an incentive stock option is granted to an employee who then owns more than 10% of the combined voting power of all classes of stock, then the option price must be at least 110% of the fair market value of the stock subject to the option, and the option shall not be exercisable after expiration of five years from the date the option was granted. Stock option activity for the years ended December 31, 1997 and 1996 is as follows:
WEIGHTED AVERAGE EXERCISE EXERCISE OPTIONS PRICE PRICE --------- ----------- -------- Balance, December 31, 1995........................ 2,523,130 $.10 - $.23 Granted........................................... 904,370 $ .23 $.23 Exercised......................................... (323,008) $.10 - $.23 $.16 Canceled.......................................... (231,177) $.10 - $.23 $.23 --------- Balance, December 31, 1996........................ 2,873,315 $.10 - $.23 $.21 Granted........................................... 1,587,968 $ .23 $.23 Exercised......................................... (60,620) $.10 - $.23 $.21 Canceled.......................................... (790,257) $.10 - $.23 $.23 --------- Balance, December 31, 1997........................ 3,610,406 $.10 - $.23 $.21 ========= Options exercisable at December 31, 1997.......... 1,660,770 $.10 - $.23 $.20
The weighted-average fair value of options granted during 1997 and 1996 was $.05 for both years. The weighted-average remaining contractual life was 3.6 years. Pro forma information regarding net income is required by Statement 123, which also requires that the information be determined as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a minimum value method option pricing model with the following assumptions for 1997 and 1996: risk-free interest rate range of 5.34% to 7.84%; no expected dividend; and an estimated expected life of four years. The minimum value method was developed for use in estimating the fair value of the awards. Under Statement 123, the "minimum value" method may be used by nonpublic companies to value options, which calculates the excess of the fair value of the stock at the date of grant over the present value of both the exercise price and the expected dividend payments, each discounted at the risk-free rate, over the expected exercise life of the option. In concept, the minimum value method is similar to the Black-Scholes and binomial models, except that it excludes the factor for volatility. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma financial information is as follows:
1997 1996 1995 ----------- ----------- ----------- Pro forma net loss............................ $(1,947,811) $(3,832,735) $(4,805,686) =========== =========== =========== Pro forma basic and diluted net loss per share....................................... $ (1.01) $ (2.24) $ (2.55) =========== =========== ===========
Statement 123 is applicable only to options granted subsequent to December 31, 1994. Because options vest over periods up to four years, the pro forma effect of the Statement will not be fully reflected until 1998. In May 1994, a key executive purchased 800,000 shares of restricted common stock from the Company at $.23 per share. Twenty-five percent of the stock became unrestricted twelve months from the purchase date F-27 173 BIOSTAR, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) and the remainder became unrestricted on a monthly basis thereafter. In 1995, when the executive left the Company, the Company repurchased 516,667 common shares from the executive at $.23 per share. In April 1997, the Board of Directors, upon subsequent approval by the shareholders of the Company, increased total authorized shares to 61,972,227 with 41,644,443 shares designated common stock and 20,327,784 shares designated preferred stock. As part of that authorization, 536,667 shares of common stock held in treasury in connection with the repurchase of unvested shares previously held by a former officer of the Company, including 20,000 shares which were repurchased from a former Director in 1997, were retired. In February 1998, the Board of Directors approved an aggregate cash bonus of $380,000 to five executives. In connection with such bonus, the executives have agreed to use an aggregate of $240,000 to purchase an aggregate of 1,032,000 common stock options previously awarded to the executives. The Board of Directors also approved the award of options to purchase an aggregate of 500,000 common shares which vest one year after the closing of the proposed merger with Cortech or monthly over four years if the proposed merger with Cortech does not close. Warrants An immediately exercisable warrant to purchase 60,750 shares of Series B convertible preferred stock for $2.20 per share was issued in connection with a Master Lease Agreement during 1992. The warrant expires in the year 2000. The Company has reserved 60,750 shares of Series B convertible preferred stock for issuance in connection with this warrant. During February 1994, an additional warrant was issued in connection with the amended Master Lease Agreement to purchase 53,357 shares of Series E convertible preferred stock at $1.75 per share. The warrant, which is currently exercisable, expires on the earlier of February 18, 2003 or four years after the closing of a qualified underwritten public offering of at least $5,000,000. The Company has reserved 53,357 shares of Series E convertible preferred stock for issuance in connection with this warrant. In connection with a $2,500,000 subordinated debt security agreement and a separate Master Lease Agreement, two warrants to purchase a total of 271,428 shares of Series E convertible preferred stock for $1.75 per share were issued in May 1995. The warrants are exercisable and expire on the earlier of May 3, 2004 or four years from the effective date of a qualified underwritten public offering. If the Company has not repaid the principal in its entirety at the end of the thirty-six month term, the Company shall grant the lender additional warrants, on the same terms as the two warrants described above, equal to 1% of the principal amount each month. The Company has reserved 271,428 shares of Series E convertible preferred stock for issuance in connection with these warrants. A warrant to purchase 85,714 shares of Series E convertible preferred stock at $1.75 per share was issued in 1995 to a bank in connection with a $2,000,000 line of credit agreement (see Note 6). The warrant expires upon the earlier of September 14, 2001 or three years after the Company sells its shares in a registered public offering. In connection with the issuance of $4,500,000 Convertible Subordinated Notes, the Company issued warrants to purchase 2,571,426 shares of common stock at an exercise price of $.23. The warrants expire at the earlier of the closing of the proposed merger (see Note 2) or March 2001. A warrant to purchase 321,429 shares of Series E convertible preferred stock at $1.75 per share was issued in April 1997 to a bank in connection with a $1,000,000 line of credit and a $2,000,000 bridge loan agreement (see Note 6). The warrant expires on April 30, 2002. In connection with an amendment to the bank credit facility of $2,000,000, a warrant to purchase 35,000 shares of common stock at $.23 per share was issued in October 1996 with an expiration date of October 27, 2002. F-28 174 BIOSTAR, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Common shares reserved for future issuance are as follows: Preferred stock conversions................................. 15,605,320 CCPI conversion (see Note 7)................................ 1,600,000 Stock option plan........................................... 4,901,054 Convertible Subordinated Notes.............................. 2,571,426 Warrants.................................................... 5,177,569 ---------- Total............................................. 29,855,369 ==========
5. INCOME TAXES The Company accounts for income taxes in conformity with Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes. Under the provisions of Statement 109, a deferred tax liability or asset (net of a valuation allowance) is provided in the financial statements by applying the provisions of applicable tax laws to measure the deferred tax consequences of temporary differences that will result in net taxable or deductible amounts in future years as a result of events recognized in the financial statements in the current or preceding years. The Company has net operating loss carryforwards of approximately $25 million for income tax purposes expiring from 2007 through 2012. Research and development tax credits will be recognized on the flow-through method as a reduction of income taxes in the year in which such credits are utilized. The Company has research and development tax credit carryforwards of approximately $233,000 expiring from 2007 through 2011. The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carryforwards if there has been a "change of ownership" as described in Section 382 of the Internal Revenue Code. Such change of ownership may limit the Company's utilization of its net operating loss and tax credit carryforwards. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's current and long-term deferred tax assets are as follows:
DECEMBER 31 -------------------------- 1997 1996 ----------- ----------- Current deferred tax assets: Accrued liabilities....................................... $ 18,375 $ 74,411 Other..................................................... 34,000 57,103 ----------- ----------- Total current deferred tax assets........................... 52,375 131,514 Valuation allowance for current deferred tax assets......... (52,375) (131,514) ----------- ----------- Net current deferred tax assets............................. $ -- $ -- =========== =========== Long-term deferred tax assets: Book over tax depreciation................................ $ 1,128 $ 32,958 Research and development credit carryforwards............. 233,379 199,598 Tax net operating loss carryforwards...................... 8,659,129 7,899,421 Other..................................................... 9,310 23,052 ----------- ----------- Total long-term deferred tax assets......................... 8,902,946 8,155,029 Valuation allowance for long-term deferred tax assets....... (8,902,946) (8,155,029) ----------- ----------- Net long-term deferred tax assets........................... $ -- $ -- =========== ===========
F-29 175 BIOSTAR, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. DEBT The detail of long-term liabilities is as follows:
DECEMBER 31 ------------------------ 1997 1996 ---------- ---------- Long-term portion of subordinated debt...................... $ -- $ 747,047 Long-term portion of capital lease obligations.............. 61,924 435,998 Convertible subordinated debt............................... 4,500,000 4,500,000 Accrued interest and other liabilities...................... 858,679 426,037 ---------- ---------- $5,420,603 $6,109,082 ========== ==========
The Company entered into a $2,000,000 line of credit agreement with a bank in September 1995. The agreement provided for borrowings of up to 70% of eligible accounts receivable. Interest on outstanding borrowings under the agreement accrued at prime plus 2%. The line of credit was terminated in May 1997, and any amounts then due were repaid. In May 1995, the Company borrowed $2.5 million at 14% interest under a subordinated debt line. Principal and interest payments are due monthly. A lump sum payment of $523,000 is due in May 1998 and is collateralized by all tangible and intangible assets of the Company, up to the extent of the outstanding balance. This secured interest may be subordinated to the interests of a senior lender. As of December 31, 1997, the Company had $747,047 of principal outstanding. In March and April 1996, the Company completed Convertible Subordinated Notes and Warrant Purchase agreements (the "Agreements") with certain stockholders and debt holders. The Agreements provided the Company with $3,000,000 in cash proceeds and converted $1,000,000 of subordinated debt to convertible subordinated debt (the "Notes"). Additionally, the holder of additional subordinated debt converted $500,000 of that debt into the Notes and agreed to forbear receipt of another $500,000 of principal repayments due on the subordinated debt in 1996 until May 1998. The resulting principal balance of the Notes at December 31, 1997 was $4,500,000. Interest accrues at prime plus 2%. The Notes plus interest are due upon the earlier of: (a) three years from the date of issuance; or (b) the closing of an initial public offering; or (c) the closing of a consolidation, merger or sale of the Company. Accrued interest, totaling $831,298 at December 31, 1997, is included in other long-term liabilities. The Notes are collateralized by all tangible and intangible assets of the Company, up to the extent of the outstanding balance. This secured interest may be subordinated to the interests of a senior lender. Immediately prior to the effective time of the proposed merger (see Note 2), principal and interest due on this note will be converted to Series F convertible preferred stock of the Company. In February 1997, the Company issued $1,000,000 in Subordinated Promissory Notes to certain of its stockholders. The Notes provide the holder with rights for demand payment, subject to subordination to certain other debt holders and with an interest rate of 10.25%. In April 1997, the Company changed its primary banking relationship and entered into a new credit agreement. A $1,000,000 credit facility provides for borrowings of up to 75% of eligible accounts receivable. Interest on the outstanding borrowings under this facility accrues at prime plus 2% and is due monthly. Any outstanding principal amount under the loan is due April 30, 1998. A second credit facility for $2,000,000 was provided under a bridge loan funded to an equity event or October 30, 1997, whichever occurred first. Interest on the bridge loan accrued under this facility at prime plus 3%. The agreement required that the Company maintain a certain minimum financial covenant on monthly losses. Amounts outstanding under this agreement were secured by substantially all the Company's tangible and intangible assets. As of December 31, 1997, $1,000,000 was drawn on the credit facility. The $2,000,000 bridge loan terminated on October 30, 1997 and any amounts borrowed were repaid with interest. In connection with this credit facility, warrants were issued F-30 176 BIOSTAR, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) for the purchase of 321,429 shares of Series E Preferred Stock with a exercise price of $1.75 per share. In February 1998, the credit facility was amended such that the facility secured by eligible accounts receivable was increased to $1,500,000 and the bridge loan was renewed at a maximum at $1,500,000. The credit facility is due May 3, 1999. The bridge loan term expires June 4, 1998 and is made available in tranches as the proposed merger with Cortech progresses. In connection with the amendment, the Company issued warrants to purchase 59,659 shares of Series F convertible preferred stock at a purchase price of $.88 per share. The warrant expires on February 3, 2003. In June 1997, the Company converted the February 1997 Promissory Notes into new Subordinated Promissory Notes ("New Notes") expiring February 1998 with an interest rate of prime plus 2%. This offering had a principal amount of $1,565,050, which included $1,000,000 from the February 1997 notes, $35,384 in accrued interest on those notes, and $529,666 in new funds. Participation in the note offering was made available to all qualifying stockholders, debt holders and warrant holders. The offering included 1,778,465 warrants for Series F shares at a purchase price of $.88 per share with a preferred liquidation value of $1.75. All holders of the New Notes, subsequent to December 31, 1997, agreed to extend the due date to the earlier of the merger (see Note 2) or May 31, 1998. Accrued interest, totaling $87,787 at December 31, 1997, is included in accrued liabilities. The holders of at least $1,541,535 of face amount of New Notes have committed to convert these New Notes into Series F Preferred Stock immediately prior to the effective time of the proposed merger (see Note 2). Maturities of the line of credit and long-term debt for the years ending December 31 are as follows:
1998..................................................... $3,563,398 1999..................................................... 4,500,000 ---------- $8,063,398 ==========
7. COMMITMENTS AND CONTINGENCIES Leases The Company leases equipment and furniture and fixtures under capital leases. Title of assets acquired under the lease line of credit resides with the lessor. The Company has the option to purchase these assets at the end of the lease term for fair market value. The interest rates on borrowings under the lease line of credit range between 9.25% and 10.75% per annum. Assets and related accumulated amortization included in the above leasing arrangements are as follows:
DECEMBER 31 ------------------------- 1997 1996 ---------- ----------- Laboratory and manufacturing equipment..................... $1,281,438 $ 1,811,485 Office equipment........................................... 110,940 215,242 Furniture and fixtures..................................... 32,197 143,104 Accumulated amortization................................... (914,740) (1,215,802) ---------- ----------- $ 509,835 $ 954,029 ========== ===========
The Company leases its facility under a noncancelable operating lease which expires August 1998. The Company has the option to renew the facility lease for two additional five-year periods. The rental amount upon renewal will be based upon the market rate, not to exceed the initial lease rate indexed for inflation, at the inception of the original lease. The Company incurred rent expense of approximately $267,000 for each of the years ended December 31, 1997, 1996 and 1995. F-31 177 BIOSTAR, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Additionally, the Company subleased approximately 14% of its facility to an unrelated third party at a rate of $3,700 per month, including operating and maintenance costs, from June 1993 to June 1997. Rental income from this sublease totaled $24,295, $50,165, and $69,822 in 1997, 1996 and 1995, respectively. Future minimum payments under capital leases and a noncancelable operating lease are as follows at December 31, 1997:
CAPITAL OPERATING LEASES LEASE --------- --------- 1998........................................................ $ 396,962 $317,863 1999........................................................ 63,703 58,979 2000........................................................ -- 6,792 2001........................................................ -- 1,624 --------- -------- Total minimum lease payments................................ 460,665 $385,258 ======== Less amounts representing interest.......................... (24,669) --------- Present value of future minimum lease payments.............. 435,996 Less current maturities..................................... (374,072) --------- Long-term maturities........................................ $ 61,924 =========
CCPI In conjunction with the purchase of the assets and assumption of certain liabilities of BMPI from the Trust, the Company issued to the Trust the Convertible Contingent Payment Instrument (see Note 1). The CCPI provides that under certain circumstances, the Company could be required to pay up to $8,000,000 or issue 1,600,000 shares of Series C convertible preferred stock. The Company has assigned no dollar value to the CCPI because of its contingent nature. A liability for the CCPI and additional cost of the acquisition would be recorded if it became probable that an amount will become due under the CCPI and such amount could be reasonably estimated. As a result of the uncertainties in determining whether the CCPI will ultimately have value and because determination of such value is not measurable until such time as the contingencies are resolved, no value was assigned to the CCPI in the proposed merger (see Note 2). However, subsequent to year end, the Trust agreed to cancel the CCPI immediately prior to the effective time of the proposed merger (see Note 2) in exchange for the issuance of 160,000 shares of the Company's preferred stock which will be exchanged for Cortech shares at the time of the merger. 8. RETIREMENT PLAN The Company established a 401(k) Retirement Plan for its employees during 1993. Any full-time employee of the Company is eligible and can make voluntary contributions to the plan. F-32 178 APPENDIX A -- AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ================================================================================ AGREEMENT AND PLAN OF MERGER AND REORGANIZATION AMONG: CORTECH, INC., A DELAWARE CORPORATION, CORTECH MERGER SUB, INC. A DELAWARE CORPORATION, AND BIOSTAR, INC., A DELAWARE CORPORATION --------------------- DATED AS OF DECEMBER 22, 1997 --------------------- ================================================================================ 179 TABLE OF CONTENTS
PAGE ---- 1. DESCRIPTION OF TRANSACTION......................................... A-1 1.1 Merger of Merger Sub into BioStar........................... A-1 1.2 Effect of the Merger........................................ A-1 1.3 Closing; Effective Time..................................... A-1 1.4 Certificate of Incorporation and Bylaws..................... A-1 1.5 Conversion of Stock; Options and Warrants................... A-2 1.6 Closing of BioStar's Transfer Books......................... A-3 1.7 Exchange of Certificates.................................... A-4 1.8 Dissenting Shares........................................... A-5 1.9 Tax Consequences............................................ A-5 1.10 Accounting Consequences..................................... A-5 1.11 Further Action.............................................. A-5 1.12 Cortech Charter Amendment................................... A-6 1.13 BioStar Charter Amendment................................... A-6 2. REPRESENTATIONS AND WARRANTIES OF BIOSTAR.......................... A-6 2.1 Due Organization; Subsidiaries; Etc......................... A-6 2.2 Certificate of Incorporation and Bylaws..................... A-6 2.3 Capitalization, Etc......................................... A-6 2.4 Financial Statements........................................ A-8 2.5 Absence of Changes.......................................... A-8 2.6 Title to Assets............................................. A-8 2.7 Real Property; Equipment; Leasehold......................... A-8 2.8 Proprietary Assets.......................................... A-9 2.9 Material Contracts.......................................... A-9 2.10 Liabilities................................................. A-11 2.11 Compliance with Legal Requirements.......................... A-11 2.12 Certain Business Practices.................................. A-11 2.13 Governmental Authorizations................................. A-11 2.14 Tax Matters................................................. A-12 2.15 Employee and Labor Matters; Benefit Plans................... A-12 2.16 Environmental Matters....................................... A-14 2.17 Insurance................................................... A-14 2.18 Transactions with Affiliates................................ A-14 2.19 Legal Proceedings; Orders................................... A-14 2.20 Authority; Binding Nature of Agreement...................... A-15 2.21 No Existing Discussions..................................... A-15 2.22 Vote Required............................................... A-15 2.23 Non-Contravention; Consents................................. A-15 2.24 Financial Advisor........................................... A-16 2.25 Full Disclosure............................................. A-16
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PAGE ---- 3. REPRESENTATIONS AND WARRANTIES OF CORTECH AND MERGER SUB........... A-16 3.1 Due Organization, Subsidiaries, Etc......................... A-16 3.2 Certificate/Certificate of Incorporation and Bylaws......... A-16 3.3 Capitalization, Etc......................................... A-17 3.4 SEC Filings; Financial Statements........................... A-18 3.5 Absence of Changes.......................................... A-18 3.6 Title to Assets............................................. A-18 3.7 Real Property; Equipment; Leasehold......................... A-19 3.8 Proprietary Assets.......................................... A-19 3.9 Material Contracts.......................................... A-20 3.10 Liabilities................................................. A-21 3.11 Compliance with Legal Requirements.......................... A-21 3.12 Certain Business Practices.................................. A-21 3.13 Governmental Authorizations................................. A-22 3.14 Tax Matters................................................. A-22 3.15 Employee and Labor Matters; Benefit Plans................... A-23 3.16 Environmental Matters....................................... A-24 3.17 Insurance................................................... A-24 3.18 Transactions with Affiliates................................ A-24 3.19 Legal Proceedings; Orders................................... A-25 3.20 Authority; Binding Nature of Agreement...................... A-25 3.21 No Existing Discussions..................................... A-25 3.22 Vote Required............................................... A-25 3.23 Non-Contravention; Consents................................. A-25 3.24 Fairness Opinion............................................ A-26 3.25 Valid Issuance; Reservation of Shares....................... A-26 3.26 Financial Advisor........................................... A-26 3.27 Full Disclosure............................................. A-27 3.28 Cash Position............................................... A-27 4. CERTAIN COVENANTS OF THE PARTIES................................... A-27 4.1 Access and Investigation; Confidentiality................... A-27 4.2 Operation of BioStar's Business............................. A-27 4.3 Operation of Cortech's Business............................. A-29 4.4 No Solicitation by BioStar.................................. A-31 4.5 No Solicitation by Cortech.................................. A-31 5. ADDITIONAL COVENANTS OF THE PARTIES................................ A-32 5.1 Registration Statement; Joint Proxy Statement............... A-32 5.2 BioStar Stockholders' Meeting............................... A-33 5.3 Cortech Stockholders' Meeting............................... A-34 5.4 Regulatory Approvals........................................ A-35 5.5 ESPP........................................................ A-35 5.6 Indemnification Continuation................................ A-35 5.7 Additional Agreements....................................... A-36 5.8 Disclosure.................................................. A-37 5.9 Tax Matters................................................. A-37 5.10 Resignation of Officers and Directors....................... A-37 5.11 FIRPTA Matters.............................................. A-37 5.12 Affiliate Agreements........................................ A-37 5.13 Election of Directors....................................... A-37 5.14 Registration Rights......................................... A-37 5.15 Market Stand-off Agreement.................................. A-38
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PAGE ---- 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF CORTECH AND MERGER SUB...... A-38 6.1 Accuracy of Representations................................. A-38 6.2 Performance of Covenants.................................... A-38 6.3 Effectiveness of Registration Statement..................... A-38 6.4 Stockholder Approval........................................ A-38 6.5 Consents.................................................... A-38 6.6 Documents................................................... A-38 6.7 No Material Adverse Change.................................. A-39 6.8 No Restraints............................................... A-39 6.9 No Governmental Litigation.................................. A-39 6.10 No Other Litigation......................................... A-39 6.11 Delivery of Affiliates Agreements........................... A-39 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BIOSTAR..................... A-39 7.1 Accuracy of Representations................................. A-39 7.2 Performance of Covenants.................................... A-40 7.3 Effectiveness of Registration Statement..................... A-40 7.4 Stockholder Approval........................................ A-40 7.5 Documents................................................... A-40 7.6 No Material Adverse Change.................................. A-40 7.7 No Restraints............................................... A-40 7.8 Directors................................................... A-40 7.9 Consents.................................................... A-40 7.10 No Governmental Litigation.................................. A-40 7.11 No Other Litigation......................................... A-40 8. TERMINATION........................................................ A-41 8.1 Termination................................................. A-41 8.2 Effect of Termination....................................... A-42 8.3 Expenses; Termination Fees.................................. A-42 9. MISCELLANEOUS PROVISIONS........................................... A-42 9.1 Amendment................................................... A-42 9.2 Waiver...................................................... A-43 9.3 No Survival of Representations and Warranties............... A-43 9.4 Entire Agreement; Counterparts; Applicable Law.............. A-43 9.5 Jury Waiver................................................. A-43 9.6 Disclosure Schedule......................................... A-43 9.7 Attorneys' Fees............................................. A-43 9.8 Assignability............................................... A-43 9.9 Notices..................................................... A-44 9.10 Cooperation................................................. A-44 9.11 Construction................................................ A-44
EXHIBITS Exhibit A -- Certain Definitions Exhibit B -- Form of BioStar Charter Amendment Exhibit C -- Forms of Affiliate Agreement iii 182 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made and entered into as of December 22, 1997, by and among CORTECH, INC., a Delaware corporation ("Cortech"); CORTECH MERGER SUB, INC., a Delaware corporation and a wholly-owned subsidiary of Cortech ("Merger Sub"); and BIOSTAR, INC., a Delaware corporation ("BioStar"). Certain capitalized terms used in this Agreement are defined in Exhibit A. RECITALS A. Cortech, Merger Sub and BioStar intend to effect a merger of Merger Sub into BioStar in accordance with this Agreement and the Delaware General Corporation Law (the "Merger"). Upon consummation of the Merger, Merger Sub will cease to exist, and BioStar will become a wholly-owned subsidiary of Cortech. B. It is intended that the Merger qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. For financial reporting purposes, it is intended that the Merger be accounted for as a purchase. C. The respective boards of directors of Cortech, Merger Sub and BioStar adopted this Agreement and approved the Merger. D. Certain stockholders of Cortech and BioStar have executed Voting Agreements in connection with the Merger obligating them to vote to approve the Merger when it is presented for approval at a meeting of stockholders of Cortech and BioStar, respectively. AGREEMENT The parties to this Agreement, intending to be legally bound, agree as follows: 1. DESCRIPTION OF TRANSACTION 1.1 MERGER OF MERGER SUB INTO BIOSTAR. Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub shall be merged with and into BioStar, and the separate existence of Merger Sub shall cease. BioStar will continue as the surviving corporation in the Merger (the "Surviving Corporation"). 1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in this Agreement and in the applicable provisions of the Delaware General Corporation Law ("DGCL"). 1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Cooley Godward LLP, 2595 Canyon Boulevard, Suite 250, Boulder, Colorado at 10:00 a.m. on a date to be agreed by Cortech and BioStar (the "Closing Date"), which shall be no later than the tenth business day after the satisfaction or waiver of the conditions set forth in Sections 6 and 7. Contemporaneously with or as promptly as practicable after the Closing, a properly executed certificate of merger conforming to the requirements of Section 251 of the DGCL shall be filed with the Secretary of State of the State of Delaware. The Merger shall take effect at the time such certificate of merger is filed with the Secretary of State of the State of Delaware (the "Effective Time"). 1.4 CERTIFICATE OF INCORPORATION AND BYLAWS. (a) The Certificate of Incorporation of Merger Sub shall be the Certificate of Incorporation of the Surviving Corporation. (b) The Bylaws of Merger Sub shall be the Bylaws of the Surviving Corporation. (c) The officers of BioStar immediately prior to the Effective Time shall be the officers of the Surviving Corporation. The persons identified in Section 5.13 below shall be the directors of the Surviving Corporation. A-1 183 1.5 CONVERSION OF STOCK; OPTIONS AND WARRANTS. (a) At the Effective Time, by virtue of the Merger and without any further action on the part of Cortech, Merger Sub, BioStar or any stockholder of Cortech, Merger Sub or BioStar: (i) any shares of BioStar Common Stock or BioStar Preferred Stock then held by BioStar, if any, shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor; (ii) any shares of BioStar Common Stock or BioStar Preferred Stock then held by Cortech or any other subsidiary of Cortech, if any, shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor; (iii) except as provided in clauses "(i)" and "(ii)" above and subject to Sections 1.5(b), 1.5(d) and 1.8, each share of BioStar Common Stock and BioStar Preferred Stock then outstanding shall be converted into the right to receive the number of fully paid and nonassessable shares of Cortech Common Stock equal to a fraction the numerator of which is 28,500,000 and the denominator of which is the number of shares of BioStar Common Stock and BioStar Preferred Stock outstanding plus the number of shares of BioStar Common Stock and BioStar Preferred Stock issuable upon exercise of all (x) the outstanding BioStar Warrants and (y) outstanding BioStar Options, in each case as of the Effective Time, and upon surrender of the certificate representing such share of BioStar Common Stock and BioStar Preferred Stock in the manner provided in Section 1.7 below. (iv) each share of the common stock, $.001 par value, of Merger Sub then outstanding shall be converted into one share of common stock of the Surviving Corporation. Each stock certificate representing shares of common stock of Merger Sub prior to the Effective Time shall represent an equal number of shares of common stock of the Surviving Corporation from and after the Effective Time. (b) At the Effective Time of the Merger and without any further action on the part of Cortech, Merger Sub, BioStar or any stockholder of Cortech, Merger Sub or of BioStar: (i) each BioStar Option shall be assumed by Cortech (an "Assumed BioStar Option") (the aggregate number of shares of BioStar Common Stock issuable upon the exercise of all outstanding BioStar Options immediately prior to the Effective Time is referred to herein as the "Outstanding Option Amount"). Each BioStar Option so assumed by Cortech will continue to have, and be subject to, substantially the same terms and conditions set forth in the documents governing such BioStar Options immediately prior to the Effective Time, except that (A) such Assumed BioStar Option will be exercisable for that number of whole shares of Cortech Common Stock equal to the product of the number of shares of BioStar Common Stock subject to such Assumed BioStar Option immediately prior to the Effective Time multiplied by the Exchange Ratio (as defined in Section 1.5(d)), rounded down to the nearest whole number of shares of Cortech Common Stock and (B) the per share exercise price for the shares of Cortech Common Stock issuable upon exercise of such Assumed BioStar Option will be equal to the quotient obtained by dividing the exercise price per share under which such BioStar Option, determined immediately prior to the Effective Time, by the Exchange Ratio, rounded up to the nearest whole cent. The parties intend that the assumption of the BioStar Options hereunder will constitute a transaction to which Section 424(a) of the Code applies and this Section shall be interpreted consistent with such intention. Consistent with the terms of the BioStar Options and the documents governing such BioStar Options, except as set forth in the BioStar Disclosure Schedule, the Merger will not terminate or accelerate any Assumed BioStar Option or any right of exercise, vesting or repurchase relating thereto with respect to shares of Cortech Common Stock acquired upon exercise of such BioStar Option. (ii) Holders of vested BioStar Options may elect to exercise such options prior to the Effective Time and receive Cortech Common Stock by providing notice of such exercise and payment of the exercise price thereof to BioStar at any time prior to the Effective Time. In the event that any holder of BioStar Options does not exercise such BioStar Options prior to the Effective Time, such BioStar Options shall become Assumed BioStar Options. A-2 184 (iii) As soon as practicable after the Effective Time, Cortech shall issue to each holder of an Assumed BioStar Option a document evidencing the stock option assumption by Cortech. The right to receive an Assumed BioStar Option may not be assigned or transferred except as permitted by the BioStar Stock Option Plans. Any attempted assignment contrary to this Section 1.5(b)(iii) shall be null and void. (c) Each warrant to purchase shares of BioStar Common Stock or BioStar Preferred Stock remaining outstanding (other than those which will expire if they remain unexercised as of the Effective Time) at the Effective Time shall be, in connection with the Merger, assumed by Cortech. Each warrant so assumed by Cortech under this Agreement shall continue to have, and be subject to, the same terms and conditions set forth in the respective warrant agreements governing such warrant immediately prior to the Effective Time, except that each such warrant shall, following the Effective Time, be exercisable only for shares of Cortech Common Stock in such number, and at such exercise price as is determined by applying the Exchange Ratio in accordance with the terms of the applicable warrant agreement. (d) The fraction of a share of Cortech Common Stock determined in accordance with Section 1.5(a)(iii) with regard to the BioStar Common Stock and BioStar Preferred Stock (as such fraction may be adjusted in accordance with this Section 1.5(d)) is hereinafter referred to as the "Exchange Ratio." If, between the date of this Agreement and the Effective Time, the outstanding shares of BioStar Common Stock or Cortech Common Stock are changed into a different number or class of shares by reason of any stock split, stock dividend, reverse stock split (including, without limitation, the reverse stock split contemplated by Section 1.12 of this Agreement if effected prior to the Effective Time), reclassification, recapitalization, exchange of shares or other similar transaction, or if Cortech or BioStar pays an extraordinary dividend or makes an extraordinary distribution, then such event shall be reflected in the calculation of the Exchange Ratio as of the Effective Time. (e) Except as set forth in the BioStar Disclosure Schedule, if any shares of BioStar Common Stock or BioStar Preferred Stock outstanding immediately prior to the Effective Time are unvested or are subject to a repurchase option, risk of forfeiture or other condition under any applicable restricted stock purchase agreement or other agreement with BioStar or under which BioStar has any rights, then the shares of Cortech Common Stock issued in exchange for such shares of BioStar Common Stock or BioStar Preferred Stock will also be unvested or subject to the same repurchase option, risk of forfeiture or other condition, as the case may be, and the certificates representing such shares of Cortech Common Stock may accordingly be marked with appropriate legends. BioStar shall take all action that may be necessary to ensure that, from and after the Effective Time, Cortech is entitled to exercise any such repurchase option or other right set forth in any such restricted stock purchase agreement or other agreement. (f) No fractional shares of Cortech Common Stock shall be issued in connection with the Merger, and no certificates or scrip for any such fractional shares shall be issued. Any holder of BioStar Common Stock who would otherwise be entitled to receive a fraction of a share of Cortech Common Stock (after aggregating all fractional shares of Cortech Common Stock issuable to such holder) shall, in lieu of such fraction of a share and, upon surrender of such holder's BioStar Stock Certificate(s) (as defined in Section 1.6), be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the closing price (adjusted, if necessary, to reflect the reverse stock split referenced in Section 1.12 below) of a share of Cortech Common Stock on the Nasdaq National Market on the date the Merger becomes effective. 1.6 CLOSING OF BIOSTAR'S TRANSFER BOOKS. At the Effective Time: (a) all shares of BioStar Common Stock and BioStar Preferred Stock outstanding immediately prior to the Effective Time shall automatically be canceled and retired and shall cease to exist, and all holders of certificates representing shares of BioStar Common Stock or BioStar Preferred Stock that were outstanding immediately prior to the Effective Time shall cease to have any rights as stockholders of BioStar except the right to receive (i) certificates representing the number of fully paid and nonassessable shares of Cortech Common Stock into which such shares of BioStar Common Stock or BioStar Preferred Stock were converted at the Effective Time and (ii) any cash in lieu of fractional shares of Cortech Common Stock, to be issued or paid in consideration therefor upon A-3 185 surrender of such certificate in accordance with Section 1.7; and (b) the stock transfer books of BioStar shall be closed with respect to all shares of BioStar Common Stock and BioStar Preferred Stock outstanding immediately prior to the Effective Time. No further transfer of any such shares of BioStar Common Stock or BioStar Preferred Stock shall be made on such stock transfer books after the Effective Time. If, after the Effective Time, a valid certificate previously representing any of such shares of BioStar Common Stock or BioStar Preferred Stock (a "BioStar Stock Certificate") is presented to the Exchange Agent (as defined in Section 1.7) or to the Surviving Corporation, such BioStar Stock Certificate shall be canceled and shall be exchanged as provided in Section 1.7. 1.7 EXCHANGE OF CERTIFICATES. (a) On or prior to the Effective Time, Cortech shall select a reputable bank or trust company reasonably acceptable to BioStar to act as exchange agent in the Merger (the "Exchange Agent"). As of the Effective Time, Cortech shall deposit with the Exchange Agent (i) certificates representing the shares of Cortech Common Stock issuable pursuant to this Section 1, and (ii) cash sufficient to make payments in lieu of fractional shares in accordance with Section 1.5(f). The shares of Cortech Common Stock and cash amounts so deposited with the Exchange Agent, together with any dividends or distributions with respect to such shares with a record date on or after the Effective Time, are referred to collectively as the "Exchange Fund." (b) As soon as reasonably practicable after the Effective Time, and in any event within five (5) business days, the Exchange Agent will mail to the holders of BioStar Stock Certificates (i) a letter of transmittal in customary form and containing such provisions as Cortech may reasonably specify (including a provision confirming that delivery of BioStar Stock Certificates shall be effected, and risk of loss and title to BioStar Stock Certificates shall pass, only upon delivery of such BioStar Stock Certificates to the Exchange Agent), and (ii) instructions for use in effecting the surrender of BioStar Stock Certificates in exchange for certificates representing the Cortech Common Stock. Upon surrender of a BioStar Stock Certificate to the Exchange Agent for exchange, together with a duly executed letter of transmittal and such other documents as may be reasonably required by the Exchange Agent or Cortech, (1) the holder of such BioStar Stock Certificate shall be entitled to receive in exchange therefore a certificate representing the number of whole shares of Cortech Common Stock that such holder has the right to receive pursuant to the provisions of Section 1.5, any cash in lieu of any fractional share(s) of Cortech Common Stock, and any dividends or other distributions to which such holder is entitled, and (2) the BioStar Stock Certificate so surrendered shall be canceled. Until surrendered as contemplated by this Section 1.7, each BioStar Stock Certificate shall be deemed, from and after the Effective Time, to represent only the right, upon surrender as provided in this Section 1.7, to receive shares of Cortech Common Stock, any cash in lieu of any fractional share(s) of Cortech Common Stock, and any dividends or other distributions to which such holder is entitled, each as contemplated by Section 1. If any BioStar Stock Certificate shall have been lost, stolen or destroyed, Cortech may, in its discretion and as a condition precedent to the issuance of any certificate representing Cortech Common Stock, require the owner of such lost, stolen or destroyed BioStar Stock Certificate to provide an appropriate affidavit and to deliver a bond (in such sum as Cortech may reasonably direct) as indemnity against any claim that may be made against the Exchange Agent, the Surviving Corporation or Cortech with respect to such BioStar Stock Certificate. In the event of a transfer of ownership of BioStar Common Stock or BioStar Preferred Stock which is not registered in the transfer records of BioStar, a certificate representing the proper number of shares of Cortech Common Stock may be issued to a Person other than the Person in whose name the certificate so surrendered is registered, if, upon presentation to the Exchange Agent, such certificate shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting such issuance shall pay any transfer or other taxes required by reason of the issuance of shares of Cortech Common Stock to a Person other than the registered holder of such certificate or establish to the satisfaction of Cortech that such tax has been paid or is not applicable. (c) No dividends or other distributions declared or made with respect to Cortech Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered BioStar Stock Certificate with respect to the shares of Cortech Common Stock represented thereby, and no cash payment in lieu of any fractional share nor any other cash payment shall be paid to any such holder, until such holder surrenders such BioStar Stock Certificate in accordance with this Section 1.7 (at which time such holder shall be entitled, A-4 186 subject to the effect of applicable escheat or similar laws, to receive all such dividends, distributions and cash payments, without interest). (d) Any portion of the Exchange Fund that remains undistributed to holders of BioStar Stock Certificates as of the date 180 days after the date on which the Merger becomes effective shall be delivered to Cortech upon demand, and any holders of BioStar Stock Certificates who have not theretofore surrendered their BioStar Stock Certificates in accordance with this Section 1.7 shall thereafter look only to Cortech for satisfaction of their claims for Cortech Common Stock, cash in lieu of fractional shares of Cortech Common Stock and any dividends or distributions with respect to Cortech Common Stock. (e) Each of the Exchange Agent, the Surviving Corporation and Cortech shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any holder or former holder of BioStar Common Stock or BioStar Preferred Stock such amounts as may be required to be deducted or withheld therefrom under the Code or any provision of state, local or foreign tax law or under any other applicable Legal Requirement. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid. (f) Neither Cortech, the Surviving Corporation nor the Exchange Agent shall be liable to any holder or former holder of BioStar Common Stock or BioStar Preferred Stock or to any other Person with respect to any shares of Cortech Common Stock (or dividends or distributions with respect thereto), or for any cash amounts, delivered to any public official pursuant to any applicable abandoned property law, escheat law or similar Legal Requirement. 1.8 DISSENTING SHARES. (a) Notwithstanding anything to the contrary contained in this Agreement, any shares of BioStar Common Stock or BioStar Preferred Stock outstanding immediately prior to the Effective Time held by a holder who has demanded and perfected appraisal or dissenters' rights for such shares in accordance with the DGCL and who, as of the Effective Time, has not effectively withdrawn or lost such appraisal or dissenters' rights, shall not be converted into or represent a right to receive Cortech Common Stock pursuant to Section 1.5, but the holder thereof shall only be entitled to such rights as are granted by the DGCL. (b) Notwithstanding the provisions of subsection (a), if any holder of shares of BioStar Common Stock or BioStar Preferred Stock who demands appraisal of such shares under the DGCL shall effectively withdraw or lose (through failure to perfect or otherwise) the right to appraisal, then, as of the later of the Effective Time and the occurrence of such event, such holder's shares shall automatically be converted into and represent only the right to receive Cortech Common Stock and cash in lieu of fractional shares as provided in Section 1.5, without interest thereon, upon surrender of the certificate representing such shares. (c) BioStar shall give Cortech (i) prompt notice of any written demands for appraisal of any shares of BioStar Common Stock or BioStar Preferred Stock, withdrawals of such demands, and any other instruments served pursuant to the DGCL and received by BioStar and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for appraisal under the DGCL. BioStar shall not, except with the prior written consent of Cortech, voluntarily make any payment with respect to any demands for appraisal of capital stock of BioStar or offer to settle or settle any such demands. 1.9 TAX CONSEQUENCES. For federal income tax purposes, the Merger is intended to constitute a reorganization within the meaning of Section 368 of the Code. The parties to this Agreement hereby adopt this Agreement as a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. 1.10 ACCOUNTING CONSEQUENCES. For financial reporting purposes, the Merger is intended to be accounted for as a purchase. 1.11 FURTHER ACTION. If, at any time after the Effective Time, any further action is determined by Cortech to be necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full right, title and possession of and to all rights and property of Merger Sub and BioStar, A-5 187 the officers and directors of the Surviving Corporation and Cortech shall be fully authorized (in the names of Merger Sub, BioStar and otherwise) to take such action. 1.12 CORTECH CHARTER AMENDMENT. The board of directors of Cortech will approve and submit for approval of Cortech's stockholders an amendment to Cortech's Certificate of Incorporation (the "Cortech Charter Amendment") to (i) change the name of Cortech to a new name mutually acceptable to Cortech and BioStar and (ii) effectuate a one-for-four reverse stock split of Cortech's Common Stock (the "Reverse Stock Split"). If approved by Cortech's stockholders, the Cortech Charter Amendment will be filed immediately prior to the Effective Time. The approval and effectuation of the Cortech Charter Amendment are not a condition of the parties' obligation to consummate the Merger. 1.13 BIOSTAR CHARTER AMENDMENT. The board of directors of BioStar has approved an amendment to BioStar's Restated Certificate of Incorporation attached hereto as Exhibit B (the "BioStar Charter Amendment"), in order to effectuate the consummation of the Merger. If approved by the BioStar stockholders, the BioStar Charter Amendment will be filed immediately prior to the Effective Time. The approval and effectuation of the BioStar Charter Amendment is a condition to the parties' obligations to consummate the Merger. 2. REPRESENTATIONS AND WARRANTIES OF BIOSTAR BioStar represents and warrants to Cortech and Merger Sub, except as set forth in the BioStar Disclosure Schedule as follows: 2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC. (a) BioStar is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all necessary power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own, lease and use its assets in the manner in which its assets are currently owned, leased and used; and (iii) to perform its obligations under all BioStar Contracts by which it is bound. BioStar is qualified to do business as a foreign corporation, and is in good standing, under the laws of all jurisdictions where the nature of its business requires such qualification except in jurisdictions where the failure to so qualify, individually and in the aggregate, would not have a Material Adverse Effect. (b) BioStar has no Subsidiaries and does not own any capital stock of, or any equity interest of any nature in, any other Entity, other than the Entities identified in the BioStar Disclosure Schedule. Except as set forth in the BioStar Disclosure Schedule, BioStar has not agreed nor is it obligated to make, nor is it bound by any Contract under which it may become obligated to make, any future investment in or capital contribution to any other Entity. Except as set forth in the BioStar Disclosure Schedule, BioStar has not, at any time, been a general partner of any general partnership, limited partnership or other Entity. (c) BioStar has not conducted any business under or otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, trade name or other name, other than the name BioStar, Inc. and BioStar Medical Products, Inc. 2.2 CERTIFICATE OF INCORPORATION AND BYLAWS. BioStar has delivered to Cortech accurate and complete copies of the Certificate of Incorporation, Bylaws and other charter and organizational documents of BioStar, including all amendments thereto. 2.3 CAPITALIZATION, ETC. (a) The authorized capital stock of BioStar consists of: (i) 41,644,443 shares of BioStar Common Stock, $0.0001 par value, of which, as of November 30, 1997, 1,961,208 shares were issued and outstanding and (ii) 20,327,784 shares of BioStar Preferred Stock, $0.0001 par value, of which, as of the date hereof, (A) 3,500,000 shares are designated Series A Preferred Stock of which 3,500,000 are issued and outstanding; (B) 5,060,750 shares are designated Series B Preferred Stock of which 5,000,000 are issued and outstanding; (C) 1,691,786 shares are designated Series C Preferred Stock, none of which are issued and outstanding; (D) 2,908,889 shares are designated Series D Preferred Stock, all of which are issued and outstanding; A-6 188 (E) 4,928,359 shares are designated Series E Preferred Stock, of which 4,196,431 are issued and outstanding; and (F) 2,238,000 shares are designated Series F Preferred Stock, none of which is issued and outstanding. All of the outstanding shares of BioStar Common Stock and BioStar Preferred Stock have been duly authorized and validly issued, and are fully paid and nonassessable. Except as set forth in the BioStar Disclosure Schedule: (i) none of the outstanding shares of BioStar Common Stock or BioStar Preferred Stock is entitled or subject to any preemptive right, right of participation in future financings, right to maintain a percentage ownership position, or any similar right; (ii) none of the outstanding shares of BioStar Common Stock or BioStar Preferred Stock is subject to any right of first refusal in favor of BioStar; and (iii) there is no Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar right with respect to), any shares of BioStar Common Stock or BioStar Preferred Stock. Except as set forth in the BioStar Disclosure Schedule, BioStar is not under any obligation, and is not bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of BioStar Common Stock or BioStar Preferred Stock. (b) As of November 30, 1997, 3,618,823 shares of BioStar Common Stock are reserved for future issuance pursuant to BioStar Options and 1,300,231 shares remain available for grant under the BioStar Option Plan (defined below). The BioStar Disclosure Schedule sets forth the following information with respect to each BioStar Option outstanding as of the date of this Agreement: (i) the name of the optionee; (ii) the number of shares of BioStar Common Stock subject to such BioStar Option; (iii) whether the BioStar Option was granted pursuant to the 1995 Equity Incentive Plan (the "BioStar Option Plan") or was granted outside of the BioStar Option Plan; (iv) the exercise price of such BioStar Option; (v) the date on which such BioStar Option was granted; and (vi) the extent to which such BioStar Option is vested and exercisable as of November 30, 1997. BioStar has delivered to Cortech accurate and complete copies of all stock option plans and forms of option grant pursuant to which BioStar has granted any outstanding stock options. Except as set forth in the BioStar Disclosure Schedule, BioStar did not grant any new BioStar Options between November 30, 1997 and the date hereof. BioStar has reserved 2,606,426 shares of BioStar Common Stock for issuance upon the exercise of certain warrants to purchase Common Stock, 60,750 shares of Series B Preferred Stock for issuance upon the exercise of certain warrants to purchase Series B Preferred Stock, 731,928 shares of Series E Preferred Stock for issuance upon the exercise of certain warrants to purchase Series E Preferred Stock, and 1,778,465 shares of Series F Preferred Stock for issuance upon the conversion of certain warrants to purchase Series F Preferred Stock. The BioStar Disclosure Schedule sets forth the following information with respect to each outstanding warrant to purchase BioStar Common Stock and BioStar Preferred Stock: (i) the name of the holder of such warrant; (ii) the number of shares of BioStar Common Stock or BioStar Preferred Stock subject to such warrant; (iii) the exercise price of such warrant; (iv) the date on which such warrant was issued; and (v) the date on which such warrant expires. BioStar has delivered to Cortech an accurate and complete copy of each such warrant. BioStar has reserved 1,600,000 shares of Series C Preferred Stock for issuance upon the conversion of a convertible contingent payment instrument (the "Contingent Instrument"). BioStar has delivered to Cortech an accurate and complete copy of such instrument. BioStar issued notes which are convertible into either Series E Preferred Stock or any subsequent series of preferred stock sold by BioStar at a price per share less than $1.75 (the "Next Round Preferred")(the "Convertible Notes"). BioStar and the BioStar stockholders have undertaken to amend its Certificate of Incorporation immediately prior to the conversion of the Convertible Notes in order to provide for the Next Round Preferred. (c) Except as set forth in the BioStar Disclosure Schedule, there is no: (i) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of BioStar; (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities of BioStar; (iii) stockholder rights plan (or similar plan commonly referred to as a "poison pill") or Contract under which BioStar is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities; or (iv) condition or circumstance that may reasonably give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any shares of capital stock or other securities of BioStar. Except as set forth on the BioStar Disclosure Schedule, or elsewhere in this Section 2.3, there are no bonds, debentures, notes or other indebtedness of BioStar A-7 189 outstanding having the right to vote (or convertible into securities having the right to vote) on any matters on which the stockholders of BioStar have the right to vote. BioStar has reserved 1,600,000 shares of Series C Preferred Stock for issuance upon the conversion of the Contingent Instrument. (d) All outstanding securities of BioStar, including shares of BioStar Common Stock and BioStar Preferred Stock, all outstanding BioStar Options, all outstanding warrants to purchase BioStar Common Stock or BioStar Preferred Stock, and all outstanding notes convertible into BioStar Preferred Stock have been issued and granted in all material respects in compliance with (i) all applicable securities laws and other applicable Legal Requirements, and (ii) all requirements set forth in applicable Contracts. 2.4 FINANCIAL STATEMENTS. (a) The BioStar Disclosure Schedule sets forth BioStar's audited balance sheets as of December 31, 1995 and December 31, 1996 and related audited statements of operations, stockholders' equity and cash flows for the three years then ended (collectively, the "Audited Financials") and BioStar's unaudited balance sheets as of September 30, 1997 (the "Balance Sheet") and the related unaudited statements of operations and cash flows for the nine-month period then ended (collectively, the "Unaudited Financials")(the Audited Financials and the Unaudited Financials are collectively referred to herein as the "BioStar Financials"). The BioStar Financials were prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods covered. The BioStar Financials present fairly in all material respects the financial condition and operating results of BioStar as of the dates and during the periods indicated therein, subject, in the case of the Unaudited Financials, to normal year-end adjustments, which will not be material in amount or significance, and the absence of footnotes. (b) Since September 30, 1997, BioStar has not incurred any liabilities of the type required under GAAP to be recorded on a balance sheet or reported in the footnotes thereto except liabilities incurred in the ordinary course of business. 2.5 ABSENCE OF CHANGES. Since September 30, 1997: (a) there has not been any Material Adverse Change in the business, condition, capitalization, assets, liabilities, operations or financial performance of BioStar taken as a whole, and no event has occurred that could reasonably be expected to have a Material Adverse Effect on BioStar; (b) there has not been any material loss, damage or destruction to, or any material interruption in the use of, any of the assets of BioStar (whether or not covered by insurance); (c) there has not been any transaction, commitment, or other event or condition (financial or otherwise) which would be prohibited by Section 4.2(b)(i), (iii), (xi), (xii), or (xiii) if it were to be effected, accepted or were to take place, between the date hereof and the Effective Time. 2.6 TITLE TO ASSETS. Except as set forth in the BioStar Disclosure Schedule, BioStar owns, and has good, valid and marketable title to, all assets purported to be owned by it, including all assets reflected in BioStar's books and records as being owned by BioStar. All of said assets are owned by BioStar free and clear of any Encumbrances, except for (a) any lien for current taxes not yet due and payable, (b) minor liens that have arisen in the ordinary course of business and that do not (in any case or in the aggregate) materially detract from the value of the assets subject thereto or materially impair the operations of BioStar, and (c) liens described in the BioStar Disclosure Schedule. 2.7 REAL PROPERTY; EQUIPMENT; LEASEHOLD. (a) BioStar does not own any real property or any interest in real property, except for the leasehold created under the real property lease(s) set forth in the BioStar Disclosure Schedule. Complete and correct copies of such lease(s) have previously been delivered to Cortech by BioStar. (b) All material items of equipment and other tangible assets owned by or leased to BioStar are reasonably adequate for the uses to which they are being put, are in good condition and repair (ordinary wear and tear excepted) and are reasonably adequate for the conduct of BioStar's business in the manner in which A-8 190 such business is currently being conducted and in the manner in which such business is required to be conducted pursuant to BioStar Contracts and which are in effect on the date hereof. 2.8 PROPRIETARY ASSETS. (a) The BioStar Disclosure Schedule describes each Proprietary Asset owned by BioStar and deemed by BioStar to have material value to BioStar. Except as disclosed in the BioStar Disclosure Schedule, BioStar has good title to such Proprietary Assets and has no obligation to make any material ongoing royalty or other payment to any Person in respect thereto. Any limitation on the right of BioStar to use or exploit a BioStar Proprietary Asset deemed by BioStar to have material value to BioStar has been disclosed in the BioStar Disclosure Schedule. (b) BioStar has taken reasonable measures and precautions to protect and maintain the confidentiality, secrecy and value of all material BioStar Proprietary Assets (except BioStar Proprietary Assets whose value would not be impaired materially by disclosure). Except where the failure to obtain such agreements would not impair the value of any BioStar Proprietary Asset in a material respect, BioStar has obtained, from all current and former employees of BioStar and from all current and former consultants and independent contractors to BioStar, signed agreements appropriately restricting the use and disclosure of BioStar Proprietary Assets, and providing for assignment to BioStar of BioStar Proprietary Assets developed by such employees and consultants. (c) To the best of the knowledge of BioStar: (i) all patents, patent applications, registered trademarks, registered service marks and registered copyrights held by BioStar and deemed by BioStar to have a material value to BioStar were filed and were and have been prosecuted in good faith and in compliance with all applicable Legal Requirements; and (ii) there has not been any claim, action or proceeding, and there is no pending or threatened claim, action or proceeding related to any registration or filing of a BioStar Proprietary Asset; (iii) none of the BioStar Proprietary Assets infringes, misappropriates or conflicts with any Proprietary Asset owned or used by any other Person; (iv) none of the products that are or have been designed, created, developed, assembled, manufactured or sold by BioStar is infringing, misappropriating or making any unlawful or unauthorized use of any Proprietary Asset owned or used by any other Person, and none of such products has at any time infringed, misappropriated or made any unlawful or unauthorized use of, and BioStar has not received any notice or other communication (in writing or otherwise) of any actual, alleged, possible or potential infringement, misappropriation or unlawful or unauthorized use of, any Proprietary Asset owned or used by any other Person; (v) no other Person is infringing, misappropriating or making any unlawful or unauthorized use of, and no Proprietary Asset owned or used by any other Person infringes or conflicts with, any material BioStar Proprietary Asset. (d) The BioStar Proprietary Assets constitute all the Proprietary Assets reasonably necessary to enable BioStar to conduct its business in the manner in which such business is being conducted and in the manner in which such business is required to be conducted pursuant to the BioStar Contracts which are in effect on the date hereof. Except as set forth in the BioStar Disclosure Schedule, BioStar has not (i) licensed any of the material BioStar Proprietary Assets to any Person on an exclusive basis, or (ii) entered into any covenant not to compete or Contract limiting its ability to exploit fully any material BioStar Proprietary Assets or to transact business in any market or geographical area or with any Person. 2.9 MATERIAL CONTRACTS. (a) The BioStar Disclosure Schedule identifies each BioStar Contract that constitutes a "BioStar Material Contract." For purposes of this Agreement, each of the following shall be deemed to constitute a BioStar Material Contract: (i) any Contract relating to the employment of, or the performance of services by, any officer or consultant, and any Contract pursuant to which BioStar is or may become obligated to make any severance, termination, bonus or relocation payment or any other payment (other than payments in respect of salary and the grant of standard benefits); A-9 191 (ii) any Contract relating to the acquisition, transfer, development, sharing or license of any BioStar Proprietary Asset deemed by BioStar to have material value to BioStar (except for any Contract pursuant to which any Proprietary Asset is licensed to BioStar under any third party software license generally available to the public); (iii) any Contract which provides for indemnification of any officer, director, employee or agent; (iv) any Contract imposing any restriction on the right or ability of BioStar (A) to compete with any other Person, (B) to acquire any product or other asset or any services from any other Person, to sell any product or other asset to or perform any services for any other Person or to transact business or deal in any other manner with any other Person, or (C) to develop or distribute any technology, in each case where breach thereof by BioStar would have a Material Adverse Effect on BioStar; (v) any Contract (A) relating to the acquisition, issuance, voting, registration, sale or transfer of any securities, (B) providing any Person with any preemptive right, right of participation, right of maintenance or any similar right with respect to any securities, or (C) providing BioStar with any right of first refusal with respect to, or right to repurchase or redeem, any securities; (vi) any Contract requiring that BioStar give any notice, obtain any consent or provide any information to any Person prior to accepting any Acquisition Proposal; (vii) any Contract (not otherwise identified in this Section) that (A) has a term of more than 60 days or that may not be terminated by BioStar (without penalty) within 60 days after the delivery of a termination notice by BioStar and (B) that contemplates or involves (I) the payment or delivery of cash or other consideration on or after the date hereof in an amount or having a value in excess of $100,000 in aggregate payments under such Contract, or (II) the performance of services on or after the date hereof having a value in excess of $100,000 in aggregate payments under such Contract; (viii) any Contract (A) to which any Governmental Body is a party or under which any Governmental Body has any rights or obligations, or involving or directly or indirectly benefiting any Governmental Body (including any subcontract or other Contract between BioStar and any contractor or subcontractor to any Governmental Body) and that (B) contemplates or involves (I) the payment or delivery of cash or other consideration on or after the date hereof in an amount or having a value in excess of $100,000 in aggregate payments under such Contract, or (II) the performance of services on or after the date hereof having a value in excess of $100,000 in aggregate payments under such Contract; (ix) any open purchase order placed by BioStar requiring future aggregate payments in excess of $100,000; and (x) any Contract (not otherwise identified in this Section), if a breach of such Contract could reasonably be expected to have a Material Adverse Effect on BioStar. (b) Each BioStar Material Contract is valid and in full force and effect, and is enforceable in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. Except as set forth in the BioStar Disclosure Schedule, the aggregate amount payable by BioStar under Contracts that would be BioStar Material Contracts but for the limitations of Sections 2.9(a)(vii)(B) or 2.9(a)(viii)(B) do not exceed $500,000. The aggregate amount payable by BioStar under purchase orders not listed on the BioStar Disclosure Schedule does not exceed $500,000. (c) Except as set forth in the BioStar Disclosure Schedule: (i) BioStar has not materially violated or breached, or committed any material default under, any BioStar Material Contract, and, to the best of the knowledge of BioStar, no other Person has materially violated or breached, or committed any material default under, any BioStar Material Contract; (ii) to the best of the knowledge of BioStar, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) could reasonably be expected to (A) result in a material violation or breach of any of the provisions of any BioStar Material Contract, (B) give any Person the right to declare a default or exercise any remedy under any BioStar Material Contract, (C) give any Person the right to a rebate, charge-back, penalty or change in delivery A-10 192 schedule under any BioStar Material Contract, (D) give any Person the right to accelerate the maturity or performance of any BioStar Material Contract, or (E) give any Person the right to cancel, terminate or materially modify any BioStar Material Contract; (iii) since September 30, 1997, BioStar has not received any written notice or other written communication regarding any actual or possible violation or breach of, default under, or intention to terminate, any BioStar Contract except for communication (A) that has subsequently been revoked; or (B) has been received from a complaining party that has not contacted BioStar or otherwise, to the knowledge of BioStar, taken any action with respect to such party's complaint for a period of more than six months following receipt of the communication; and (iv) BioStar has not waived any of its material rights under any BioStar Material Contract, in each case where such breach, default, violation or waiver would have a Material Adverse Effect on BioStar. (d) To the best of the knowledge of BioStar, no Person is renegotiating, or has the right to renegotiate, any material amount paid or payable to BioStar under any BioStar Material Contract, or any other material term or provision of any BioStar Material Contract, including termination provisions. (e) The BioStar Contracts collectively constitute all of the Contracts necessary to enable BioStar to conduct its business in the manner in which its business is currently being conducted and in the manner in which its business is required to be conducted pursuant to Contracts to which BioStar is a party and which are in effect on the date hereof. (f) The BioStar Disclosure Schedule sets forth a list of all claims made under any BioStar Material Contract which are disputed in any material respect or, to BioStar's knowledge, where a dispute as to any material matter has been threatened. 2.10 LIABILITIES. BioStar has no accrued, contingent or other liabilities of any nature, either matured or unmatured (whether or not required to be reflected in financial statements in accordance with GAAP, and whether due or to become due), except for: (a) liabilities identified as such in the BioStar Financials; (b) normal and recurring liabilities that have been incurred by BioStar since September 30, 1997 in the ordinary course of business and consistent with past practices; and (c) other liabilities which have not had and could not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on BioStar. 2.11 COMPLIANCE WITH LEGAL REQUIREMENTS. BioStar is, and to the best knowledge of BioStar has at all times since inception been, in compliance with all applicable Legal Requirements, except where the failure to comply with such Legal Requirements has not had and could not reasonably be expected to have a Material Adverse Effect on BioStar. Since inception, BioStar has not received any notice or other communication from any Governmental Body regarding any actual or possible violation of, or failure to comply with, any material Legal Requirement. 2.12 CERTAIN BUSINESS PRACTICES. Neither BioStar nor any director, officer, agent or employee of BioStar has (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other unlawful payment. 2.13 GOVERNMENTAL AUTHORIZATIONS. BioStar holds all material Governmental Authorizations necessary to enable BioStar to conduct its business in the manner in which its business is currently being conducted. All such Governmental Authorizations are valid and in full force and effect. BioStar is, and to the best knowledge of BioStar, at all times since inception has been, in substantial compliance with the terms and requirements of such Governmental Authorizations. Since inception, BioStar has not received any notice or other communication from any Governmental Body regarding (a) any actual or possible violation of or failure to comply with any term or requirement of any material Governmental Authorization, or (b) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any material Governmental Authorization or (c) any requirement to apply for or hold Governmental Authorization not held by BioStar, in each case where such violation, revocation, suspension, cancellation, termination or modification would have a Material Adverse Effect on BioStar. A-11 193 2.14 TAX MATTERS. (a) All Tax Returns required to be filed by or on behalf of BioStar with any Governmental Body with respect to any taxable period ending on or before the Closing Date (the "BioStar Returns") have been or will be filed on or before the applicable due date (including any extensions of such due date). All amounts shown on the BioStar Returns to be due on or before the Closing Date have been or will be paid on or before the Closing Date. (b) The BioStar Financials fully accrue all actual and contingent liabilities for Taxes with respect to all periods through the dates thereof in accordance with generally accepted accounting principles. BioStar will establish, in the ordinary course of business and consistent with its past practices, quarterly reserves adequate for the payment of all Taxes for the applicable periods from December 31, 1996 through the Closing Date. Since January 1, 1997, no material Tax liability has been incurred other than in the ordinary course of business. (c) Except as set forth in the BioStar Disclosure Schedule, no BioStar Return has ever been examined or audited by any Governmental Body. No extension or waiver of the limitation period applicable to any of the BioStar Returns has been granted (by BioStar or any other Person), and no such extension or waiver has been requested from BioStar. (d) No claim or Legal Proceeding is pending or, to the best of the knowledge of BioStar, has been threatened in writing against or with respect to BioStar in respect of any Tax. There are no unsatisfied liabilities for Taxes (including liabilities for interest, additions to tax and penalties thereon and related expenses) with respect to any notice of deficiency or similar document received by BioStar (other than liabilities for Taxes asserted under any such notice of deficiency or similar document which are being contested in good faith by BioStar and with respect to which adequate reserves for payment have been established). There are no liens for Taxes upon any of the assets of BioStar except liens for current Taxes not yet due and payable. BioStar has not entered into nor has it become bound by any agreement or consent pursuant to Section 341(f) of the Code. BioStar has not been, and will not be, required to include any adjustment in taxable income for any tax period (or portion thereof) pursuant to Section 481 or 263A of the Code or any comparable provision under state or foreign Tax laws as a result of transactions or events occurring, or accounting methods employed, prior to the Closing. BioStar is not nor has it been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code. BioStar has no liability for the taxes of any other Person. (e) Except as set forth in the BioStar Disclosure Schedule, there is no agreement, plan, arrangement or other Contract covering any employee or independent contractor or former employee or independent contractor of BioStar that, considered individually or considered collectively with any other such Contracts, will, or could reasonably be expected to, give rise directly or indirectly to the payment of any amount that would not be deductible pursuant to Section 280G or Section 162 of the Code. BioStar is not, nor has it ever been, a party to or bound by any tax indemnity agreement, tax sharing agreement, tax allocation agreement or similar Contract (other than a Contract entered into in the ordinary course of business in connection with the purchase or sale of inventory or supplies). 2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS. (a) The BioStar Disclosure Schedule identifies each salary, bonus, deferred compensation, incentive compensation, stock purchase, stock option, severance pay, termination pay, hospitalization, medical, life or other insurance, supplemental unemployment benefits, profit-sharing, pension or retirement plan or program (collectively, the "BioStar Plans") sponsored, maintained, contributed to or required to be contributed to by BioStar for the benefit of any current or former employee of BioStar. (b) No BioStar Plan is subject to Title IV of ERISA, Part 3 of Title I of ERISA or Section 412 of the Code, and no BioStar Plan constitutes a "multi-employer plan" (as defined in Section 3(37) of ERISA). (c) With respect to each BioStar Plan, BioStar has made available to Cortech: (i) an accurate and complete copy of each such BioStar Plan (including all amendments thereto); (ii) an accurate and complete A-12 194 copy of the annual report, if required under ERISA, with respect to such BioStar Plans for the last two plan years; (iii) an accurate and complete copy of the most recent summary plan description, together with each summary of material modifications thereto, if required under ERISA, with respect to such BioStar Plans, (iv) if such BioStar Plans are funded through a trust or any third party funding vehicle, an accurate and complete copy of the trust or other funding agreement (including all amendments thereto); (v) accurate and complete copies of all Contracts relating to such BioStar Plans, including service provider agreements, insurance contracts, minimum premium contracts, stop-loss agreements, investment management agreements, subscription and participation agreements and record-keeping agreements; and (vi) an accurate and complete copy of the most recent determination, opinion, notification or advisory letter received from the Internal Revenue Service with respect to such BioStar Plans (if such BioStar Plans are intended to be qualified under Section 401(a) of the Code). (d) BioStar has no plan or commitment to create any additional Plan, or to modify or change any existing Plan (other than to comply with applicable law) in a manner that would create any material liability for BioStar. (e) No BioStar Plan provides death, medical or health benefits coverage (whether or not insured) with respect to any current or former employee of BioStar after any such employee's termination of service (other than (i) benefit coverage mandated by applicable law, including coverage provided pursuant to Section 4980B of the Code ("COBRA"), (ii) deferred compensation benefits accrued as liabilities on the BioStar Financials, and (iii) benefits the full costs of which are borne by current or former employees of BioStar (or the employees' beneficiaries)). (f) With respect to any BioStar Plan constituting a group health plan within the meaning of Section 4980B(g)(2) of the Code, the provisions of COBRA have been complied with in all material respects. The BioStar Disclosure Schedule lists all qualified beneficiaries under COBRA with respect to all such BioStar Plans. (g) Each of the BioStar Plans has been operated and administered in all material respects in accordance with its terms and applicable Legal Requirements, including but not limited to ERISA and the Code. (h) All material contributions, premiums or other payments due from BioStar to (or under) any BioStar Plan have been fully paid or adequately provided for on the books and financial statements of BioStar. (i) Each of the BioStar Plans intended to be qualified under Section 401(a) of the Code has received a favorable determination, opinion, notification or advisory letter from the Internal Revenue Service, and BioStar is not aware of any reason why any such letter should be revoked. (j) Except as set forth in the BioStar Disclosure Schedule, neither the execution, delivery or performance of this Agreement, nor the consummation of the Merger or any of the other transactions contemplated by this Agreement, will result in any payment (including any bonus, golden parachute or severance payment) to any current or former employee or director of BioStar (whether or not under any BioStar Plan), or materially increase the benefits payable under any BioStar Plan, or result in any acceleration of the time of payment or vesting of any such benefits. (k) The BioStar Disclosure Schedule contains a list of the ten employees with the highest salaries of BioStar as of the date of this Agreement, and correctly reflects, in all material respects, their salaries, any other compensation payable to them (including compensation payable pursuant to bonus, deferred compensation or commission arrangements), their dates of employment and their positions. BioStar is not a party to any collective bargaining contract or other Contract with a labor union involving any of its employees. To the best knowledge of BioStar, all of the employees of BioStar are "at will" employees. (l) The BioStar Disclosure Schedule identifies each Employee who is not fully available to perform work because of disability or other leave and sets forth the basis of such leave and the anticipated date of return to full service. (m) BioStar is in compliance in all material respects with all applicable Legal Requirements and Contracts relating to employment, employment practices, wages, bonuses and terms and conditions of A-13 195 employment, including employee compensation matters and the classification of independent contractors and workers. 2.16 ENVIRONMENTAL MATTERS. BioStar is in compliance in all material respects with all applicable Environmental Laws, which compliance includes the possession by BioStar of all permits and other Governmental Authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof. BioStar has not received any notice or other communication (in writing or otherwise), whether from a Governmental Body, citizens group, employee or otherwise, that alleges that BioStar is not in compliance with any Environmental Law. To the knowledge of BioStar without further inquiry, no current or prior owner of any property leased or controlled by BioStar has received any notice or other communication (in writing or otherwise), whether from a Government Body, citizens group, employee or otherwise, that alleges that such current or prior owner or BioStar is not in compliance with any Environmental Law. To the best knowledge of BioStar, all property that is leased to, controlled by or used by BioStar, and all surface water, groundwater and soil associated with or adjacent to such property is in clean and healthful condition and is free of any material environmental contamination of any nature. To the best knowledge of BioStar, BioStar has not disposed of, emitted, discharged, handled, stored, transported, used or released any Materials of Environmental Concern, arranged for the disposal, discharge, storage or release of any Materials of Environmental Concern, or exposed any employee or other individual to any Materials of Environmental Concern or condition so as to give rise to any material liability or material corrective or remedial obligation under any Environmental Laws. 2.17 INSURANCE. BioStar has delivered to Cortech a summary of all material insurance policies and all material self-insurance programs relating to the business, assets and operations of BioStar and has made available to Cortech copies of the policies. Each of such insurance policies is in full force and effect. Since September 30, 1997, BioStar has not received any notice or other communication regarding any actual or possible (a) cancellation or invalidation of any insurance policy, (b) refusal of any coverage or rejection of any material claim under any insurance policy, or (c) material adjustment in the amount of the premiums payable with respect to any insurance policy. Except as set forth in the BioStar Disclosure Schedule, there is no pending claim (including any workers' compensation claim) other than routine claims for benefits under any BioStar Plan under or based upon any insurance policy of BioStar. 2.18 TRANSACTIONS WITH AFFILIATES. (a) Since December 31, 1996, except as set forth in the BioStar Disclosure Schedule, no event has occurred that would be required to be reported by BioStar pursuant to Item 404 of Regulation S-K promulgated by the SEC if BioStar was a reporting company. The BioStar Disclosure Schedule identifies each Person who is an "affiliate" (as that term is used in Rule 145 under the Securities Act) of BioStar as of the date of this Agreement. (b) The BioStar Disclosure Schedule contains an accurate and complete list as of the date of this Agreement of all outstanding loans and advances made by BioStar to any employee, director, consultant or independent contractor other than routine travel advances and advances made for relocation purposes made to employees in the ordinary course of business. 2.19 LEGAL PROCEEDINGS; ORDERS. (a) There is no pending Legal Proceeding, and (to the best of the knowledge of BioStar) no Person has threatened to commence any Legal Proceeding: (i) that involves BioStar or any of the assets owned or used by BioStar; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Merger or any of the other transactions contemplated by this Agreement. To the best of the knowledge of BioStar, no event has occurred, and no claim, dispute or other condition or circumstance exists, that could reasonably be expected to give rise to or serve as a basis for the commencement of any such Legal Proceeding that would reasonably be expected to have a Material Adverse Effect on BioStar. (b) There is no material order, writ, injunction, judgment or decree to which BioStar, or any of the assets owned or used by BioStar, is subject. To the best of the knowledge of BioStar, no officer or key employee of A-14 196 BioStar is subject to any order, writ, injunction, judgment or decree that prohibits such officer or other employee from engaging in or continuing any conduct, activity or practice relating to the business of BioStar. 2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. BioStar has the absolute and unrestricted right, power and authority to enter into and to perform its obligations under this Agreement. The board of directors of BioStar (at a meeting duly called and held) has unanimously (a) determined that the Merger is advisable and fair and in the best interests of BioStar and its stockholders, (b) authorized and approved the execution, delivery and performance of this Agreement by BioStar and unanimously approved the Merger, and (c) recommended the approval of this Agreement and the Merger by the holders of BioStar Common Stock and BioStar Preferred Stock and directed that this Agreement and the Merger be submitted for consideration by the BioStar stockholders at a BioStar Stockholders' Meeting (as defined in Section 5.2). This Agreement constitutes the legal, valid and binding obligation of BioStar, enforceable against BioStar in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. 2.21 NO EXISTING DISCUSSIONS. BioStar has terminated any existing discussions with any Person that relate to any Acquisition Proposal. Neither BioStar, nor any Representative of BioStar, is currently engaged, directly or indirectly, in any discussions or negotiations with any other Person relating to any Acquisition Proposal. 2.22 VOTE REQUIRED. The affirmative vote of the holders of a majority of the shares of BioStar Common Stock and BioStar Preferred Stock (voting on an as-converted basis) outstanding on the BioStar Record Date, voting together as a single class, and the affirmative vote of the holders of a majority of the shares of each series of BioStar Preferred Stock outstanding on the BioStar Record Date, voting as separate classes (the "Required BioStar Stockholder Vote") are the only votes of the holders of any class or series of BioStar's capital stock necessary to approve this Agreement, the Merger, the BioStar Charter Amendment, and the other transactions contemplated by this Agreement. 2.23 NON-CONTRAVENTION; CONSENTS. Neither (x) the execution, delivery or performance of this Agreement or any of the other agreements referred to in this Agreement, nor (y) the consummation of the Merger or any of the other transactions contemplated by this Agreement, will directly or indirectly (with or without notice or lapse of time): (a) contravene, conflict with or result in a violation of (i) any of the provisions of the Certificate of Incorporation, Bylaws or other charter or organizational documents of BioStar, or (ii) any resolution adopted by the stockholders, the board of directors or any committee of the board of directors of BioStar; (b) contravene, conflict with or result in a violation of, or give any Governmental Body or other Person the right to challenge the Merger or any of the other transactions contemplated by this Agreement or to exercise any remedy or obtain any relief under, any Legal Requirement or any order, writ, injunction, judgment or decree to which BioStar, or any of the assets owned or used by BioStar, is subject, if the result would have a Material Adverse Effect on BioStar; (c) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by BioStar or that otherwise relates to the business of BioStar or to any of the assets owned or used by BioStar, if the result would have a Material Adverse Effect on BioStar; (d) contravene, conflict with or result in a violation or material breach of, or result in a default (or an event which with notice or lapse of time or both would become a default) under, any provision of any BioStar Material Contract, or give any Person the right to (i) declare a default or exercise any remedy under any such BioStar Material Contract, (ii) a rebate, charge-back, penalty or change in delivery schedule under any such BioStar Material Contract, (iii) accelerate the maturity or performance of any such BioStar Material Contract, or (iv) cancel, terminate or materially modify any term of such BioStar Material Contract, if the result would have a Material Adverse Effect on BioStar; or A-15 197 (e) result in the imposition or creation of any Encumbrance upon or with respect to any asset owned or used by BioStar (except for minor liens that will not, in any case or in the aggregate, materially detract from the value of the assets subject thereto or materially impair the operations of BioStar). Except as may be set forth in the BioStar Disclosure Schedule or as required by the Exchange Act, the DGCL and the NASD Bylaws (as they relate to the Form S-4 Registration Statement and the Joint Proxy Statement) BioStar is not, nor will it be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement or any of the other agreements referred to in this Agreement, or (y) the consummation of the Merger or any of the other transactions contemplated by this Agreement. 2.24 FINANCIAL ADVISOR. Except for Lehman Brothers, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the Merger or any of the other transactions contemplated by this Agreement based upon arrangements made by or on behalf of BioStar. BioStar has furnished to Cortech accurate and complete copies of all agreements under which any such fees, commissions or other amounts have been paid or may become payable and all indemnification and other arrangements relating to the engagement of Lehman Brothers. 2.25 FULL DISCLOSURE. This Agreement (including the BioStar Disclosure Schedule) does not, and the certificate referred to in Section 6.6(c) will not, (i) contain any representation, warranty or information that is false or misleading with respect to any material fact, or (ii) omit to state any material fact necessary in order to make the representations, warranties and information contained and to be contained herein and therein (in the light of the circumstances under which such representations, warranties and information were or will be made or provided) not false or misleading. 3. REPRESENTATIONS AND WARRANTIES OF CORTECH AND MERGER SUB Cortech and Merger Sub represent and warrant to BioStar, except as set forth in the Cortech Disclosure Schedule or the Cortech SEC Documents (as defined in Section 3.4 below) as follows (and notwithstanding any particular reference in a representation or warranty to the Cortech SEC Documents or Cortech Disclosure Schedule): 3.1 DUE ORGANIZATION, SUBSIDIARIES, ETC. (a) Each of Cortech and its Subsidiaries (collectively, the "Cortech Corporations"), is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all necessary power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own, lease and use its assets in the manner in which its assets are currently owned, leased and used; and (iii) to perform its obligations under all contracts by which it is bound. Each of the Cortech Corporations is qualified to do business as foreign corporation, and is in good standing, under the laws of all jurisdictions where the nature of its business requires such qualification except in jurisdictions where the failure to so qualify, individually and in the aggregate, would not have a Material Adverse Effect. (b) Cortech has no Subsidiaries, except for the corporation identified in the Cortech Disclosure Schedule; and neither Cortech nor the corporation identified in the Cortech Disclosure Schedule owns any capital stock of, or any equity interest of any nature in, any other Entity other than the Entities identified in the Cortech Disclosure Schedule. None of the Cortech Corporations has agreed or is obligated to make or is bound by any Contract under which it is obligated to make, any future investment in or capital contribution to any other Entity. None of the Cortech Corporations has, at any time, been a general partner of any general partnership, limited partnership, or other Entity. 3.2 CERTIFICATE/CERTIFICATE OF INCORPORATION AND BYLAWS. Cortech has delivered to BioStar complete and accurate copies of the Certificate of Incorporation, Bylaws, and other charter and organizational documents of the respective Cortech Corporations, including all amendments thereto. A-16 198 3.3 CAPITALIZATION, ETC. (a) The authorized capital stock of Cortech consists of: (i) 50,000,000 shares of Cortech Common Stock, par value $0.002, of which, as of November 30, 1997 18,523,918 shares were issued and outstanding and no shares were held in its treasury, and (ii) 2,000,000 shares of Cortech Preferred Stock, par value $0.002, none of which were issued and outstanding or held in its treasury as of November 30, 1997. All of the outstanding shares of Cortech Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable. Except as set forth in the Cortech Disclosure Schedule: (i) none of the outstanding shares of Cortech Common Stock is entitled or subject to any preemptive right, right of participation in future financings, right to maintain a percentage ownership position, or any similar right; (ii) none of the outstanding shares of Cortech Common Stock is subject to any right of first refusal in favor of Cortech; and (iii) there is no Cortech Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar right with respect to), any shares of Cortech Common Stock. None of the Cortech Corporations is under any obligation, or is bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of Cortech Common Stock or any other securities of any Cortech Corporation, other than the stockholder rights plan disclosed pursuant to Section 3.3(c) hereof. The authorized capital of Merger Sub consists of 100 shares of Common Stock, par value $.001 per share, 10 shares of which are issued and outstanding and are held beneficially, and of record, by Cortech. (b) As of November 30, 1997: (i) 376,662 shares of Cortech Common Stock are reserved for future issuance pursuant to stock options granted and outstanding under Cortech's Amended and Restated 1986 Incentive Stock Option Plan, (ii) no shares of Cortech Common Stock are reserved for future issuance pursuant to stock options granted and outstanding under Cortech's 1991 Non-employee Directors' Stock Option Plan, (iii) 207,815 shares of Cortech Common Stock are reserved for future issuance pursuant to stock options granted and outstanding under Cortech's Amended and Restated 1992 Non-employee Directors' Stock Option Plan, (iv) 333,682 shares of Cortech Common Stock are reserved for future issuance pursuant to stock options granted and outstanding under Cortech's 1993 Equity Incentive Plan, and (v) 108,236 shares of Cortech Common Stock are reserved for future issuance under Cortech's 1993 Employee Stock Purchase Plan (the "Cortech ESPP"). The Cortech Disclosure Schedule sets forth the following information with respect to each Cortech Option outstanding as of the date of this Agreement: (i) the particular plan pursuant to which such Cortech Option was granted; (ii) the name of the optionee; (iii) the number of shares of Cortech Common Stock subject to such Cortech Option; (iv) the exercise price of such Cortech Option; (v) the date on which such Cortech Option was granted; and (vi) the extent to which such Cortech Option is vested and exercisable as of November 30, 1997. Cortech has delivered to BioStar accurate and complete copies of all stock option plans and forms of option grant pursuant to which Cortech has granted any outstanding stock options. Cortech has reserved 709,688 shares of Cortech Common Stock for issuance upon exercise of warrants. The Cortech Disclosure Schedule sets forth the following information with respect to the outstanding warrant to purchase Cortech Common Stock: (1) the name of the holder of such warrant; (2) the number of shares of Cortech Common Stock subject to such warrant; (3) the exercise price of such warrant; (4) the date on which such warrant was issued; and (5) the date on which such warrant expires. Cortech has delivered to BioStar an accurate and complete copy of such warrant. (c) Except as set forth in the Cortech Disclosure Schedule, there is no: (i) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of Cortech or any other Cortech Corporation; (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities of Cortech or any other Cortech Corporation; (iii) stockholder rights plan (or similar plan commonly referred to as a "poison pill") or Contract under which Cortech or any other Cortech Corporation is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities; or (iv) condition or circumstance that may reasonably give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any shares of capital stock or other securities of Cortech or any other Cortech Corporation. There are no bonds, debentures, notes or other A-17 199 indebtedness of Cortech outstanding having the right to vote (or convertible into securities having the right to vote) on any matters on which the stockholders of the Cortech have the right to vote. (d) All outstanding securities of all of the Cortech Corporations, including shares of Cortech Common Stock, all outstanding Cortech Options, all outstanding warrants to purchase Cortech Common Stock, all outstanding rights under the Cortech ESPP and all outstanding shares of capital stock of each subsidiary of Cortech have been issued and granted in all material respects in compliance with (i) all applicable securities laws and other applicable Legal Requirements, and (ii) all requirements set forth in applicable Contracts. (e) All of the outstanding shares of capital stock of Merger Sub have been duly authorized and are validly issued, are fully paid and nonassessable and (other than the capital stock of Cortech) are owned beneficially and of record by Cortech, free and clear of any Encumbrances. 3.4 SEC FILINGS; FINANCIAL STATEMENTS. (a) Cortech has made available to BioStar accurate and complete copies (excluding copies of exhibits) of all registration statements, proxy statements and other statements, reports, schedules, forms and other documents filed by Cortech with the SEC since September 30, 1993 (the "Cortech SEC Documents"). All statements, reports, schedules, forms and other documents required to have been filed by Cortech with the SEC have been so filed by Cortech on a timely basis with the exception of the 1997 Annual Meeting Proxy Statement. As of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing): (i) each of the Cortech SEC Documents complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act (as the case may be); and (ii) none of the Cortech SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) The consolidated financial statements (including any related notes) contained in the Cortech SEC Documents (the "Cortech Financial Statements"): (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods covered (except as may be indicated in the notes to such financial statements and, in the case of unaudited statements, as permitted by Form 10-Q of the SEC, and except that unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end audit adjustments which will not, individually or in the aggregate, be material in amount); and (iii) fairly present the financial position of Cortech as of the respective dates thereof and the results of operations and cash flows of Cortech for the periods covered thereby. (c) Since September 30, 1997, Cortech and its subsidiaries have not incurred any liabilities of the type required under GAAP to be recorded on a balance sheet or in the footnotes thereto except liabilities incurred in the ordinary course of business. 3.5 ABSENCE OF CHANGES. Since September 30, 1997: (a) there has not been any Material Adverse Effect on the business, condition, capitalization, assets, liabilities, operations or financial performance of the Cortech Corporations, and no event has occurred that could reasonably be expected to have a Material Adverse Effect on the Cortech Corporations; (b) there has not been any material loss, damage or destruction to, or any material interruption in the use of, any of the assets of the Cortech Corporations which are necessary for the conduct of Cortech's business as currently conducted (whether or not covered by insurance); (c) there has not been any transaction, commitment, or other event or condition (financial or otherwise) which would be prohibited by Section 4.3(b)(i), (iv), (ix), (x) or (xi) if it were to be effected, accepted or were to take place between the date hereof and the Effective Time. 3.6 TITLE TO ASSETS. Except as set forth in the Cortech Disclosure Schedule or the Cortech SEC Documents, the Cortech Corporations own, and have good, valid and marketable title to, all assets purported to be owned by them, including: all assets reflected in their books and records as being owned by the Cortech A-18 200 Corporations. All of said assets are owned by the Cortech Corporations free and clear of any Encumbrances, except for (a) any lien for current taxes not yet due and payable, (b) minor liens that have arisen in the ordinary course of business and that do not (in any case or in the aggregate) materially detract from the value of the assets subject thereto or materially impair the operations of any of the Cortech Corporations, and (c) liens described in the Cortech Disclosure Schedule. 3.7 REAL PROPERTY; EQUIPMENT; LEASEHOLD. Except as described in the Cortech Disclosure Schedule or the Cortech SEC Documents: (a) None of the Cortech Corporations owns any real property or any material interest in real property, except for the leasehold created under real property leases set forth in the Cortech Disclosure Schedule. Complete and correct copies of such leases have previously been delivered to BioStar by Cortech. (b) All material items of equipment and other tangible assets owned by or leased to the Cortech Corporations are reasonably adequate for the uses to which they are being put, are in good condition and repair (ordinary wear and tear excepted) and are reasonably adequate for the conduct of the business of the Cortech Corporations in the manner in which such business is currently being conducted and in the manner in which such business is required to be conducted pursuant to Cortech Contracts and which are in effect on the date hereof. 3.8 PROPRIETARY ASSETS. (a) The Cortech SEC Documents describe each Proprietary Asset owned by Cortech and deemed by Cortech to have material value to Cortech. Except as disclosed in the Cortech SEC Documents, Cortech has good title to such Proprietary Assets and has no obligation to make any material ongoing royalty or other payment to any Person in respect thereto. Any limitation on the right of Cortech to use or exploit a Cortech Proprietary Asset deemed by Cortech to have material value to Cortech has been disclosed in the Cortech SEC Documents. (b) The Cortech Corporations have taken reasonable measures and precautions to protect and maintain the confidentiality, secrecy and value of all Cortech Proprietary Assets (except Cortech Proprietary Assets whose value would be unimpaired by disclosure). Except where the failure to obtain such agreements would not impair the value of any Cortech Proprietary Asset, the Cortech Corporations have obtained, from all current and former employees of the Cortech Corporations and from all current and former consultants and independent contractors to the Cortech Corporations, signed agreements appropriately restricting the use and disclosure of the Cortech Proprietary Assets, and providing for assignment to the Cortech Corporations of the Cortech Proprietary Assets developed by such employees and consultants. (c) To the best of the knowledge of Cortech: (i) all patents, patent applications, registered trademarks, registered service marks and registered copyrights held by any of the Cortech Corporations and deemed by Cortech to have material value to Cortech were filed and were and have been prosecuted in good faith and in compliance with all applicable Legal Requirements; (ii) there has not been any claim, action or proceeding, and there is no pending or threatened claim, action or proceeding relating to any registration or filing of a Cortech Proprietary Asset; (iii) none of the Cortech Proprietary Assets infringes, misappropriates or conflicts with any Proprietary Asset owned or used by any other Person; (iv) no other Person is infringing, misappropriating or making any unlawful or unauthorized use of, and no Proprietary Asset owned or used by any other Person infringes or conflicts with, any material Cortech Proprietary Asset. (d) The Cortech Proprietary Assets constitute all of the Proprietary Assets reasonably necessary to enable the Cortech Corporations to conduct their businesses in the manner in which such businesses are being conducted and in the manner in which such businesses are required to be conducted pursuant to Contracts to which Cortech is a party and which are in effect on the date hereof. Except as set forth in the Cortech Disclosure Schedule or the Cortech SEC Documents, none of the Cortech Corporations has (i) licensed any of the material Cortech Proprietary Assets to any Person on an exclusive basis, or (ii) entered into any covenant not to compete or Contract limiting its ability to exploit fully any material Cortech Proprietary Assets or to transact business in any market or geographical area or with any Person. A-19 201 3.9 MATERIAL CONTRACTS. (a) The Cortech Disclosure Schedule identifies each Cortech Corporation Contract that constitutes a "Cortech Material Contract." For purposes of this Agreement, each of the following shall be deemed to constitute a Cortech Material Contract: (i) any Contract relating to the employment of, or the performance of services by, any officer or consultant, and any Contract pursuant to which any of the Cortech Corporations is or may become obligated to make any severance, termination, bonus or relocation payment or any other payment (other than payments in respect of salary and the grant of standard benefits); (ii) any Contract relating to the acquisition, transfer, development, sharing or license of any Proprietary Asset deemed by Cortech to have material value to Cortech (except for any Contract pursuant to which any Proprietary Asset is licensed to the Cortech Corporations under any third party software license generally available to the public); (iii) any Contract which provides for indemnification of any officer, director, employee or agent; (iv) any Contract imposing any restriction on the right or ability of Cortech (A) to compete with any other Person, (B) to acquire any product or other asset or any services from any other Person, to sell any product or other asset to or perform any services for any other Person or to transact business or deal in any other manner with any other Person, or (C) to develop or distribute any technology, in each case where breach thereof by Cortech would have a Material Adverse Effect on Cortech; (v) any Contract (A) relating to the acquisition, issuance, voting, registration, sale or transfer of any securities, (B) providing any Person with any preemptive right, right of participation, right of maintenance or any similar right with respect to any securities, or (C) providing Cortech with any right of first refusal with respect to, or right to repurchase or redeem, any securities; (vi) any Contract requiring that Cortech give any notice, obtain any consent or provide any information to any Person prior to accepting any Acquisition Proposal; (vii) any Contract (not otherwise identified in this Section) that (A) has a term of more than 60 days or that may not be terminated by a Cortech Corporation (without penalty) within 60 days after the delivery of a termination notice by such Cortech Corporation and (B) that contemplates or involves (I) the payment or delivery of cash or other consideration on or after the date hereof in an amount or having a value in excess of $100,000 in aggregate payments under such Contract, or (II) the performance of services on or after the date hereof having a value in excess of $100,000 in aggregate payments under such Contract; (viii) any Contract (A) to which any Governmental Body is a party or under which any Governmental Body has any rights or obligations, or involving or directly or indirectly benefiting any Governmental Body (including any subcontract or other Contract between BioStar and any contractor or subcontractor to any Governmental Body) and (B) that contemplates and involves (I) the payment or delivery of cash or other consideration on or after the date hereof in an amount or having a value in excess of $100,000 in aggregate payments under such Contract, or (B) the performance of services on or after the date hereof having a value in excess of $100,000 in aggregate payments under such Contract; (ix) any open purchase order placed by a Cortech Corporation requiring future aggregate payments in excess of $100,000; (x) any other Contract (not otherwise identified in this Section), if a breach of such Contract could reasonably be expected to have a Material Adverse Effect on any of the Cortech Corporations. (b) Each Cortech Material Contract is valid and in full force and effect, and is enforceable in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. The aggregate amount payable by the Cortech Corporations under Contracts that would be Cortech Material Contracts but for the limitations of Sections 3.9(a)(vii)(B) or 3.9(a)(viii)(B) do not exceed A-20 202 $50,000. The aggregate amount payable by the Cortech Corporations under purchase orders not listed on the Cortech Disclosure Schedule does not exceed $50,000. (c) Except as set forth in the Cortech Disclosure Schedule: (i) none of the Cortech Corporations has materially violated or breached, or committed any material default under, any Cortech Material Contract, and, to the best of the knowledge of Cortech, no other Person has materially violated or breached, or committed any material default under, any Cortech Material Contract; (ii) to the best of the knowledge of Cortech, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) could reasonably be expected to (A) result in a material violation or breach of any of the provisions of any Cortech Material Contract, (B) give any Person the right to declare a default or exercise any remedy under any Cortech Material Contract, (C) give any Person the right to a rebate, charge-back, penalty or change in delivery schedule under any Cortech Material Contract, (D) give any Person the right to accelerate the maturity or performance of any Cortech Material Contract, or (E) give any Person the right to cancel, terminate or materially modify any Cortech Material Contract; (iii) since September 30, 1997, none of the Cortech Corporations has received any written notice or other written communication regarding any actual or possible violation or breach of, default under, or any intention to terminate, any Cortech Contract, except for communication (A) that has subsequently been revoked; or (B) has been received from a complaining party that has not contacted Cortech or otherwise, to Cortech's knowledge, taken any action with respect to such party's complaint for a period of more than six months following receipt of the communication; and (iv) none of the Cortech Corporations has waived any of its material rights under any Cortech Material Contract, in each case where such breach, default, violation or waiver would have a Material Adverse Effect on Cortech. (d) To the best of the knowledge of Cortech, no Person is renegotiating, or has the right to renegotiate, any material amount paid or payable to the Cortech Corporations under any Cortech Material Contract, or any other material term or provision of any Cortech Material Contract, including termination provisions. (e) The Cortech Material Contracts and other Contracts of the Cortech Corporations collectively constitute all of the Contracts necessary to enable the Cortech Corporations to conduct their respective businesses in the manner in which their businesses are currently being conducted and in the manner in which such businesses are required to be conducted pursuant to Contracts to which Cortech is a party and which are in effect on the date hereof. (f) The Cortech Disclosure Schedule sets forth a list of all claims made under any Cortech Material Contract which are disputed in any material respect or, to Cortech's knowledge, where a dispute as to any material matter has been threatened. 3.10 LIABILITIES. None of the Cortech Corporations has any accrued, contingent or other liabilities of any nature, either matured or unmatured (whether or not required to be reflected in financial statements in accordance with GAAP, and whether due or to become due), except for: (a) liabilities identified as such in the Cortech Financial Statements; (b) normal and recurring liabilities that have been incurred by the Cortech Corporations since September 30, 1997 in the ordinary course of business and consistent with past practices; and (c) other liabilities which have not had and could not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on the Cortech Corporations. 3.11 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the Cortech Corporations is, and, to the best knowledge of Cortech, has at all times since inception been, in compliance with all applicable Legal Requirements, except where the failure to comply with such Legal Requirements has not had and could not reasonably be expected to have, a Material Adverse Effect on the Cortech Corporations. Since inception, none of the Cortech Corporations has received any notice or other communication from any Governmental Body regarding any actual or possible violation of, or failure to comply with, any material Legal Requirement. 3.12 CERTAIN BUSINESS PRACTICES. None of the Cortech Corporations nor any director, officer, agent or employee of any of the Cortech Corporations has (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns A-21 203 or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other unlawful payment. 3.13 GOVERNMENTAL AUTHORIZATIONS. The Cortech Corporations hold all material Governmental Authorizations necessary to enable them to conduct their respective businesses in the manner in which such businesses are currently being conducted. All such Governmental Authorizations are valid and in full force and effect. Each Cortech Corporation is, and to the best knowledge of Cortech, at all times since inception has been, in substantial compliance with the terms and requirements of such Governmental Authorizations. To the best knowledge of Cortech, since inception, none of the Cortech Corporations has received any notice or other communication from any Governmental Body regarding (a) any actual or possible violation of or failure to comply with any term or requirement of any material Governmental Authorization, or (b) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any material Governmental Authorization or (c) any requirement to apply for or hold a Governmental Authorization not held by Cortech, in each case where such violation, revocation, suspension, cancellation, termination or modification would have a Material Adverse Effect on Cortech. 3.14 TAX MATTERS. (a) All Tax Returns required to be filed by or on behalf of the respective Cortech Corporations with any Governmental Body with respect to any taxable period ending on or before the Closing Date (the "Cortech Returns") have been or will be filed on or before the applicable due date (including any extensions of such due date). All amounts shown on the Cortech Returns to be due on or before the Closing Date have been or will be paid on or before the Closing Date. (b) The Cortech Financial Statements fully accrue all actual and contingent liabilities for Taxes with respect to all periods through the dates thereof in accordance with GAAP. Each Cortech Corporation will establish, in the ordinary course of business and consistent with its past practices, quarterly reserves adequate for the payment of all Taxes for the applicable periods from December 31, 1996 through the Closing Date. Since January 1, 1997 no material Tax liability has been incurred other than in the ordinary course of business. (c) Except as set forth in the Cortech Disclosure Schedule, no Cortech Return has ever been examined or audited by any Governmental Body. No extension or waiver of the limitation period applicable to any of the Cortech Returns has been granted (by Cortech or any other Person), and no such extension or waiver has been requested by the Cortech Corporations. (d) No claim or Legal Proceeding is pending or, to the best of the knowledge of Cortech, has been threatened in writing against or with respect to any Cortech Corporation in respect of any Tax. There are no unsatisfied liabilities for Taxes (including liabilities for interest, additions to tax and penalties thereon and related expenses) with respect to any notice of deficiency or similar document received by any Cortech Corporation (other than liabilities for Taxes asserted under any such notice of deficiency or similar document which are being contested in good faith by the Cortech Corporation and with respect to which adequate reserves for payment have been established). There are no liens for Taxes upon any of the assets of any of the Cortech Corporations except liens for current Taxes not yet due and payable. None of the Cortech Corporations has entered into or become bound by any agreement or consent pursuant to Section 341(f) of the Code. None of the Cortech Corporations has been, and none of the Cortech Corporations will be required to include any adjustment in taxable income for any tax period (or portion thereof) pursuant to Section 481 or 263A of the Code or any comparable provision under state or foreign Tax laws as a result of transactions or events occurring, or accounting methods employed, prior to the Closing. None of the Cortech Corporations is nor has been a United States real property holding corporation within the meaning of Section 847(c)(2) of the Code. No Cortech Corporation has liabilities for the Taxes of any other Person. (e) Except as set forth in the Cortech Disclosure Schedule or the Cortech SEC Documents, there is no agreement, plan, arrangement or other Contract covering any employee or independent contractor or former employee or independent contractor of any of the Cortech Corporations that, considered individually or considered collectively with any other such Contracts, will, or could reasonably be expected to, give rise directly or indirectly to the payment of any amount that would not be deductible pursuant to Section 280G or A-22 204 Section 162 of the Code. None of the Cortech Corporations is, or has ever been, a party to or bound by any tax indemnity agreement, tax sharing agreement, tax allocation agreement or similar Contract (other than a Contract entered into in the ordinary course of business in connection with the purchase or sale of inventory or supplies). 3.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS. (a) The Cortech Disclosure Schedule or the Cortech SEC Documents identifies salary, bonus, deferred compensation, incentive compensation, stock purchase, stock option, severance pay, termination pay, hospitalization, medical, life or other insurance, supplemental unemployment benefit, profit-sharing, pension or retirement plan, program or agreement (collectively, the "Cortech Plans") sponsored, maintained, contributed to or required to be contributed to by any of the Cortech Corporations for the benefit of any current of former employee of each Cortech Corporation. (b) No Cortech plan is subject to Title IV of ERISA, Part 3 of Title I of ERISA or Section 412 of the Code, and no Cortech Plan constitutes a "multi-employer plan" (as defined in Section 3(37) of ERISA). (c) With respect to each Cortech Plan, Cortech has made available to BioStar: (i) an accurate and complete copy of each such Cortech Plan (including all amendments thereto); (ii) an accurate and complete copy of the annual report, if required under ERISA, with respect to such Cortech Plans for the last two plan years; (iii) an accurate and complete copy of the most recent summary plan description, together with each summary of material modifications thereto, if required under ERISA, with respect to such Cortech Plans; (iv) if such Cortech Plans are funded through a trust or a third party funding vehicle, an accurate and complete copy of the trust or other funding agreement (including all amendments thereto); (v) accurate and complete copies of all Contracts relating to such Cortech Plans, including service provider agreements, insurance contracts, minimum premium contracts, stop-loss agreements, investment management agreements, subscription and participation agreements and record-keeping agreements; and (vi) an accurate and complete copy of the most recent determination, opinion, notification or advisory letter received from the Internal Revenue Service with respect to such Cortech Plans (if such Cortech Plans are intended to be qualified under Section 401(a) of the Code). (d) Cortech has no plan or commitment to create any additional Plan, or to modify or change any existing Plan (other than to comply with applicable law) in a manner that would create any material liability for any of the Cortech Corporations. (e) No Cortech Plan provides death, medical or health benefits coverage (whether or not insured) with respect to any of its current or former employees after any such employee's termination of service (other than (i) benefit coverage mandated by applicable law, including coverage provided pursuant to Section 4980B of the Code, (ii) deferred compensation benefits accrued as liabilities on the most recent financial statements included in the Cortech SEC filings, and (iii) benefits the full cost of which are borne by such current or former employees (or the employees' beneficiaries)). (f) With respect to any Cortech Plan constituting a group health plan within the meaning of Section 4980B(g)(2) of the Code, COBRA has been complied with in all material respects. The Cortech Disclosure Schedule lists all qualified beneficiaries under COBRA with respect to all such Cortech Plans. (g) Each of the Cortech Plans has been operated and administered in all material respects in accordance with its terms and applicable Legal Requirements, including but not limited to ERISA and the Code. (h) All material contributions, premiums or other payments due from any of the Cortech Corporations to (or under) any Cortech Plan have been fully paid or adequately provided for on the books and financial statements of the Cortech Corporations. (i) Each of the Cortech Plans intended to be qualified under Section 401(a) of the Code has received a favorable determination, opinion, notification or advisory letter from the Internal Revenue Service, and Cortech is not aware of any reason why any such letter should be revoked. A-23 205 (j) Except as set forth in the Cortech Disclosure Schedule, neither the execution, delivery or performance of this Agreement, nor the consummation of the Merger or any of the other transactions contemplated by this Agreement, will result in any payment (including any bonus, golden parachute or severance payment) to any of Cortech's current or former employees or directors (whether or not under any Cortech Plan), or materially increase the benefits payable under any Cortech Plan, or result in any acceleration of the time of payment or vesting of any such benefits. (k) Cortech is not a party to any collective bargaining contract or other Contract with a labor union involving any of its employees. To the best knowledge of Cortech, all of Cortech's employees are "at will" employees. (l) Each Cortech Corporation is in compliance in all material respects with all applicable Legal Requirements and Contracts relating to employment, employment practices, wages, bonuses and terms and conditions of employment, including employee compensation matters and the classification of independent contractors and workers. 3.16 ENVIRONMENTAL MATTERS. Each of the Cortech Corporations is in compliance in all material respects with all applicable Environmental Laws, which compliance includes the possession by each of the Cortech Corporations of all permits and other Governmental Authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof. None of the Cortech Corporations has received any notice or other communication (in writing or otherwise), whether from a Governmental Body, citizens group, employee or otherwise, that alleges that any of the Cortech Corporations is not in compliance with any Environmental Law, and, to the best of the knowledge of Cortech, there are no circumstances that may prevent or interfere with the compliance by any of the Cortech Corporations with any Environmental Law in the future. To the knowledge of Cortech without further inquiry, no current or prior owner of any property leased or controlled by any of the Cortech Corporations has received any notice or other communications (in writing or otherwise), whether from a Government Body, citizens group, employee or otherwise, that alleges that such current or prior owner or any of the Cortech Corporations is not in compliance with any Environmental Law. To the best of the knowledge of Cortech, all property that is leased to, controlled by or used by Cortech, and all surface water, groundwater and soil associated with or adjacent to such property is in clean and healthful condition and is free of any material environmental contamination of any nature. To the best knowledge of Cortech, none of the Cortech Corporations has disposed of, emitted, discharged, handled, stored, transported, used or released any Materials of Environmental Concern, arranged for the disposal, discharge, storage or release of any Materials of Environmental Concern, or exposed any employee or other individual to any Materials of Environmental Concern or condition so as to give rise to any material liability or material corrective or remedial obligation under any Environmental Laws. 3.17 INSURANCE. Cortech has delivered to BioStar a summary of all material insurance policies and all material self-insurance programs relating to the business, assets and operations of the respective Cortech Corporations and has made available to BioStar copies of the polices. Each of such insurance policies is in full force and effect. Since September 30, 1997, none of the Cortech Corporations has received any notice or other communication regarding any actual or possible (a) cancellation or invalidation of any insurance policy, (b) refusal of any coverage or rejection of any material claim under any insurance policy, or (c) material adjustment in the amount of the premiums payable with respect to any insurance policy. Except as set forth in the Cortech Disclosure Schedule, there is no pending claim (including any workers' compensation claim) other than routine claims for benefits under any Cortech Plan, under or based upon any insurance policy of any of the Cortech Corporations. 3.18 TRANSACTIONS WITH AFFILIATES. (a) Except as set forth in the Cortech SEC Reports, since the date of Cortech's last proxy statement filed with the SEC, no event has occurred that would be required to be reported by Cortech pursuant to Item 404 of Regulation S-K promulgated by the SEC. The Cortech Disclosure Schedule identifies each Person who is an "affiliate" (as that term is used in Rule 145 under the Securities Act) of Cortech and who beneficially owns more than one percent of the outstanding voting capital stock of Cortech as of the date of this Agreement. A-24 206 (b) The Cortech Disclosure Schedule contains an accurate and complete list as of the date of this Agreement of all outstanding loans and advances made by any of the Cortech Corporations to any employee, director, consultant or independent contractor other than routine travel advances and advances made for relocation purposes made to employees in the ordinary course of business. 3.19 LEGAL PROCEEDINGS; ORDERS. (a) There is no pending Legal Proceeding, and (to the best of the knowledge of Cortech) no Person has threatened to commence any Legal Proceeding: (i) that involves Cortech or any of the assets owned or used by Cortech or any of the Cortech Corporations; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Merger or any of the other transactions contemplated by this Agreement. To the best of the knowledge of Cortech, no event has occurred, and no claim, dispute or other condition or circumstance exists, that could reasonably be expected to, give rise to or serve as a basis for the commencement of any such Legal Proceeding that would reasonably be expected to have a Material Adverse Effect on the Cortech Corporations. (b) There is no material order, writ, injunction, judgment or decree to which any of the Cortech Corporations, or any of the assets owned or used by any of the Cortech Corporations, is subject. To the best of the knowledge of Cortech, no officer or key employee of the Cortech Corporations is subject to any order, writ, injunction, judgment or decree that prohibits such officer or other employee from engaging in or continuing any conduct, activity or practice relating to the business of any of the Cortech Corporations. 3.20 AUTHORITY; BINDING NATURE OF AGREEMENT. Cortech and Merger Sub have the absolute and unrestricted right, power and authority to enter into and to perform their obligations under this Agreement. The board of directors of Cortech (at a meeting duly called and held) has unanimously (a) determined that the Merger is advisable and fair and in the best interests of Cortech and its stockholders, (b) authorized and approved the execution, delivery and performance of this Agreement by Cortech and approved the Merger as sole stockholder of Merger Sub, (c) recommended the approval of the issuance of Cortech Common Stock in the Merger by the holders of Cortech Common Stock, and directed that such issuance be submitted for consideration by Cortech's stockholders at the Cortech Stockholders' Meeting (as defined in Section 5.3) and the board of directors of Merger Sub has duly authorized by all necessary action the execution, delivery and performance by Merger Sub of this Agreement. This Agreement constitutes the legal, valid and binding obligation of Cortech and Merger Sub, enforceable against Cortech and Merger Sub in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. 3.21 NO EXISTING DISCUSSIONS. Cortech has terminated any existing discussions with any Person that relate to any Acquisition Proposal. None of the Cortech Corporations, and no Representative of any of the Cortech Corporations, is currently engaged, directly or indirectly, in any discussions or negotiations with any Person (other than BioStar) relating to any Acquisition Proposal. 3.22 VOTE REQUIRED. The affirmative vote of the holders of a majority of the total votes cast at a meeting of the Cortech stockholders at which a quorum is present (the "Required Cortech Stockholder Merger Vote"), is the only vote of the holders of any class or series of Cortech's capital stock necessary to approve the issuance of Cortech Common Stock in the Merger. The affirmative vote of the holders of a majority of the outstanding shares of Cortech Common Stock entitled to vote at the Cortech Stockholders Meeting is the only vote of the holder of any class or series of Cortech's capital stock necessary to approve the Cortech Charter Amendment (the "Required Cortech Stockholder Charter Vote). 3.23 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery or performance of this Agreement or any of the other agreements referred to in this Agreement, nor (2) the consummation of the Merger or any of the other transactions contemplated by this Agreement, will directly or indirectly (with or without notice or lapse of time): (a) contravene, conflict with or result in a violation of (i) any of the provisions of Cortech's Certificate of Incorporation, Bylaws or other charter or organizational documents of any of the Cortech A-25 207 Corporations, or (ii) any resolution adopted by the stockholders, the board of directors or any committee of the board of directors of any of the Cortech Corporations; (b) contravene, conflict with or result in a violation of, or give any Governmental Body or other Person the right to challenge the Merger or any of the other transactions contemplated by this Agreement or to exercise any remedy or obtain any relief under, any Legal Requirement or any order, writ, injunction, judgment or decree to which any of the Cortech Corporations, or any of the assets owned or used by any of the Cortech Corporations, is subject, if the result would have a Material Adverse Effect on Cortech; (c) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by Cortech or that otherwise relates to Cortech's business or to any of the assets owned or used by any of the Cortech Corporations, if the result would have a Material Adverse Effect on Cortech; (d) contravene, conflict with or result in a violation or material breach of, or result in a default (or an event which with notice or lapse of time or both would become a default) under, any provision of any Cortech Contract that is or would constitute a Cortech Material Contract, or give any Person the right to (i) declare a default or exercise any remedy under any such Cortech Material Contract, (ii) a rebate, charge-back, penalty or change in delivery schedule under any such Cortech Material Contract, (iii) accelerate the maturity or performance of any such Cortech Material Contract, or (iv) cancel, terminate or materially modify any term of such Cortech Material Contract, if the result would have a Material Adverse Effect on Cortech; or (e) result in the imposition or creation of any Encumbrance upon or with respect to any asset owned or used by any of the Cortech Corporations (except for minor liens that will not, in any case or in the aggregate, materially detract from the value of the assets subject thereto or materially impair the operations of any of the Cortech Corporations). Except as may be required by the Exchange Act, the DGCL, and the NASD Bylaws (as they relate to the Form S-4 Registration Statement and the Joint Proxy Statement) none of the Cortech Corporations was, is or will be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement or any of the other agreements referred to in this Agreement, or (y) the consummation of the Merger or any of the other transactions contemplated by this Agreement. 3.24 FAIRNESS OPINION. Cortech's board of directors has received the written opinion of Cowen, financial advisor to Cortech, dated as of the date of this Agreement, to the effect that the terms of the Merger are fair to Cortech from a financial point of view. 3.25 VALID ISSUANCE; RESERVATION OF SHARES. The Cortech Common Stock to be issued in the Merger in exchange for BioStar Common Stock and BioStar Preferred Stock and to be issued upon exercise or conversion of all BioStar Options, BioStar Warrants, the Contingent Instrument and the Convertible Notes will, when issued in accordance with the provisions of this Agreement and the terms of such BioStar Options, BioStar Warrants, Contingent Instrument and Convertible Notes, be validly issued, fully paid and nonassessable. Cortech's board of directors has duly reserved by all necessary action the Cortech Common Stock issuable upon exercise or conversion of such BioStar Options, BioStar Warrants, Contingent Instrument and Convertible Notes. 3.26 FINANCIAL ADVISOR. Except for Cowen, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the Merger or any of the other transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Cortech Corporations. Cortech has furnished to BioStar accurate and complete copies of all agreements under which any such fees, commissions, or other amounts have been paid or may become payable and all indemnification and other arrangements relating to the engagement of Cowen. A-26 208 3.27 FULL DISCLOSURE. This Agreement (including the Cortech Disclosure Schedule) does not, and the certificate referred to in Section 7.5(c) will not, (i) contain any representation, warranty or information that is false or misleading with respect to any material fact, or (ii) omit to state any material fact necessary in order to make the representations, warranties and information contained and to be contained herein and therein (in the light of the circumstances under which such representations, warranties and information were or will be made or provided) not false or misleading. 3.28 CASH POSITION. The Cortech Disclosure Schedule sets forth the projected cash position of Cortech as of December 31, 1997 and March 31, 1998 and, if the Closing shall not have theretofore occurred, projected expenses for the months of April and May 1998 (the "Cortech Cash Projection"). 4. CERTAIN COVENANTS OF THE PARTIES 4.1 ACCESS AND INVESTIGATION; CONFIDENTIALITY. (a) During the period from the date of this Agreement through the Effective Time (the "Pre-Closing Period"), BioStar and Cortech each shall, and BioStar and Cortech shall cause the respective Representatives of BioStar and the Cortech Corporations to: (a) provide each other and their respective Representatives with reasonable access to each others' and their Subsidiaries' respective Representatives, personnel and assets and to all existing books, records, Tax Returns, work papers and other documents and information relating to each other and to their Subsidiaries; and (b) provide each other and their respective Representatives with such copies of the existing books, records, Tax Returns, work papers and other documents and information relating to each other and their Subsidiaries, and with such additional financial, operating and other data and information regarding each other and their Subsidiaries, as Cortech and BioStar may reasonably request. (b) Each of the parties hereto hereby agrees to and reaffirms the terms and provisions of the Mutual Nondisclosure Agreement between Cortech and BioStar executed as of October 31, 1997 (the "Nondisclosure Agreement"). 4.2 OPERATION OF BIOSTAR'S BUSINESS. (a) During the Pre-Closing Period: (i) BioStar shall conduct its business and operations (A) in the ordinary course and in accordance with past practices or the operating plan previously delivered by BioStar to Cortech and (B) in compliance with all applicable Legal Requirements and the requirements of all BioStar Material Contracts; (ii) BioStar shall use reasonable efforts to ensure that BioStar preserves intact its current business organization, keeps available the services of its current officers and employees and maintains its relations and goodwill with all suppliers, customers, landlords, creditors, licensors, licensees, employees and other Persons having business relationships with BioStar; (iii) BioStar shall keep in full force all insurance policies referred to in Section 2.17 or replace any such policies that terminate with comparable or superior policies; (iv) BioStar shall provide all notices, assurances and support required by any BioStar Contract relating to any BioStar Proprietary Asset in order to ensure that no condition under such BioStar Contract occurs which could result in, or could increase the likelihood of, any transfer or public disclosure by BioStar of any BioStar Proprietary Asset; and (v) BioStar shall (to the extent requested by Cortech) cause its officers to report regularly to Cortech concerning the status of BioStar's business. (b) During the Pre-Closing Period, BioStar shall not (without the prior written consent of Cortech): (i) declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock, or repurchase, redeem or otherwise reacquire any shares of capital stock or other securities, except for repurchases at less than fair market value pursuant to employment or consulting agreements in effect prior to the date hereof; (ii) sell, issue, grant or authorize the issuance or grant of (A) any capital stock or other security (except BioStar Common Stock upon the valid exercise of BioStar Options or BioStar warrants outstanding on the date of this Agreement or pursuant to equipment lease financings, in connection with BioStar's line of credit with Venture Lending and similar transactions or otherwise in the ordinary course of business), (B) any option, call, warrant or right to acquire any capital stock or other security, or A-27 209 (C) any instrument convertible into or exchangeable for any capital stock or other security; provided, however, that notwithstanding the foregoing, BioStar may grant up to 800,000 options to employees following the date of this Agreement under its existing stock option plans. (iii) except as contemplated by this Agreement, amend or waive any of its rights under, or accelerate the vesting under, any provision of the BioStar Option Plan, any provision of any agreement evidencing any outstanding stock option or any restricted stock purchase agreement, or otherwise modify any of the terms of any outstanding option, warrant or other security or any related Contract; (iv) except as contemplated by this Agreement, amend or permit the adoption of any amendment to its Certificate of Incorporation or Bylaws or other charter or organizational documents, or effect or become a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction; (v) form any Subsidiary or acquire any equity interest or other interest in any other Entity; (vi) make any capital expenditure, except capital expenditures through December 31, 1997 in an aggregate amount of no more than the amount provided for in the capital budget previously provided to Cortech for such period, and thereafter in an aggregate amount of no more than a pro-rata portion of the amount that is provided for in a 1998 capital budget which shall be provided to and approved by Cortech (such approval not to be unreasonably withheld) prior to January 1, 1998; (vii) except as set forth in the operating plan previously provided to Cortech, enter into or become bound by, or permit any of the assets owned or used by it to become bound by, any BioStar Material Contract, or amend or terminate, or waive or exercise any material right or remedy under, any BioStar Material Contract; (viii) acquire, lease or license any right or other asset from any other Person or sell or otherwise dispose of, or lease or license, any right or other asset to any other Person (except in each case for (A) assets not constituting BioStar Proprietary Assets and acquired, leased, licensed or disposed of by BioStar in the ordinary course of business; (B) consistent with past practices and except in the case of the in-licensing of Proprietary Assets, for agreements involving the payment of less than $25,000 per year and a royalty of less than 0.75% and (C) rights granted to academic institutions and researchers for research purposes, or waive or relinquish any material right; (ix) lend money to any Person, except travel advances and loans related to relocation, education and immigration-related expenses made in the ordinary course of business, and loans in connection with employee stock purchases as provided for in agreements in effect on the date hereof, or incur or guarantee any indebtedness or pledge or encumber any material assets (except that BioStar may make routine borrowings in the ordinary course of business and in accordance with past practices under its line of credit with Venture Lending); (x) except as set forth in the BioStar Disclosure Schedule, establish, adopt or amend any employee benefit plan, pay any bonus or make any profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its directors, officers or employees; (xi) change any of its methods of accounting or accounting practices in any respect; (xii) make any material Tax election; (xiii) commence or settle any Legal Proceeding except in the ordinary course of business; (xiv) materially amend or otherwise modify any of the terms of its engagement of the financial advisor referenced in Section 2.24 above; (xv) amend or otherwise modify any of the terms of any BioStar Warrants, except to the extent necessary to terminate such Warrants or reduce the number of shares issuable upon exercise thereunder; A-28 210 (xvi) enter into any material transaction or take any other material action in each case not specifically provided for in the operating plan previously provided by BioStar to Cortech, or outside the ordinary course of business or inconsistent with past practices; or (xvii) agree or commit to take any of the actions described in clauses "(i)" through "(xvi)" of this Section 4.2(b). (c) During the Pre-Closing Period, BioStar shall promptly notify Cortech in writing of: (i) the discovery by BioStar of any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes a material inaccuracy in any representation or warranty made by BioStar in this Agreement; (ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that would cause or constitute a material inaccuracy in any representation or warranty made by BioStar in this Agreement if (A) such representation or warranty had been made as of the time of the occurrence, existence or discovery of such event, condition, fact or circumstance, or (B) such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement; (iii) any material breach of any covenant or obligation of BioStar; and (iv) any event, condition, fact or circumstance that would make the timely satisfaction of any of the conditions set forth in Section 6 or Section 7 impossible or unlikely or that has had or could reasonably be expected to have a Material Adverse Effect on BioStar. No notification given to Cortech pursuant to this Section 4.2(c) shall limit or otherwise affect any of the representations, warranties, covenants or obligations of BioStar contained in this Agreement. 4.3 OPERATION OF CORTECH'S BUSINESS. (a) During the Pre-Closing Period: (i) Cortech shall ensure that each of the Cortech Corporations conducts its business and operations (A) in the ordinary course and in accordance with the operating plan previously discussed among Cortech and BioStar and (B) in compliance with all applicable Legal Requirements and the requirements of all Cortech Material Contracts; (ii) Cortech shall use reasonable efforts to ensure that each of the Cortech Corporations preserves intact its current business organization, keeps available the services of its current officers and employees and maintains its relations and goodwill with all suppliers, customers, landlords, creditors, licensors, licensees, employees and other Persons having business relationships with the respective Cortech Corporations; and (iii) Cortech shall keep in full force all insurance policies referred to in Section 3.17 or replace such policies with comparable or superior policies; and (iv) Cortech shall provide all notices, assurances and support required by any Cortech Contract relating to any Proprietary Asset in order to ensure that no condition under such Cortech Contract occurs which could result in, or could increase the likelihood of, any transfer or public disclosure by any Cortech Corporation of any Proprietary Asset. (b) During the Pre-Closing Period, Cortech shall not (without the prior written consent of BioStar), and shall not permit any of the other Cortech Corporations to: (i) declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock, or repurchase, redeem or otherwise reacquire any shares of capital stock or other securities, except for repurchases at less than fair market value pursuant to employment or consulting agreements in effect prior to the date hereof; (ii) hire any new employees, excluding those persons hired to replace employees who terminate their employment with a Cortech Corporation during the Pre-Closing Period; (iii) sell, issue, grant or authorize the issuance or grant of (A) any capital stock or other security (except Cortech Common Stock upon the valid exercise of Cortech Options or Cortech warrants outstanding on the date of this Agreement or the exercise of rights under the Cortech ESPP or pursuant to equipment lease financings and similar transactions or otherwise in the ordinary course of business), (B) any option, call, warrant or right to acquire any capital stock or other security, (C) any instrument convertible into or exchangeable for any capital stock or other security; (iv) except as contemplated by this Agreement, amend or waive any of its rights under, or accelerate the vesting under, any provision of any of Cortech Option Plans, any provision of any A-29 211 agreement evidencing any outstanding stock option or any restricted stock purchase agreement, or otherwise modify any of the terms of any outstanding option, warrant or other security or any related Contract; (v) except as contemplated by this Agreement, amend or permit the adoption of any amendment to its Certificate of Incorporation or Bylaws or other charter or organizational documents, or effect or become a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction; (vi) except as contemplated by this Agreement and except as previously disclosed to BioStar, form any Subsidiary or acquire any equity interest or other interest in any other Entity; (vii) make any capital expenditure, except capital expenditures in an aggregate amount of no more than $25,000; (viii) establish, adopt or amend any employee benefit plan or pay any bonus or make any profit sharing or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its directors, officers or employees, except as disclosed to BioStar; (ix) change any of its methods of accounting or accounting practices in any respect; (x) make any material Tax election; (xi) commence or settle any Legal Proceeding except in the ordinary course of business; (xii) materially amend or otherwise modify any of the terms of its engagement of the financial advisor referenced in Section 3.26 above; (xiii) enter into any material transaction or take any other material action in each case either inconsistent with the operating plan previously provided by Cortech to BioStar, or outside the ordinary course of business; (xiv) except as previously disclosed to BioStar, sell or otherwise dispose of, or grant an exclusive license or any other exclusive right to utilize Cortech Proprietary Assets which individually or in the aggregate constitute core technology material to the business of Cortech, or grant to any third party a right of first refusal, first offer, or first negotiation with regard to material products or such core technology; or (xv) make any expenditure, singly or in the aggregate, that exceeds the aggregate expenditures set forth in the Cortech Cash Projection during the period ended March 31, 1998 by more than a net $350,000 or make any expenditure, singly or in the aggregate, that exceeds the aggregate expenditures set forth in the Cash Projections by more than a net $100,000 for the months of April 1998 or May 1998; or (xvi) agree or commit to take any of the actions described in clause "(i)" through "(xv)" of this Section 4.3(b). (c) During the Pre-Closing Period, Cortech shall promptly notify BioStar in writing of: (i) the discovery by Cortech of any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes a material inaccuracy in any representation or warranty made by Cortech in this Agreement; (ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that would cause or constitute a material inaccuracy in any representation or warranty made by Cortech in this Agreement if (A) such representation or warranty had been made as of the time of the occurrence, existence or discovery of such event, condition, fact or circumstance, or (B) such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement; (iii) any material breach of any covenant or obligation of Cortech; and (iv) any event, condition, fact or circumstance that would make the timely satisfaction of any of the conditions set forth in Section 6 or Section 7 impossible or unlikely or that has had or could reasonably be expected to have a Material Adverse Effect on the Cortech Corporations. No notification given to BioStar pursuant to this Section 4.3(c) shall A-30 212 limit or otherwise affect any of the representations, warranties, covenants or obligations of Cortech contained in this Agreement. 4.4 NO SOLICITATION BY BIOSTAR. (a) BioStar shall not directly or indirectly, and shall not authorize or permit any Representative of BioStar directly or indirectly to, (i) solicit, initiate, knowingly encourage or induce the making, submission or announcement of any Acquisition Proposal or take any similar action, (ii) furnish any non-public information regarding BioStar to any Person in connection with or in response to an Acquisition Proposal, (iii) engage in discussions or negotiations with any Person with respect to any Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition Proposal or (v) enter into any letter of intent or similar document or any Contract contemplating or otherwise relating to any Acquisition Transaction. Without limiting the generality of the foregoing, BioStar acknowledges and agrees that any violation of any of the restrictions set forth in the preceding sentence by any Representative of BioStar, whether or not such Representative is purporting to act on behalf of BioStar, shall be deemed to constitute a breach of this Section 4.4 by BioStar. (b) Nothing contained in this Agreement shall prevent BioStar or its board of directors from (i) furnishing information regarding BioStar (including a copy of this Section 4.4) to any Person in connection with or in response to a bona fide, unsolicited Acquisition Proposal or engaging in discussions or negotiations with respect thereto if and only to the extent that (A) the board of directors of BioStar determines in good faith, after consultation with its financial advisor that such Acquisition Proposal is reasonably likely to result in a Superior Offer, (B) the board of directors of BioStar determines in good faith, after consultation with its outside counsel, including discussions of applicable legal standards under Delaware law, that such action is required in order for the board of directors to comply with its fiduciary duties under applicable law, (C) the Person who has requested such information has executed and delivered to BioStar a non-disclosure agreement that is not less restrictive than the non-disclosure agreement in effect between BioStar and Cortech, and (D) BioStar has not breached Section 4.4(a)(i), or (ii) complying with Rule 14e-2 and Rule 14d-9 promulgated under the Exchange Act. In addition, nothing in Section 4.4(a) above shall prevent the board of directors of BioStar from recommending a Superior Offer to its stockholders, if the Board determines, after consultation with its outside counsel, including discussions of applicable legal standards under Delaware law that, in light of such Superior Offer, such recommendation is required in order for the board of directors to comply with its fiduciary obligations to BioStar's stockholders under applicable law (which determination shall be made in light of a revised proposal, if any, made by the Cortech prior to the date of such determination); provided however that BioStar (i) shall provide Cortech with at least 48 hours prior written notice of its intention to hold any meeting at which BioStar's board of directors is reasonably expected to consider an Acquisition Proposal, or such lesser amount of time as has been given to the Board in relation to such meeting, and (ii) shall not recommend to its stockholders a Superior Offer for at least two business days after BioStar has provided Cortech with the material terms of such Superior Offer. (c) BioStar shall promptly advise Cortech orally and in writing of any Acquisition Proposal (including the identity of the Person making or submitting such Acquisition Proposal and the terms thereof) that is made or submitted by any Person during the Pre-Closing Period. BioStar shall keep Cortech informed with respect to material changes to the terms of any such Acquisition Proposal and any material modification or proposed modifications thereto. (d) BioStar shall immediately cease and cause to be terminated any existing discussions with any Person that relate to any Acquisition Proposal and shall request the return or destruction of any confidential information previously disclosed to such Person and shall use commercially reasonable efforts to ensure that such information is destroyed or returned. 4.5 NO SOLICITATION BY CORTECH. (a) Cortech shall not directly or indirectly, and shall not authorize or permit any of the other Cortech Corporations or any Representative of any of the Cortech Corporations directly or indirectly to, (i) solicit, initiate, knowingly encourage or induce the making, submission or announcement of any Acquisition Proposal or take any similar action, (ii) furnish any non-public information regarding any of the Cortech Corporations A-31 213 to any Person in connection with or in response to an Acquisition Proposal, (iii) engage in discussions or negotiations with any Person with respect to any Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition Proposal or (v) enter into any letter of intent or similar document or any Contract contemplating or otherwise relating to any Acquisition Transaction. Without limiting the generality of the foregoing, Cortech acknowledges and agrees that any violation of any of the restrictions set forth in the preceding sentence by any Representative of any of the Cortech Corporations, whether or not such Representative is purporting to act on behalf of Cortech, shall be deemed to constitute a breach of this Section 4.5 by Cortech. (b) Nothing contained in this Agreement shall prevent Cortech or its board of directors from (i) furnishing information regarding any of the Cortech Corporations (including copy of this Section 4.5) to any Person in connection with or in response to a bona fide, unsolicited Acquisition Proposal or engaging in discussions or negotiations with respect thereto if and only to the extent that (A) the board of directors of Cortech determines in good faith, after consultation with its financial advisor that such Acquisition Proposal is reasonably likely to result in a Superior Offer, (B) the board of directors of Cortech determines in good faith, after consultation with its outside counsel, including discussions of applicable legal standards under Delaware law, that such action is required in order for the board of directors to comply with its fiduciary duties under applicable law, (C) the Person who has requested such information has executed and delivered to Cortech a non-disclosure agreement that is not less restrictive than the non-disclosure agreement in effect between Cortech and BioStar, and (D) Cortech has not breached Section 4.5(a)(i), or (ii) complying with Rule 14e-2 and Rule 14d-9 promulgated under the Exchange Act. In addition, nothing in Section 4.5(a) above shall prevent the board of directors of Cortech from recommending a Superior Offer to its stockholders, if the Board determines, after consultation with its outside counsel, including discussions of applicable legal standards under Delaware law, that, in light of such Superior Offer, such recommendation is required in order for the board of directors to comply with its fiduciary obligations to Cortech's stockholders under applicable law (which determination shall be made in light of a revised proposal, if any, made by BioStar prior to the date of such determination); provided however that Cortech (i) shall provide BioStar with at least 48 hours prior written notice of its intentions to hold any meeting at which Cortech's board of directors is reasonably expected to consider an Acquisition Proposal, or such lesser amount of time as has been given to the Board in relation to such meeting, and (ii) Cortech shall not recommend to its stockholders a Superior Offer for at least two business days after Cortech has provided BioStar with the material terms of such Superior Offer. (c) Cortech shall promptly advise BioStar orally and in writing of any Acquisition Proposal (including the identity of the Person making or submitting such Acquisition Proposal and the terms thereof) that is made or submitted by any Person during the Pre-Closing Period. Cortech shall keep BioStar informed with respect to material changes to the terms of any such Acquisition Proposal and any material modification or proposed modifications thereto. (d) Cortech shall immediately cease and cause to be terminated any existing discussions with any Person that relate to any Acquisition Proposal and shall request the return or destruction of any confidential information previously disclosed to such Person and shall use commercially reasonable efforts to ensure that such information is destroyed or returned. 5. ADDITIONAL COVENANTS OF THE PARTIES 5.1 REGISTRATION STATEMENT; JOINT PROXY STATEMENT. (a) As promptly as practicable after the date of this Agreement, Cortech and BioStar shall prepare and cause to be filed with the SEC the Joint Proxy Statement and simultaneously or thereafter Cortech shall prepare and cause to be filed with the SEC the Form S-4 Registration Statement, in which the Joint Proxy Statement will be included as a prospectus. Each of Cortech and BioStar shall use all reasonable efforts to cause the Form S-4 Registration Statement and the Joint Proxy Statement to comply with the rules and regulations promulgated by the SEC, to respond promptly to any comments of the SEC or its staff and to have the Form S-4 Registration Statement declared effective under the Securities Act as promptly as practicable after it is filed with the SEC. Cortech will use all reasonable efforts to cause the Joint Proxy Statement to be A-32 214 mailed to Cortech's stockholders, and BioStar will use all reasonable efforts to cause the Joint Proxy Statement to be mailed to the BioStar's stockholders, as promptly as practicable after the Form S-4 Registration Statement is declared effective under the Securities Act. BioStar and Cortech shall promptly furnish to the other all information concerning BioStar and the BioStar's stockholders and the Cortech Corporations, respectively, that may be required or reasonably requested in connection with any action contemplated by this Section 5.1. BioStar and Cortech shall notify the other promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for any amendment or supplement to the Form S-4 Registration Statement or Joint Proxy Statement or for any other information and shall supply the other with copies of all correspondence between such party and the SEC or its staff or other governmental officials with respect to the S-4 Registration Statement or Joint Proxy Statement. The information supplied by each of Cortech and BioStar for inclusion in the Form S-4 Registration Statement and the Joint Proxy Statement shall not (i) at the time the Form S-4 Registration Statement is declared effective, (ii) at the time the Joint Proxy Statement is first mailed to the stockholders of Cortech and BioStar, respectively, (iii) at the time of the BioStar Stockholders' Meeting and at the time of the Cortech Stockholders' Meeting, and (iv) at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If Cortech or BioStar becomes aware of any information, that should be disclosed in an amendment or supplement to the Form S-4 Registration Statement or the Joint Proxy Statement, then Cortech or BioStar, as the case may be, shall promptly inform the other party thereof and shall cooperate with the other in filing such amendment or supplement with the SEC and, if appropriate, in mailing such amendment or supplement to the stockholders of BioStar or the stockholders of Cortech. (b) Prior to the Effective Time, Cortech shall use reasonable efforts to obtain all regulatory approvals needed to ensure that the Cortech Common Stock to be issued in the Merger (i) will be registered or qualified under the securities law of every jurisdiction of the United States in which any registered holder of BioStar Common Stock has an address of record on the record date for determining the stockholders entitled to notice of and to vote at BioStar Stockholders' Meeting; and (ii) will be approved for quotation at the Effective Time on the Nasdaq National Market; provided, however, that Cortech shall not be required (i) to qualify to do business as a foreign corporation in any jurisdiction in which it is not now qualified or (ii) to file a general consent to service of process in any jurisdiction. 5.2 BIOSTAR STOCKHOLDERS' MEETING. (a) BioStar shall take all action necessary under all applicable Legal Requirements to call, give notice of, convene and hold a meeting of the holders of BioStar Common Stock and BioStar Preferred Stock to consider, act upon and vote upon the BioStar Charter Amendment and the approval of this Agreement and of the Merger (the "BioStar Stockholders' Meeting"). The BioStar Stockholders' Meeting will be held as promptly as practicable and in any event within 45 days after the Form S-4 Registration Statement is declared effective under the Securities Act. BioStar shall ensure that the BioStar Stockholders' Meeting is called, noticed, convened, held and conducted, and that all proxies solicited in connection with the BioStar Stockholders' Meeting are solicited, in compliance with all applicable Legal Requirements. BioStar's obligation to call, give notice of, convene and hold the BioStar Stockholders' Meeting in accordance with this Section 5.2(a) shall not be limited or otherwise affected by the withdrawal, amendment or modification of the recommendation of the board of directors of BioStar with respect to the Merger, except as is required by applicable law. (b) Subject to Section 5.2(c): (i) the board of directors of BioStar shall unanimously recommend that the BioStar stockholders vote in favor of and approve this Agreement, the Merger and the BioStar Charter Amendment at the BioStar Stockholders' Meeting; (ii) the Joint Proxy Statement shall include a statement to the effect that the board of directors of BioStar has unanimously recommended that the BioStar's stockholders vote in favor of and approve this Agreement, the Merger and the BioStar Charter Amendment at the BioStar Stockholders' Meeting; and (iii) neither the board of directors of BioStar nor any committee thereof shall withdraw, amend or modify, or propose or resolve to withdraw, amend or modify, in a manner adverse to Cortech, the unanimous recommendation of the board of directors of BioStar that the BioStar's stockholders A-33 215 vote in favor of and approve this Agreement, the Merger and the BioStar Charter Amendment. For purposes of this Agreement, said recommendation of the board of directors of BioStar shall be deemed to have been modified in a manner adverse to Cortech if said recommendation shall no longer be unanimous. (c) Nothing in Section 5.2(b) shall prevent the board of directors of BioStar from withdrawing, amending or modifying its unanimous recommendation in favor of the Merger at any time prior to the approval of this Agreement by the Required BioStar Stockholder Vote if (i) a Superior Offer is made to BioStar and is not withdrawn, (ii) neither BioStar nor any of its Representatives shall have violated any of the restrictions set forth in Section 4.4, and (iii) the board of directors of BioStar concludes in good faith, after consultation with its outside counsel, including discussion of applicable legal standards under Delaware law, that, in light of such Superior Offer, the withdrawal, amendment or modification of such recommendation is required in order for the board of directors of BioStar to comply with its fiduciary obligations to the BioStar's stockholders under applicable law. Except as may be limited by applicable law, nothing contained in this Section 5.2 shall limit BioStar's obligation to call, give notice of, convene and hold the BioStar Stockholders' Meeting (regardless of whether the unanimous recommendation of the board of directors of BioStar shall have been withdrawn, amended or modified). 5.3 CORTECH STOCKHOLDERS' MEETING. (a) Cortech shall take all action necessary under all applicable Legal Requirements to call, give notice of, convene and hold a meeting of the holders of Cortech Common Stock to consider, act upon and vote upon the issuance of Cortech Common Stock in the Merger (the "Cortech Stockholders' Meeting"). The Cortech Stockholders' Meeting will be held as promptly as practicable and in any event within 45 days after the Form S-4 Registration Statement is declared effective under the Securities Act. Cortech shall ensure that the Cortech Stockholders' Meeting is called, noticed, convened, held and conducted, and that all proxies solicited in connection with the Cortech Stockholders' Meeting are solicited in compliance with all applicable Legal Requirements. Cortech's obligation to call, give notice of, convene and hold the Cortech Stockholders' Meeting in accordance with this Section 5.3(a) shall not be limited or otherwise affected by any withdrawal, amendment or modification of the recommendation of the board of directors of Cortech with respect to the Merger, except as may be required by applicable law. (b) Subject to Section 5.3(c): (i) the board of directors of Cortech shall unanimously recommend that Cortech's stockholders vote in favor of and approve the issuance of Cortech Common Stock in the Merger and the Cortech Charter Amendment; (ii) the Joint Proxy Statement shall include a statement to the effect that the board of directors of Cortech has unanimously recommended that Cortech's stockholders vote in favor of and approve the issuance of Cortech Common Stock in the Merger and the Cortech Charter Amendment at the Cortech Stockholders' Meeting; and (iii) neither the board of directors of Cortech nor any committee thereof shall withdraw, amend or modify, or propose or resolve to withdraw, amend or modify, in a manner adverse to BioStar, the unanimous recommendation of the board of directors of Cortech that Cortech's stockholders vote in favor of and approve the issuance of Cortech Common Stock in the Merger and the Cortech Charter Amendment. For purposes of this Agreement, said recommendation of the board of directors of Cortech shall be deemed to have been modified in a manner adverse to BioStar if said recommendation shall no longer be unanimous. Approval of Cortech's Stockholders of the Cortech Charter Amendment shall not be a condition to the consummation of the Merger. (c) Nothing in Section 5.3(b) shall prevent the board of directors of Cortech from withdrawing, amending or modifying its unanimous recommendation in favor of the Merger at any time prior to the approval of this Agreement by the Required Cortech Stockholder Vote if (i) a Superior Offer is made to Cortech and is not withdrawn, (ii) neither Cortech nor any of its Representatives shall have violated any of the restrictions set forth in Section 4.5, and (ii) the board of directors of Cortech concludes in good faith, based upon the advice of its outside counsel, including a discussion of applicable legal standards under Delaware law, that the withdrawal, amendment or modification of such recommendation is required in order for the board of directors of Cortech to comply with its fiduciary obligations to Cortech's stockholders under applicable law. Except as may be limited by applicable law, nothing contained in this Section 5.3 shall limit Cortech's obligation to call, give notice of, convene and hold the Cortech Stockholders' Meeting (regardless of A-34 216 whether the unanimous recommendation of the board of directors shall have been withdrawn, amended or modified). 5.4 REGULATORY APPROVALS. BioStar and Cortech shall use all reasonable efforts to file, as soon as practicable after the date of this Agreement, all notices, reports and other documents required to be filed with any Governmental Body with respect to the Merger and the other transactions contemplated by this Agreement, and to submit promptly any additional information requested by any such Governmental Body. BioStar and Cortech shall (1) give the other party prompt notice of the commencement of any Legal Proceeding by or before any Governmental Body with respect to the Merger or any of the other transactions contemplated by this Agreement, (2) keep the other party informed as to the status of any such Legal Proceeding, and (3) promptly inform the other party of any communication to or from any Governmental Body regarding the Merger. BioStar and Cortech will consult and cooperate with one another, and will consider in good faith the views of one another, in connection with any analysis, appearance, presentation, memorandum, brief, argument, opinion or proposal made or submitted in connection with any Legal Proceeding under or relating to any other federal or state antitrust or fair trade law. In addition, except as may be prohibited by any Governmental Body or by any Legal Requirement, in connection with any Legal Proceeding under or relating to any federal or state antitrust or fair trade law or any other similar Legal Proceeding, BioStar and Cortech will permit authorized Representatives of the other party to be present at each meeting or conference relating to any such Legal Proceeding and to have access to and be consulted in connection with any document, opinion or proposal made or submitted to any Governmental Body in connection with any such Legal Proceeding. 5.5 ESPP. Subject to the terms of Cortech's ESPP and applicable law, Cortech shall take all reasonable actions to ensure that from and after the Effective Time all employees of BioStar shall be entitled to participate in the ESPP of Cortech. 5.6 INDEMNIFICATION CONTINUATION. (a) For Purposes of this Section 5.6: (i) "Indemnified Person" means any person who is now, or has been at any time prior to the Effective Time, an officer or director of Cortech or BioStar or who was serving at the request of Cortech or BioStar as an officer or director of another corporation, joint venture or other enterprise, or a general partner of any partnership, or trustee of any trust and (ii) "Proceeding" means any claim, action, suit, proceeding or investigation. (b) From and after the Effective Time, Cortech shall and shall cause the Surviving Corporation, to the fullest extent permitted under applicable law, indemnify, defend and hold harmless each Indemnified Person against and from (i) any losses, claims damages, expenses (including reasonable attorneys' fees and court costs), liabilities or judgements, and (ii) any amounts that are paid in settlement with the consent of Cortech (which consent will not be unreasonably withheld) of or in connection with any Proceeding based directly or indirectly (in whole or in part) on, or arising directly or indirectly (in whole or in part) out of, the fact that such Indemnified Person is or was an officer or director of Cortech or BioStar or is or was serving at the request of Cortech or BioStar as an officer or director of another corporation, joint venture or other enterprise or general partner of any partnership or a trustee of any trust, whether pertaining to any matter arising before or after the Effective Time. Cortech shall use all reasonable efforts to assist in the vigorous defense of every matter asserted in such Proceeding for which such Indemnified Person is entitled to indemnification under applicable law. In the event of any Proceeding, any Indemnified Person wishing to claim indemnification will promptly notify Cortech thereof (provided that failure to so notify Cortech will not affect the obligations of Cortech to provide indemnification except to the extent that Cortech shall have been prejudiced as a result of such failure). With respect to any Proceeding for which indemnification is requested, Cortech will be entitled to participate therein at its own expense and, except as otherwise provided below, to the extent that it may wish, Cortech may assume the defense thereof, with counsel reasonably satisfactory to the Indemnified Person. After notice from Cortech to the Indemnified Person of its election to assume the defense of a Proceeding, neither Cortech nor the Surviving Corporation will be liable to the Indemnified Person for any legal or other expenses subsequently incurred by the Indemnified Person in connection with the defense thereof, other than as provided below. Cortech will not settle any Proceeding without the consent of the A-35 217 Indemnified Person unless such settlement includes a full release of the Indemnified Person, does not impose any injunctive or equitable remedy upon the Indemnified Person, does not include any admission of civil or criminal liability on behalf of an officer or director and does not require any payment to be made by the Indemnified Person. The Indemnified Person will have the right to employ counsel in any Proceeding, but the fees and expenses of such counsel incurred after notice from Cortech of its assumption of the defense thereof will be a the expense of the Indemnified Person, unless, (i) the employment of counsel by the Indemnified Person has been authorized by Cortech, (ii) the Indemnified Person shall have reasonably concluded upon the advice of counsel that there may be a conflict of interest between the Indemnified Person, Cortech and the Surviving Corporation in the conduct of the defense of a Proceeding, or (iii) Cortech shall not in fact have employed counsel to assume the defense of a Proceeding, in each of which cases the reasonable fees and expenses of counsel selected by the Indemnified Person will be at the expense of Cortech, and Cortech, to the fullest extent permitted under applicable law, shall in such event pay expenses in advance of the final disposition of any such Proceeding upon the receipt from the Indemnified Person to whom such expenses are advanced of an undertaking to repay such advances if it is ultimately determined that such Indemnified Person is not entitled to be indemnified by Cortech or the Surviving Corporation. Notwithstanding the foregoing, neither Cortech nor the Surviving Corporation will be liable for any settlement effected without its written consent and neither Cortech nor the Surviving Corporation will be obligated pursuant to this Section 5.6 to pay the fees and disbursement of more than one counsel for all Indemnified Persons in any single Proceeding, except to the extent two or more of such Indemnified Persons have conflicting interests in the outcome of such action. (c) In addition to the foregoing, Cortech and the Surviving Corporation shall continue in full force provisions in Cortech's and the Surviving Corporation's Certificate of Incorporation and Bylaws in effect on the date of this Agreement providing for indemnification of Indemnified Persons to the fullest extent now or hereafter permitted under Delaware Law, which provisions shall not be amended except as required by applicable law or except to make changes permitted by law that would enlarge the Indemnified Persons' right of indemnification. (d) Cortech shall pay all expenses, including attorneys' fees, that may be incurred by any Indemnified Person in enforcing the indemnity and other obligations provided for in this Section 5.6. (e) The rights of each Indemnified Person hereunder shall be in addition to any other rights such Indemnified Person may have under Delaware Law, Cortech's and the Surviving Corporation's Certificate of Incorporation or bylaws in effect prior to the Effective Time, any agreement or otherwise. The provisions of this Section 5.6 shall survive the consummation of the Merger for a period of six years and are expressly intended to benefit and may be relied upon each of the Indemnified Persons; provided, however, that in the event that any claim or claims for indemnification are asserted or made within such six-year period, all rights to indemnification in respect to any such claim or claims shall continue until the disposition of any and all such claims. (f) In the event Cortech, the Surviving Corporation or any of their respective successors or assigns (i) consolidates with or merges into any other person or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or a substantial portion of their properties or assets to any person or entity, then, and in each such case, to the extent necessary to effectuate the purposes of the Section 5.6 proper provision shall be made so that the successors and assigns of Cortech or the Surviving Corporation assume the obligations set forth in this Section 5.6. 5.7 ADDITIONAL AGREEMENTS. Cortech and BioStar shall use all reasonable efforts to take, or cause to be taken, all actions necessary to consummate the Merger and make effective the other transactions contemplated by this Agreement. Without limiting the generality of the foregoing, each party to this Agreement (i) shall make all filings (if any) and give all notices (if any) required to be made and given by such party in connection with the Merger and the other transactions contemplated by this Agreement, (ii) shall use all reasonable efforts to obtain each Consent (if any) required to be obtained (pursuant to any applicable Legal Requirement or Contract, or otherwise) by such party in connection with the Merger or any of the other transactions contemplated by this Agreement, and (iii) shall use all reasonable efforts to lift any restraint, A-36 218 injunction or other legal bar to the Merger. BioStar shall promptly deliver to Cortech a copy of each such filing made, each such notice given and each such Consent obtained by BioStar during the Pre-Closing Period. 5.8 DISCLOSURE. Cortech and BioStar shall consult with each other before issuing any press release or otherwise making any public statement with respect to the Merger or any of the other transactions contemplated by this Agreement. Without limiting the generality of the foregoing, neither BioStar nor Cortech shall, and neither shall permit, any of its Representatives to, make any disclosure regarding the Merger or any of the other transactions contemplated by this Agreement unless (a) the other Party shall have approved such disclosure or (b) the disclosing party shall have been advised in writing by its outside legal counsel that such disclosure is required by applicable law and shall have given the other Party the opportunity, to the extent practicable, to review and comment upon the disclosure. 5.9 TAX MATTERS. Each of Cortech and BioStar acknowledge and agree that (i) it intends the Merger to constitute a reorganization within the meaning of Section 368(a) of the Code, (ii) it will report the Merger as such a reorganization in any and all federal, state and local income tax returns filed by it. BioStar and Cortech shall each use all reasonable efforts to obtain and deliver to Cooley Godward LLP and to Pillsbury Madison & Sutro LLP, as soon as practicable after the date of this Agreement, Continuity of Interest Certificates (in a form agreed to by counsel to Cortech and the BioStar) signed by those persons mutually agreed to by Cooley Godward LLP and Pillsbury Madison & Sutro LLP. At or prior to the filing of the S-4 Registration Statement with the SEC and, to the extent necessary, at the Closing, BioStar and Cortech shall execute and deliver to Cooley Godward LLP and to Pillsbury Madison & Sutro LLP management tax representation letters in a form agreed to by counsel to Cortech and BioStar. Cortech and BioStar shall use all reasonable efforts prior to the Effective Time to cause the Merger to qualify as a tax free reorganization under Section 368(a)(1) of the Code. In the event of the issuance of final or temporary Treasury regulations relating to the continuity of stockholder interest (proposed regulations on the topic were issued in the Federal Register on December 23, 1996 (Reg-252231-96); these regulations would, among other things, add a new section 1.368-1(a) to existing regulations), the parties agree to use their reasonable best efforts to take advantage of, and comply with, any provisions therein (such as an election and/or reporting requirements) to the extent necessary to cause such regulations to apply to the Merger. 5.10 RESIGNATION OF OFFICERS AND DIRECTORS. Cortech shall use all reasonable efforts to obtain and deliver to BioStar prior to the Closing the resignation of each officer and director of Cortech effective as of the Effective Time, except any directors identified in Section 5.13 below who are members of the board of directors of Cortech immediately prior to the Effective Time. 5.11 FIRPTA MATTERS. At the Closing, (a) BioStar shall deliver to Cortech a statement (in such form as may be reasonably requested by counsel to Cortech) conforming to the requirements of Section 1.897 -- 2(h)(1)(i) of the United States Treasury Regulations, and (b) BioStar shall deliver to the Internal Revenue Service the notification required under Section 1.897 -- 2(h)(2) of the United States Treasury Regulations. 5.12 AFFILIATE AGREEMENTS. BioStar shall, no later than twenty days in advance of the Cortech Stockholders' Meeting, deliver to Cortech a list (the "Affiliate List") of Persons who are "affiliates" (as that term is used in Rule 145 under the Securities Act). Prior to the date of the Cortech Stockholders' Meeting, BioStar shall deliver to Cortech an Affiliate Agreement in the form of Exhibit C duly executed by each Person on the Affiliate List, and by each Person who becomes an affiliate after delivery of the Affiliate List and prior to the date of delivery of the signed Affiliate Agreements. 5.13 ELECTION OF DIRECTORS. Cortech shall use all reasonable efforts to nominate and appoint Teresa W. Ayers, Alexander E. Barkas, Ph.D., Thomas A. Bologna, and two directors designated by Cortech in consultation with BioStar as the board of directors of Cortech and the Surviving Corporation effective immediately after the Effective Time. 5.14 REGISTRATION RIGHTS. Cortech shall assume BioStar's obligations under the BioStar Restated Investors' Rights Agreement dated as of June 27, 1994, as amended (the "Investors' Rights Agreement"); provided, however, that, BioStar shall use all reasonable efforts to cause the Investors' Rights Agreement to be amended to remove Sections 2, 3, and 4 and to provide that no Holder (as defined in the Investors' Rights A-37 219 Agreement) shall request registration or participation in a registration of Cortech Common Stock pursuant to Sections 1.2, 1.3, or 1.12 thereunder until the earlier of (a) the date 90 days after the effective date of a registration statement for the first public offering of Cortech's shares following the Effective Time, and (b) the first anniversary of the Effective Time. 5.15 MARKET STAND-OFF AGREEMENT. BioStar shall obtain the agreement of each of the holders of BioStar Common Stock and BioStar Preferred Stock listed on Schedule A attached hereto (each a "BioStar Investor") that such BioStar Investor shall not directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any Cortech Common Stock issued to such BioStar Investor in connection with the Merger for 180 days from the Effective Time. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF CORTECH AND MERGER SUB The obligations of Cortech and Merger Sub to effect the Merger and otherwise consummate the transactions contemplated by this Agreement are subject to the satisfaction, at or prior to the Closing, of each of the following conditions: 6.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of BioStar contained in this Agreement shall be accurate in all material respects as of the date hereof and shall be accurate as of the Closing Date as if made on and as of the Closing Date (except representations and warranties that refer specifically to "the date of this Agreement" or a specific date prior to the date of this Agreement) except that any inaccuracies in such representations and warranties shall be disregarded if the circumstances giving rise to such inaccuracies (individually and collectively) do not constitute a Material Adverse Effect on BioStar (it being understood that, for purposes of determining the accuracy of such representations and warranties, (i) all "Material Adverse Effect" qualifications and other materiality qualifications contained in such representations and warranties shall be disregarded and (ii) any update of or modification to the BioStar Disclosure Schedule made or purported to have been made after the date of this Agreement shall be disregarded). 6.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that BioStar is required to comply with or to perform at or prior to the Closing shall have been complied with and performed in all material respects. 6.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4 Registration Statement shall have become effective in accordance with the provisions of the Securities Act, and no stop order shall have been issued by the SEC with respect to the Form S-4 Registration Statement. 6.4 STOCKHOLDER APPROVAL. This Agreement, the Merger and the BioStar Charter Amendment shall have been duly approved by the Required BioStar Stockholder Vote, and the issuance of Cortech Common Stock in the Merger shall have been approved by the Required Cortech Stockholder Merger Vote. The number of shares of BioStar Common Stock and BioStar Preferred Stock as to which written notices from stockholders of BioStar to dissent from the Merger shall have been received shall be less than 10% of the then outstanding shares of BioStar Common Stock and BioStar Preferred Stock as of the BioStar Record Date. 6.5 CONSENTS. All material Consents required to be obtained in connection with the Merger and the other transactions contemplated by this Agreement (including the Consents identified in the BioStar Disclosure Schedule) shall have been obtained and shall be in full force and effect. 6.6 DOCUMENTS. Cortech shall have received the following legal documents, each of which shall be in full force and effect: (a) a legal opinion of Cooley Godward LLP dated as of the Closing Date, in a form reasonably satisfactory to Cortech and its legal counsel; (b) a legal opinion of Pillsbury Madison & Sutro LLP dated as of the Closing Date and addressed to Cortech, to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Code (it being understood that, in rendering such opinion, Pillsbury Madison & Sutro A-38 220 LLP may rely upon the Continuity of Interest Certificates and tax representation letters referred to in Section 5.9 and a copy of the legal opinion described in Section 7.5(b) hereof). The opinions described in this Section 6.6(b) and in Section 7.5(b) shall be substantially identical in form and substance; and (c) a certificate executed on behalf of BioStar by its Chief Executive Officer confirming that the conditions set forth in Sections 6.1, 6.2, 6.4, 6.5 and 6.7 have been duly satisfied. 6.7 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the business, financial condition, capitalization, assets, liabilities, operations or financial performance of BioStar since the date of this Agreement. 6.8 NO RESTRAINTS. No temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any Legal Requirement enacted or deemed applicable to the Merger that makes consummation of the Merger illegal. 6.9 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened any Legal Proceeding in which a Governmental Body is or is threatened to become a party or is otherwise involved: (a) challenging or seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by this Agreement; (b) relating to the Merger and seeking to obtain from Cortech or any of its subsidiaries any damages that may be material to Cortech; or (c) which would materially and adversely affect the right of Cortech to own the assets or operate the business of BioStar. 6.10 NO OTHER LITIGATION. There shall not be pending any Legal Proceeding in which there is a reasonable probability of an outcome that would have a Material Adverse Effect on BioStar or on Cortech: (a) challenging or seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by this Agreement; (b) relating to the Merger and seeking to obtain from Cortech or any of its subsidiaries any damages that may be material to Cortech; (c) seeking to prohibit or limit in any material respect Cortech's ability to vote, receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of the Surviving Corporation; or (d) which would affect adversely the right of Cortech to own the assets or operate the business of BioStar. 6.11 DELIVERY OF AFFILIATES AGREEMENTS. BioStar shall have delivered the Affiliate Agreements referred to in Section 5.12 above. 6.12 DELIVERY OF FAIRNESS OPINION. Cortech's board of directors has received the written opinion of Cowen, dated as of the date of this Agreement, to the effect that the terms of the Merger are fair to Cortech from a financial point of view and the same has not been withdrawn as of the date of the mailing of the Joint Proxy Statement to the Cortech stockholders for any reason, including but not limited to a material change in the underlying assumptions of the financial projections provided to Cowen by BioStar. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BIOSTAR The obligations of BioStar to effect the Merger and otherwise consummate the transactions contemplated by this Agreement are subject to the satisfaction, at or prior to the Closing, of the following conditions: 7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of Cortech contained in this Agreement shall have been accurate in all material respects as of the date of this Agreement and shall be accurate as of the Closing Date as if made on and as of the Closing Date except that any inaccuracies in such representations and warranties shall be disregarded if the circumstances giving rise to such inaccuracies (individually and collectively) do not constitute a Material Adverse Effect on Cortech (it being understood that, for purposes of determining the accuracy of such representations and warranties, (i) all "Material Adverse Effect" qualifications and other materiality qualifications contained in such representations and warranties shall be disregarded and (ii) any update of or modification to the Cortech Disclosure Schedule made or purported to have been made after the date of this Agreement shall be disregarded). A-39 221 7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that Cortech is required to comply with or to perform at or prior to the Closing shall have been complied with and performed in all material respects. 7.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4 Registration Statement shall have become effective in accordance with the provisions of the Securities Act, and no stop order shall have been issued by the SEC with respect to the Form S-4 Registration Statement. 7.4 STOCKHOLDER APPROVAL. This Agreement, the Merger and the BioStar Charter Amendment shall have been approved by the Required BioStar Stockholder Vote, and the issuance of Cortech Common Stock in the Merger shall have been approved by the Required Cortech Stockholder Merger Vote. The number of shares of BioStar Common Stock and BioStar Preferred Stock as to which written notices from stockholders of BioStar to dissent from the Merger shall have been received shall be less than 10% of the then outstanding shares of BioStar Common Stock and BioStar Preferred Stock as of the BioStar Record Date. 7.5 DOCUMENTS. BioStar shall have received the following documents: (a) a legal opinion of Pillsbury Madison & Sutro LLP, dated as of the Closing Date, a form reasonably satisfactory to BioStar and its legal counsel; (b) a legal opinion of Cooley Godward LLP, dated as of the Closing Date, to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Code (it being understood that, in rendering such opinion, Cooley Godward LLP, may rely upon the Continuity of Interest Certificates and tax representation letters referred to in Section 5.9 and a copy of the legal opinions described in Section 6.6(b) hereof. The opinions described in this Section 7.5(b) and in Section 6.6(b) shall be substantially identical in form and substance; and (c) a certificate executed on behalf of Cortech by an executive officer of Cortech, confirming that conditions set forth in Sections 7.1, 7.2, 7.4, 7.6 and 7.10 have been duly satisfied. 7.6 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in Cortech's business, financial condition, assets, liabilities, operations or financial performance since the date of this Agreement (it being understood that a decline in Cortech's stock price or the delisting of Cortech's stock shall not constitute, in and of itself, a Material Adverse Change). 7.7 NO RESTRAINTS. No temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger by BioStar shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any Legal Requirement enacted or deemed applicable to the Merger that makes consummation of the Merger by BioStar illegal. 7.8 DIRECTORS. Cortech shall have taken all actions necessary to cause the board of directors of Cortech and the Surviving Corporation following the Effective Time to consist of the individuals set forth in Section 5.13. 7.9 CONSENTS. All material Consents required to be obtained in connection with the Merger and the other transactions contemplated by this Agreement (including the Consents identified in the Cortech Disclosure Schedule) shall have been obtained and shall be in full force and effect. 7.10 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened any Legal Proceeding in which a Governmental Body is or is threatened to become a party or is otherwise involved: (a) challenging or seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by this Agreement; (b) relating to the Merger and seeking to obtain from BioStar or any of its subsidiaries any damages that may be material to BioStar; or (c) which would materially and adversely affect the right of BioStar to own the assets or operate the business of Cortech. 7.11 NO OTHER LITIGATION. There shall not be pending any Legal Proceeding in which there is a reasonable probability of an outcome that would have a Material Adverse Effect on BioStar or on Cortech: (a) challenging or seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by this Agreement; (b) relating to the Merger and seeking to obtain from BioStar A-40 222 or any of its subsidiaries any damages that may be material to BioStar; (c) seeking to prohibit or limit in any material respect BioStar's ability to vote, receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of the Surviving Corporation; or (d) resulting in Cortech as constituted after the Effective Time not containing all of the assets and business of Cortech as constituted immediately prior to the Effective Time. 8. TERMINATION 8.1 TERMINATION. This Agreement may be terminated prior to the Effective Time (whether before or after approval of this Agreement and the Merger by the Required BioStar Stockholder Vote and the Required Cortech Stockholder Vote); (a) by mutual written consent of Cortech and BioStar; (b) by either Cortech or BioStar if the Merger shall not have been consummated by May 31, 1998 (unless the failure to consummate the Merger is attributable to a failure on the part of the party seeking to terminate this Agreement to perform any material obligation required to be performed by such party at or prior to the Effective Time); (c) by either Cortech or BioStar if a court of competent jurisdiction or other Governmental Body shall have issued a final and nonappealable order, decree or ruling, or shall have taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger; (d) by either Cortech or BioStar if (i) the BioStar Stockholders' Meeting shall have been held and completed and (ii) this Agreement, the Merger and the BioStar Charter Amendment shall not have been approved at such meeting by the Required BioStar Stockholder Vote; (e) by either Cortech or BioStar if (i) the Cortech Stockholders' Meeting shall have been held and completed and (ii) the issuance of Cortech Common Stock in the Merger shall not have been approved at such meeting by the Required Cortech Stockholder Merger Vote; (f) by Cortech (at any time prior to the approval of this Agreement, the Merger and the BioStar Charter Amendment by the Required BioStar Stockholder Vote) if a BioStar Triggering Event shall have occurred; (g) by BioStar (at any time prior to the approval of the issuance of Common Stock in the Merger by the Required Cortech Stockholder Merger Vote) if a Cortech Triggering Event shall have occurred; (h) by Cortech if (i) any of BioStar's representations and warranties contained in this Agreement shall be or shall have become materially inaccurate, (ii) if any of BioStar's covenants contained in this Agreement shall have been breached, and such inaccuracy or breach would cause the condition set forth in Sections 6.1 or 6.2, respectively, to not be satisfied, or (iii) if Cowen withdraws its fairness opinion as further provided in Section 6.12 because of a material change in the underlying assumptions of the financial projections provided to Cowen by BioStar; provided, however, that if an inaccuracy in BioStar's representations and warranties or a breach of a covenant by BioStar is curable by BioStar and BioStar is continuing to exercise all reasonable efforts to cure such inaccuracy or breach, then Cortech may not terminate this Agreement under this Section 8.1(h) on account of such inaccuracy or breach until 20 days after delivery of written notice of the inaccuracy or breach to BioStar by Cortech, if the inaccuracy or breach has not at that time been cured or May 31, 1998, whichever shall first occur; or (i) by BioStar if any of Cortech's representations and warranties contained in this Agreement shall be or shall have become materially inaccurate, or if any of Cortech's covenants contained in this Agreement shall have been breached, and such inaccuracy or breach would cause the condition set forth in Sections 7.1 or 7.2, respectively, to not be satisfied (except that BioStar may consider any breach of the covenant set forth in Section 4.3(xv) above to be a material breach); provided, however, that (except with respect to a breach of the covenant set forth in Section 4.3(xv) which shall be considered a breach incapable of cure) if an inaccuracy in Cortech's representations and warranties or a breach of a covenant by Cortech is curable by Cortech and Cortech is continuing to exercise all reasonable efforts to cure such A-41 223 inaccuracy or breach, then BioStar may not terminate this Agreement under this Section 8.1(i) on account of such inaccuracy or breach until 20 days after delivery of written notice of the breach or inaccuracy to Cortech by BioStar, if the inaccuracy or breach has not at that time been cured or May 31, 1998, whichever shall first occur. 8.2 EFFECT OF TERMINATION. In the event of the termination of this Agreement as provided in Section 8.1, this Agreement shall be of no further force or effect; provided, however, that (i) this Section 8.2, Section 8.3 and Section 9 shall survive the termination of this Agreement and shall remain in full force and effect, (ii) the Nondisclosure Agreement shall remain in full force and effect to the extent provides therein, and (iii) the termination of this Agreement shall not relieve any party from any liability for any breach of any representation, warranty or covenant contained in this Agreement occurring prior to the date of such termination if such party is not obligated to pay a termination fee pursuant to Section 8.3 hereof. 8.3 EXPENSES; TERMINATION FEES. (a) Except as set forth in this Section 8.3, all fees and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such expenses, whether or not the Merger is consummated; provided, however, that Cortech and BioStar shall share equally all fees and expenses, other than attorneys' fees, incurred in connection with the filing, printing and mailing of the Form S-4 Registration Statement and the Joint Proxy Statement and any amendments or supplements thereto. (b) If this Agreement is terminated by Cortech pursuant to Section 8.1(f) or 8.1(h) hereof, BioStar shall pay Cortech a termination fee equal to (i) $500,000 plus (ii) if the preliminary Joint Proxy Statement has been filed with the SEC, reimbursement of the amount of the professional fees and expenses which Cortech incurred in connection with the Merger, up to $150,000. (c) If this Agreement is terminated by BioStar pursuant to Section 8.1(g), or 8.1(i) hereof, Cortech shall pay BioStar a termination fee equal to (i) $500,000 plus (ii) if the preliminary Joint Proxy Statement has been filed with the SEC, reimbursement of the amount of the professional fees and expenses which BioStar incurred in connection with the Merger, up to $150,000. (d) Any termination fees and expenses payable under Section 8.3(b) or 8.3(c) above shall be paid in cash, via wire transfer of immediately available funds no later than the close of business on the second business day following the date on which the termination giving rise to such payment occurs. (e) Cortech and BioStar agree that the agreements contained in Sections 8.3(b) and (c) above are an integral part of the transactions contemplated by this Agreement and constitute liquidated damages and not a penalty. If one party fails to promptly pay to the other any fee due under such Sections 8.3(b) and (c), the defaulting party shall pay the costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect payment, together with interest on the amount of any unpaid fee at the publicly announced prime rate of Citibank, N.A. from the date such fee was required to be paid. 9. MISCELLANEOUS PROVISIONS 9.1 AMENDMENT. This Agreement may be amended with the approval of the respective boards of directors of BioStar and Cortech at any time (whether before or after approval of this Agreement and the Merger by the stockholders of BioStar; and whether before or after approval of the issuance of Cortech Common Stock in the Merger by Cortech's stockholders) provided, however, that (i) after any such approval of this Agreement and the Merger by BioStar's stockholders, no amendment shall be made which by law or NASD regulation requires further approval of the stockholders of BioStar without the further approval of such stockholders, and (ii) after any such approval of the issuance of Cortech Common Stock in the Merger by Cortech's stockholders, no amendment shall be made which by law or NASD regulation requires further approval of Cortech's stockholders without the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. A-42 224 9.2 WAIVER. (a) No failure on the part of any party to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. (b) No party shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such party; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given. 9.3 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the representations and warranties contained in this Agreement or in any certificate delivered pursuant to this Agreement shall survive the Merger. 9.4 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Agreement and the other agreements and schedules referred to herein and therein and the Non-Disclosure Agreement constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among or between any of the parties with respect to the subject matter hereof and thereof. This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument, and shall be governed in all respects by the laws of the State of Colorado as applied to contracts entered into and to be performed entirely within Colorado provided, however that matters of corporate governance involving Cortech and BioStar shall be governed by the DGCL. 9.5 JURY WAIVER. The parties hereto hereby agree to waive their respective rights to a trial by jury of any claim or cause of action based upon or arising out of or related to this Agreement or the transactions contemplated thereby in any action, proceeding or other litigation of any type brought by any party against any other party with respect to contracts, claims, tort claims or otherwise. The scope of this waiver is intended to be as broad as permitted by law, covering all disputes that may be filed in any court that relate to the subject matter of this Agreement, including tort claims, contract claims, claims under common law, statutory claims and any action, counterclaim or other proceeding which seeks in whole or in part to challenge the validity or enforceability of this Agreement or the transactions contemplated thereby. This waiver is irrevocable. 9.6 DISCLOSURE SCHEDULE. The BioStar Disclosure Schedule and the Cortech Disclosure Schedule shall be arranged in separate parts corresponding to the numbered and lettered sections contained in Sections 2 and 3, and the information disclosed in any numbered or lettered part shall, together with any other information in any other part or parts of the relevant Disclosure Schedule which a reasonable Person would relate to such numbered or lettered part, be deemed to relate to and to qualify the representation or warranty set forth in the corresponding numbered or lettered section and shall otherwise not be deemed to relate to or to qualify any other representation or warranty. 9.7 ATTORNEYS' FEES. In any action at law or suit in equity to enforce this Agreement or the rights of any of the parties hereunder, the prevailing party in such action or suit shall be entitled to receive a reasonable sum for its attorneys' fees and all other reasonable costs and expenses incurred in such action or suit. 9.8 ASSIGNABILITY. This Agreement shall be binding upon, and shall be enforceable by and inure solely to the benefit of, the parties hereto and their respective successors and assigns; provided, however, that neither this Agreement nor any of the rights hereunder may be assigned by any party without the prior written consent of the other party, and any attempted assignment of this Agreement or any of such rights by a party without such consent shall be void and of no effect. Except as set forth in Section 1.5 with respect to the stockholders of BioStar or the holders of BioStar Options and BioStar Warrants, and Section 5.6 with respect to the persons identified therein (with each of the foregoing intended as a third party beneficiary of the corresponding referenced Section of this Agreement), nothing in this Agreement, express or implied, is intended to or shall confer upon any Person any right, benefit or remedy of any nature whatsoever under or reason of this Agreement. A-43 225 9.9 NOTICES. Any notice or other communication required or permitted to be delivered to any party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service or by facsimile) to the address or facsimile telephone number set forth beneath the name of such party below (or to such other address or facsimile telephone number as such party shall have specified in a written notice given to the other parties hereto): if to Cortech or Merger Sub: Cortech, Inc. 6850 North Broadway Denver, Colorado 80221 Attention: Kenneth R. Lynn Phone: 303/650-1200 Fax: 303/650-5023 with a copy to: Pillsbury Madison & Sutro LLP 101 W. Broadway, Suite 1800 San Diego, California 92101 Attention: David R. Snyder, Esq. Phone: 619/234-5000 Fax: 619/236-1995 if to BioStar : BioStar, Inc. 6655 Lookout Road Boulder, Colorado 80301 Attention: Teresa W. Ayers Phone: 303/530-6602 Fax: 303/530-6641 with a copy to: Cooley Godward LLP 2595 Canyon Boulevard Suite 250 Boulder, Colorado 80302 Attention: James H. Carroll, Esq. Phone: 303/546-4000 Fax: 303/546-4099 9.10 COOPERATION. Each party agrees to cooperate fully with the other party and to execute and deliver such further documents, certificates, agreements and instruments and to take such other actions as may be reasonably requested by the other party to evidence or reflect the transactions contemplated by this Agreement and to carry out the intent and purposes of this Agreement. 9.11 CONSTRUCTION. (a) For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include masculine and feminine genders. (b) The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement. (c) As used in this Agreement, the words "include" and "including," and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words "without limitation." A-44 226 (d) Except as otherwise indicated, all references in this Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement and Exhibits to this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first above written. CORTECH, INC. By: /s/ KENNETH R. LYNN ---------------------------------- Kenneth R. Lynn President/Chief Executive Officer CORTECH MERGER SUB, INC. By: /s/ KENNETH R. LYNN ---------------------------------- Kenneth R. Lynn President/Chief Executive Officer BIOSTAR, INC. By: /s/ TERESA W. AYERS ---------------------------------- Teresa W. Ayers President/ Chief Executive Officer A-45 227 EXHIBIT A CERTAIN DEFINITIONS For purposes of the Agreement (including this Exhibit A): ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer or proposal (other than an offer or proposal between Cortech and BioStar) contemplating or otherwise relating to any Acquisition Transaction. ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any transaction or series of related transactions involving: (a) any merger, consolidation, share exchange, business combination, issuance of securities, acquisition of securities, tender offer, exchange offer or other similar transaction (i) in which Cortech or BioStar is a constituent corporation, (ii) in which a Person or "group" (as defined in the Exchange Act and the rules promulgated thereunder) of Persons directly or indirectly acquires Cortech or BioStar or more than 50% of Cortech's business or BioStar's business or directly or indirectly acquires beneficial or record ownership of securities representing more than 20% of the outstanding securities of any class of voting securities of Cortech or BioStar, or (iii) in which any of BioStar or Cortech issues securities representing more than 20% of the outstanding securities of any class of voting securities of BioStar or Cortech, respectively; (b) any sale, lease, exchange, transfer, license, acquisition or disposition of more than 50% of the assets of BioStar or Cortech; or (c) any liquidation or dissolution of BioStar or Cortech. AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and Reorganization to which this Exhibit A is attached, as it may be amended from time to time. BEST OF KNOWLEDGE; KNOWLEDGE. Information shall be deemed to be known to the "best of knowledge" or to the "knowledge" of a party if that information was actually known or reasonably should have been known by an executive officer of such party. BIOSTAR COMMON STOCK. "BioStar Common Stock" shall mean the Common Stock, $.0001 par value, of BioStar. BIOSTAR CONTRACT. "BioStar Contract" shall mean any Contract: (a) to which BioStar is a party; (b) by which BioStar or any asset of BioStar is or may become bound or under which BioStar has, or may become subject to, any obligation; or (c) under which BioStar has or may acquire any right or interest. BIOSTAR DISCLOSURE SCHEDULE. "BioStar Disclosure Schedule" shall mean the disclosure schedule that has been prepared by BioStar in accordance with the requirements of Section 9.6 and that has been delivered by BioStar to Cortech on the date of this Agreement and signed by the President of BioStar. BIOSTAR OPTIONS. "BioStar Options" shall mean each unexpired and unexercised option to purchase shares of BioStar Common Stock granted under the 1995 Equity Incentive Plan and stock option agreements of BioStar outside of the 1995 Equity Incentive Plan outstanding immediately prior to the Effective Time. BIOSTAR PROPRIETARY ASSET. "BioStar Proprietary Asset" shall mean any Proprietary Asset owned by or licensed to BioStar or otherwise used by BioStar. BIOSTAR PREFERRED STOCK. "BioStar Preferred Stock" shall mean the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, $.0001 par value, of BioStar. BIOSTAR RECORD DATE. "BioStar Record Date" shall mean the record date for the BioStar Stockholders Meeting. BIOSTAR TRIGGERING EVENT. A "BioStar Triggering Event" shall be deemed to have occurred if: (i) the board of directors of BioStar shall have failed to recommend, or shall for any reason have withdrawn or shall A-A-1 228 have amended or modified in a manner adverse to Cortech its unanimous recommendation in favor of, the Merger or approval of this Agreement; (ii) BioStar shall have failed to include in the Joint Proxy Statement the unanimous recommendation of the board of directors of BioStar in favor of approval of this Agreement and the Merger; (iii) the board of directors of BioStar fails to unanimously reaffirm its recommendation in favor of approval of this Agreement and the Merger within five business days after the Cortech requests in writing that such recommendation be reaffirmed; (iv) the board of directors of BioStar shall have approved, endorsed or recommended any Acquisition Proposal; (v) BioStar shall have entered into any letter of intent or similar document or any Contract relating to any Acquisition Proposal; (vi) BioStar shall have failed to hold BioStar Stockholders' Meeting as promptly as practicable and in any event within 45 days after the Form S-4 Registration Statement is declared effective under the Securities Act; (vii) a tender or exchange offer relating to securities of BioStar shall have been commenced and BioStar shall not have sent to its security holders, within five business days after the commencement of such tender or exchange offer, a statement disclosing that BioStar recommends rejection of such tender or exchange offer; or (viii) an Acquisition Proposal is publicly announced, and BioStar (A) fails to issue a press release announcing its opposition to such Acquisition Proposal within five business days after such Acquisition Proposal is announced or (B) otherwise fails to actively oppose such Acquisition Proposal. BIOSTAR WARRANTS. BioStar Warrants shall mean the outstanding warrants of BioStar and the Contingent Instrument, as amended prior to the Effective Time (other than those which expire as of the Effective Time if they remain unexercised as of the Effective Time). CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended. CONSENT. "Consent" shall mean any approval, consent, ratification, permission, waiver or authorization (including any Governmental Authorization). CONTRACT. "Contract" shall mean any written, oral or other agreement, contract, subcontract, lease, understanding, instrument, note, option, warranty, purchase order, license, sublicense, insurance policy, benefit plan or legally binding commitment or undertaking of any nature. CORTECH COMMON STOCK. "Cortech Common Stock" shall mean the Common Stock, $0.002 par value per share, of Cortech. CORTECH CONTRACT. "Cortech Contract" shall mean any Contract: (a) to which any of the Cortech Corporations is a party; (b) by which any Cortech Corporation or any asset of a Cortech Corporation may become bound or under which any Cortech Corporation has, or may become subject to, any obligation; or (c) under which any Cortech Corporation has or may acquire any right or interest. CORTECH DISCLOSURE SCHEDULE. "Cortech Disclosure Schedule" shall mean the disclosure schedule that has been prepared by Cortech in accordance with the requirements of Section 9.6 and that has been delivered by Cortech to BioStar on the date of this Agreement and signed by the President of Cortech. CORTECH OPTIONS. "Cortech Options" shall mean stock options granted by Cortech pursuant to the Amended and Restated 1986 Incentive Stock Option Plan, 1991 Non-employee Directors' Stock Option Plan, Amended and Restated 1992 Non-employee Directors' Stock Option Plan, and the 1993 Equity Incentive Plan (collectively, the "Cortech Option Plans"). CORTECH PROPRIETARY ASSET. "Cortech Proprietary Asset" shall mean any Proprietary Asset owned by or licensed to any of the Cortech Corporations or otherwise used by any of the Cortech Corporations. CORTECH RECORD DATE. "Cortech Record Date" shall mean the record date for the Cortech Stockholders Meeting. CORTECH TRIGGERING EVENT. A "Cortech Triggering Event" shall be deemed to have occurred if: (i) the board of directors of the Cortech shall have failed to recommend, or shall for any reason have withdrawn or shall have amended or modified in a manner adverse to BioStar its unanimous recommendation in favor of, the Merger or approval of this Agreement; (ii) Cortech shall have failed to include in the Joint Proxy Statement the unanimous recommendation of the board of directors of Cortech in favor of approval of this A-A-2 229 Agreement and the Merger; (iii) the board of directors of Cortech fails to unanimously reaffirm its recommendation in favor of approval of this Agreement and the Merger within five business days after BioStar requests in writing that such recommendation be reaffirmed; (iv) the board of directors of Cortech shall have approved, endorsed or recommended any Acquisition Proposal; (v) Cortech shall have entered into any letter of intent or similar document or any Contract relating to any Acquisition Proposal; (vi) Cortech shall have failed to hold the Cortech Stockholders' Meeting as promptly as practicable and in any event within 45 days after the Form S-4 Registration Statement is declared effective under the Securities Act; (vii) a tender or exchange offer relating to securities of Cortech shall have been commenced and Cortech shall not have sent to its security holders, within five business days after the commencement of such tender or exchange offer, a statement disclosing that Cortech recommends rejection of such tender or exchange offer; or (viii) an Acquisition Proposal is publicly announced, and Cortech (A) fails to issue a press release announcing its opposition to such Acquisition Proposal within five business days after such Acquisition Proposal is announced or (B) otherwise fails to actively oppose such Acquisition Proposal. COWEN. "Cowen" shall mean Cowen & Company, financial advisor to Cortech. ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset). ENTITY. "Entity" shall mean any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization or entity. ENVIRONMENTAL LAW. "Environmental Law" means any federal, state, local or foreign Legal Requirement relating to pollution or protection of human health or the environment (including ambient air, surface water, ground water, land surface or subsurface strata), including any law or regulation relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern. EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. FORM S-4 REGISTRATION STATEMENT. "Form S-4 Registration Statement" shall mean the registration statement on Form S-4 to be filed with the SEC by Cortech in connection with issuance of Cortech Common Stock in the Merger, as said registration statement may be amended prior to the time it is declared effective by the SEC. GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any: (a) permit, license, certificate, franchise, permission, variance, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement; or (b) right under any Contract with any Governmental Body. GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or Entity and any court or other tribunal). JOINT PROXY STATEMENT. "Joint Proxy Statement" shall mean the joint proxy statement/prospectus to be sent to BioStar's stockholders in connection with the BioStar Stockholder's Meeting and to Cortech's stockholders in connection with the Cortech Stockholders' Meeting. LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, A-A-3 230 examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel. LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Body. LEHMAN BROTHERS. "Lehman Brothers" shall mean Lehman Brothers Inc., financial advisor to BioStar. MATERIAL ADVERSE EFFECT. An event, violation, inaccuracy, circumstance or other matter will be deemed to have a "Material Adverse Effect" on BioStar if such event, violation, inaccuracy, circumstance or other matter would have a material adverse effect on (i) the business, financial condition, capitalization, assets, liabilities, operations or financial performance of BioStar, (ii) the ability of the company to consummate the Merger or any of the other transactions contemplated by this Agreement or to perform obligations under this Agreement, or (iii) Cortech's ability to vote, receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of the Surviving Corporation. An event, violation, inaccuracy, circumstance or other matter will be deemed to have a "Material Adverse Effect" on Cortech if such event, violation, inaccuracy, circumstance or other matter would have a material adverse effect on (i) the business, financial condition, assets, liabilities, operations or financial performance of the Cortech Corporations taken as a whole, (ii) the ability of Cortech to consummate the Merger or any of the other transactions contemplated by this Agreement or to perform its obligations under this Agreement, or (iii) the ability of BioStar's stockholders to vote, receive dividends with respect to, or otherwise exercise ownership rights with respect to the stock of Cortech received by them. MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental Concern" include chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products and any other substance that is now or hereafter regulated by any Environmental Law or that is otherwise a danger to health, reproduction or the environment. PENSION PLAN. "Pension Plan" shall mean any employee pension benefit plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not excluded from coverage under specific Titles or Subtitles of ERISA). PERSON. "Person" shall mean any individual, Entity or Governmental Body. PROPRIETARY ASSET. "Proprietary Asset" shall mean any material: (a) patent, patent application, trademark (whether registered or unregistered), trademark application, trade name, fictitious business name, service mark (whether registered or unregistered), service mark application, copyright (whether registered or unregistered), copyright application, maskwork, maskwork application, trade secret, know-how, customer list, franchise, system, computer software, computer program, source code, algorithm, invention, design, blueprint, engineering drawing, proprietary product, technology, proprietary right or other intellectual property right or intangible asset; or (b) right to use or exploit any of the foregoing. REPRESENTATIVES. "Representatives" shall mean officers, directors, employees, agents, attorneys, accountants, advisors and representatives. SEC. "SEC" shall mean the United States Securities and Exchange Commission. SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as amended. SUBSIDIARY. An entity shall be deemed to be a "Subsidiary" of another Person if such Person directly or indirectly owns, beneficially or of record, an amount of voting securities or other interests in such Entity that is sufficient to enable such Person to elect at least a majority of the members of such Entity's board of directors or other governing body. SUPERIOR OFFER. "Superior Offer" shall mean an unsolicited, bona fide written Acquisition Proposal on terms that the board of directors of BioStar or Cortech, as the case may be, determines in its reasonable A-A-4 231 judgment, after consultation with its financial advisor, to be more favorable to BioStar's stockholders or Cortech's stockholders, as the case may be, than the terms of the Merger. TAX. "Tax" shall mean any tax (including any income tax, franchise tax, capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including any customs duty), deficiency or fee, and any related charge or amount (including any fine, penalty or interest), imposed, assessed or collected by or under the authority of any Governmental Body. TAX RETURN. "Tax Return" shall mean any return (including any information return), report, statement, declaration, estimate, schedule, notice, notification, form, election, certificate or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax. WELFARE PLAN. "Welfare Plan" shall mean an employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether or not excluded from coverage under specific Titles or Subtitles of ERISA). A-A-5 232 EXHIBIT B FORM OF BIOSTAR CHARTER AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION OF BIOSTAR, INC. BioStar, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: The name of the Corporation is BioStar, Inc. SECOND: The original certificate of incorporation of the Corporation was (i) filed with the Secretary of State of Delaware on May 21, 1992, and (ii) a restated certificate of incorporation was filed on June 24, 1997 (the "Restated Certificate"). THIRD: The board of directors of the Corporation, acting in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, has adopted resolutions to amend the Certificate of Incorporation. FOURTH: The Certificate of Incorporation shall be amended as follows: 1. Subsection 2(a) of Article IV shall be amended to read in full as follows: "a. In the event of a liquidation, dissolution or winding up of this corporation, other than the Excluded Merger (as defined in subsection 5(a)(iv) below), either voluntary or involuntary:" 2. The following proviso shall be inserted at the end of subsection 5(a) of Article IV, immediately after subsection 5(a)(ii)(D): "(iii) This Section 5 shall not apply to a merger of Cortech Merger Sub, Inc., a wholly-owned subsidiary of Cortech, Inc., with and into the Corporation (the "Excluded Merger") pursuant to the Agreement and Plan of Merger and Reorganization dated as of December 19, 1997 among Cortech, Inc., Cortech Merger Sub, Inc. and the Corporation, as such agreement may be amended from time to time in accordance with the provisions thereof (the "Reorganization Agreement"). 3. The following subsection 5(g) shall be added to Article IV, immediately following sub-section 5(f): "g. Notwithstanding any other provision of this Restated Certificate, in the event of the Excluded Merger no holder of Preferred Stock or Common Stock shall be entitled to receive, as consideration for any of such holder's Preferred Stock or Common Stock, any payment, consideration or exchange of cash, securities or other property other than the consideration set forth in the Reorganization Agreement." FIFTH: Thereafter, pursuant to a resolution of the board of directors of the Corporation, this Certificate of Amendment was submitted to the stockholders of the Corporation for their approval in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. A-B-1 233 IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer this day of , 1998. BioStar, Inc. By: ---------------------------------- Teresa W. Ayers President/Chief Executive Officer A-B-2 234 EXHIBIT C FORM OF AFFILIATE AGREEMENT THIS AFFILIATE AGREEMENT (this "Agreement") is made and entered into as of , 199 , by and among Cortech, Inc., a Delaware corporation ("Cortech"), BioStar, Inc., a Delaware corporation ("BioStar") and the undersigned stockholder who may be deemed an affiliate ("Affiliate") of BioStar. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Reorganization Agreement (as defined below). RECITALS A. BioStar, Cortech and Cortech Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Cortech ("Merger Sub"), have entered into an Agreement and Plan of Reorganization (the "Reorganization Agreement") which contemplates that BioStar and Merger Sub will execute a Certificate of Merger, which Agreement and Certificate (collectively, the "Merger Agreements") provide for the merger (the "Merger") of Merger Sub with and into BioStar. Pursuant to the Merger, all outstanding capital stock of BioStar will be converted into Common Stock of Cortech. B. Affiliate is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act of 1934, as amended (the "Exchange Act")) of such number of shares of the outstanding BioStar capital stock as is indicated on the final page of this Agreement, which shares shall be exchanged for shares of Cortech Common Stock as a result of the Merger (for purposes of this Agreement, "Shares" means shares of BioStar capital stock and the shares of Cortech Common Stock issued in exchange therefor as a result of the Merger). C. Affiliate understands that, since the Affiliate may be deemed to be an "affiliate" of BioStar (within the meaning of Rule 145 ("Rule 145") promulgated by the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the "Securities Act")), the Shares may only be disposed of in conformity with the limitations described herein. Affiliate has been informed that the treatment of the Merger as a tax-free reorganization under applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), is dependent upon the accuracy of certain of the representations and warranties and the compliance with certain of the agreements set forth herein. Affiliate further understands that the representations, warranties and agreements set forth herein will be relied upon by Cortech, BioStar and their respective counsel and independent auditors. NOW THEREFORE, the parties agree as follows: 1) New Shares. Affiliate agrees that any shares of capital stock of BioStar that Affiliate purchases or with respect to which Affiliate otherwise acquires beneficial ownership after the date of this Agreement and prior to the Effective Time of the Merger ("New Shares") shall be subject to the terms and conditions of this Agreement to the same extent as if they constituted Shares. 2) Tax Treatment; Rule 145. Affiliate understands and agrees that it is intended that the Merger qualify as a "reorganization" under Section 368 of the Code. Affiliate further understands and agrees that Affiliate may be deemed to be an "affiliate" of BioStar within the meaning of Rule 145, although nothing contained herein should be construed as an admission of such fact. 3) Reliance Upon Representations, Warranties and Covenants. Affiliate has been informed that the treatment of the Merger as a reorganization for federal income tax purposes requires that a sufficient number of former stockholders of BioStar maintain a meaningful continuing equity ownership interest in Cortech after the Merger. Affiliate understands that the representations, warranties and covenants of Affiliate set forth herein will be relied upon by Cortech, BioStar and their respective counsel and independent auditors. 4) Representations, Warranties and Covenants of Affiliate. (a) Affiliate has full power and authority to execute this Agreement, to make the representations, warranties and covenants herein contained and to perform Affiliate's obligations hereunder. A-C-1 235 (b) Set forth below the signatures below is the number of shares of BioStar capital stock owned by Affiliate, including all BioStar capital stock as to which Affiliate has sole or shared voting or investment power and all rights, options and warrants to acquire BioStar capital stock owned or held by Affiliate. (c) Except as may be specifically required by court order, Affiliate will not sell, transfer, exchange, pledge or otherwise dispose of, or make any offer or agreement relating to the foregoing with respect to, any shares of Cortech Common Stock that Affiliate may acquire in connection with the Merger, or any securities that may be paid as a dividend or otherwise distributed thereon or with respect thereto or issued or delivered in exchange or substitution therefor (all such shares and other securities of Cortech are sometimes collectively referred to as "Restricted Securities"), or any option, right or other interest with respect to any Restricted Securities, unless: (i) such transaction is permitted pursuant to Rule 145(d) under the Securities Act; (ii) counsel representing Affiliate, which counsel is reasonably satisfactory to Cortech, shall have advised Cortech in a written opinion letter satisfactory to Cortech and Cortech's legal counsel, and upon which Cortech and its legal counsel may rely, that no registration statement under the Securities Act would be required in connection with the proposed sale, transfer or other disposition; (iii) a registration statement under the Securities Act covering the Cortech Common Stock proposed to be sold, transferred or otherwise disposed of, describing the manner and terms of the proposed sale, transfer or other disposition, and containing a current prospectus, shall have been filed with the SEC and made effective under the Securities Act; or (iv) an authorized representative of the SEC shall have rendered written advice to Affiliate (sought by Affiliate or counsel to Affiliate, with a copy thereof and all other related communications delivered to Cortech) to the effect that the SEC would take no action, or that the staff of the SEC would not recommend that the SEC take any action, with respect to the proposed disposition if consummated. (d) Affiliate has, and as of the Effective Time of the Merger will have, no present plan or intent to engage in a sale, exchange, transfer, pledge, disposition or any other transaction that results in a reduction in the risk of ownership (collectively, a "Sale") with respect to more than % of the shares of Cortech Common Stock to be acquired by the undersigned Affiliate upon consummation of the Merger. Affiliate is not aware of, or participating in, any present plan or intention (a "Plan") on the part of BioStar stockholders to engage in Sales of shares of Cortech Common Stock to be issued in the Merger such that the aggregate fair market value, as of the Effective Time of the Merger, of the shares subject to such Sales would exceed % of the aggregate fair market value of all shares of outstanding BioStar capital stock immediately prior to the Merger. For purposes of the preceding sentence, shares of BioStar capital stock (i) that are exchanged for cash in lieu of fractional shares of Cortech capital stock, or (ii) with respect to which a pre-Merger sale occurs in a Related Transaction (as defined below), shall be considered to be shares of BioStar capital stock that are exchanged for Cortech Common Stock in the Merger and then disposed of pursuant to a Plan. A Sale of Cortech Common Stock shall be considered to have occurred pursuant to a Plan if, among other things, such Sale occurs in a Related Transaction. For purposes of this Section 4(d), a "Related Transaction" shall mean a transaction that is in contemplation of, or related or pursuant to, the Merger or the Merger Agreements. If any of Affiliate's representations in this subsection (d) cease to be true at any time prior to the Effective Time of the Merger, Affiliate will deliver to each of BioStar and Cortech, prior to the Effective Time of the Merger, a written statement to that effect, signed by Affiliate. 5) Rules 144 and 145. From and after the Effective Time of the Merger and for so long as is necessary in order to permit Affiliate to sell the Cortech Common Stock held by Affiliate pursuant to Rule 145 and, to the extent applicable, Rule 144 under the Securities Act ("Rule 144"), Cortech will use its best efforts to file on a timely basis all reports required to be filed by it pursuant to Section 13 of the Exchange Act referred to in paragraph (c)(1) of Rule 144 under the Securities Act (or if applicable, Cortech will use its best efforts to make publicly available the information regarding itself referred to in paragraph (c)(2) of Rule 144), in order to permit Affiliate to sell the Cortech Common Stock held by it pursuant to the terms and conditions of Rule 145 and the applicable provisions of Rule 144. A-C-2 236 6) Limited Resales. Affiliate understands that, in addition to the restrictions imposed under Section 4 of this Agreement, the provisions of Rule 145 currently limit Affiliate's public resales of Restricted Securities, in the manner set forth in subsections (a), (b) and (c) below: (a) Unless and until the restriction "Cut-off" provisions of Rule 145(d)(2) or Rule 145(d)(3) set forth below become available, public resales of Restricted Securities may only be made by Affiliate in compliance with the requirements of Rule 145(d)(1). Rule 145(d)(1) permits such resales only: (i) while Cortech meets the public information requirements of Rule 144(c); (ii) in brokers' transactions or in transactions with a market maker; and (iii) where the aggregate number of Restricted Securities sold at any time, together with all sales of Cortech Common Stock sold for Affiliate's account during the preceding three-month period does not exceed the greater of (A) one percent (1%) of the Cortech Common Stock outstanding or (B) the average weekly volume of trading in Cortech Common Stock during the four (4) calendar weeks preceding the date of receipt of the order to execute the sale. (b) Affiliate may make unrestricted sales of Restricted Securities pursuant to Rule 145(d)(2) if: (i) Affiliate has beneficially owned (within the meaning of Rule 144(d)) the Restricted Securities for at least one (1) year after the Effective Time of the Merger; (ii) Affiliate is not an affiliate of Cortech; and (iii) Cortech meets the public information requirements of Rule 144(c). (c) Affiliate may make unrestricted sales of Restricted Securities pursuant to Rule 145(d)(3) if: (i) Affiliate has beneficially owned (within the meaning of Rule 144(d)) the Restricted Securities for at least two (2) years and (ii) Affiliate is not, and has not been for at least three (3) months, an affiliate of Cortech. (d) Cortech acknowledges that the provisions of Section 4(c) of this Agreement will be satisfied as to any sale by the undersigned of the Restricted Securities pursuant to Rule 145(d), by a broker's letter and a letter from the undersigned with respect to that sale stating that each of the above-described requirements of Rule 145(d)(1) has been met or is inapplicable by virtue of Rule 145(d)(2) or Rule 145(d)(3) (as such Rules may in effect at such time); provided, however, that Cortech has no reasonable basis to believe that such sales were not made in compliance with such provisions of Rule 145(d). 7. Legends. Affiliate also understands and agrees that there will be placed on the certificates evidencing the Restricted Securities a legend stating in substance: "THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT." Cortech agrees to remove promptly such legend upon full compliance with this Agreement by the undersigned, including, without limitation, a sale or transfer of Cortech Common Stock permitted under Section 4(c) above. 8) Termination. This Agreement shall be terminated and shall be of no further force or effect in the event of the termination of the Reorganization Agreement pursuant to Article VIII of the Reorganization Agreement. 9) Partnership Distributions. Any other provisions of this Agreement notwithstanding, if the undersigned Affiliate is organized as a partnership, BioStar and Cortech hereby agree that such partnership shall be permitted to make a distribution to its partners of shares of BioStar capital stock (if made prior to the Effective Time of the Merger) or of shares of Cortech capital stock received in the Merger so long as the undersigned Affiliate and its partnership distributees provide assurances, acceptable to Cortech and BioStar in their reasonable discretion, that such distributions (i) are permissible under Rule 145, and (ii) will not prevent the Merger from being treated as a tax-free reorganization for federal income tax purposes. A-C-3 237 10) Miscellaneous. (a) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. (b) Binding Agreement. This Agreement will inure to the benefit of and be binding upon and enforceable against the parties and their successors and assigns, including administrators, executors, representatives, heirs, legatees and devisees of Affiliate and pledgees holding Restricted Securities as collateral. (c) Waiver. No waiver by any party hereto of any condition or of any breach of any provision of this Agreement shall be effective unless in writing and signed by each party hereto. (d) Governing Law. This Agreement shall be governed by and construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. (e) Attorneys' Fees. In the event of any legal action or proceeding to enforce or interpret the provisions hereof, the prevailing party shall be entitled to reasonable attorneys' fees, whether or not the proceeding results in a final judgment. (f) Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction or interpretation of this Agreement. (g) Third Party Reliance. Counsel to and independent auditors for the parties shall be entitled to rely upon this Affiliate Agreement. [REST OF PAGE INTENTIONALLY LEFT BLANK] A-C-4 238 IN WITNESS WHEREOF, the parties have caused this Affiliate Agreement to be duly executed on the day and year first above written. CORTECH AFFILIATE By: By: ------------------------------ -------------------------------- Name: ---------------------------- Affiliate's address for notice: Title: --------------------------- ----------------------------------- BIOSTAR ----------------------------------- By: ------------------------------ Shares beneficially owned: Name: ____ shares of BioStar Common Stock ---------------------------- ____ shares of BioStar Common Stock Title: issuable upon exercise of --------------------------- outstanding options and warrants ____ shares of BioStar Preferred Stock ____ shares of BioStar Preferred Stock issuable upon exercise of outstanding options and warrants A-C-5 239 APPENDIX B CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CORTECH, INC. Cortech, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company"), does hereby certify: FIRST: That at a meeting of the Board of Directors of the Company, resolutions were duly adopted setting forth proposed amendments of the Certificate of Incorporation of the Company, declaring said amendments to be advisable and calling a meeting of the stockholders of the Company for consideration thereof. The resolutions setting forth the proposed amendments are as follows: RESOLVED, that a proposed amendment to the Certificate of Incorporation of the Company effecting changes in Article II thereof is hereby approved and adopted: Article II is hereby amended to read in its entirety as follows: The name of the Corporation is BioStar Holdings, Inc. (hereinafter referred to as the "Corporation"). RESOLVED FURTHER, that a proposed amendment to the Certificate of Incorporation of the Company effecting changes in Article V, Section 1 thereof is hereby approved and adopted: Article V, Section 1 is hereby amended to read in its entirety as follows: Section 1. Authorized Shares. The aggregate number of shares of capital stock which this Corporation shall have the authority to issue shall be 52,000,000 shares, 50,000,000 of which shall be Common Stock, with a par value of $0.002 per share (hereinafter referred to as "Common Stock"), and 2,000,000 of which shall be Preferred Stock, with a par value of $0.002 per share (hereinafter referred to as "Preferred Stock"). Upon the amendment of this Section 1 of Article V to read as herein set forth, each [ ( )] outstanding shares of Common Stock are combined into one (1) share of Common Stock (without any effect on the authorized number of such shares); provided, however, that the Corporation shall issue no fractional shares, but shall instead pay in cash to any stockholder who would be entitled to receive a fractional share as the result of the action set forth in this Section 1 of Article V the fair market value of such fractional share as determined by the Board of Directors as of the effective date of the Amendment of this Section 1 of Article V. [SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of the Company was duly called and held, upon notice in accordance with Section 222 of the General Corporation law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendments.] [THIRD: That said amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.] B-1 240 IN WITNESS WHEREOF, the Company has caused this certificate to be signed by , its authorized officer, this day of , 1998. CORTECH, INC. By: ------------------------------------ Title: ------------------------------------ B-2 241 APPENDIX C -- OPINION OF COWEN & COMPANY December 22, 1997 Board of Directors Cortech, Inc. 6859 North Broadway Denver, CO 80221 Gentlemen: You have requested our opinion as investment bankers as to the fairness, from a financial point of view, to Cortech, Inc. (the "Company"), of the terms of the Transaction (as hereinafter defined) with BioStar, Inc. ("BioStar"). For the purposes of this opinion, the "Transaction" means the transaction described below pursuant to that certain draft Agreement and Plan of Merger and Reorganization among the Company, Cortech Merger Sub, Inc. ("Merger Sub") and BioStar dated December 22, 1997 (the "Agreement"). As more specifically set forth in the Agreement, and subject to certain terms and conditions thereof, Merger Sub shall be merged with and into BioStar (the "Merger") with BioStar continuing as the surviving corporation, and (a) each outstanding share of Common Stock, par value $0.0001 per share, of BioStar ("BioStar Common Stock") and each outstanding share of Preferred Stock, par value of $0.0001 per share, of BioStar ("BioStar Preferred Stock") (other than shares held by the Company or BioStar) shall be converted into the right to receive the number of fully paid and nonassessable shares of Cortech Common Stock (which number will reflect a one for four reverse stock split to be effected immediately prior to the effective time of the Merger) equal to a fraction the numerator of which is 28,500,000 and the denominator of which is the number of shares of BioStar Common Stock and BioStar Preferred Stock outstanding plus the number of shares of BioStar Common Stock and BioStar Preferred Stock issuable upon exercise as of the effective time of all (i) outstanding BioStar warrants and (ii) outstanding BioStar options; and (b) each share of the common stock, $0.001 par value, of Merger Sub then outstanding shall be converted into one share of common stock of the surviving corporation. In the ordinary course of its services, Cowen & Company ("Cowen") is regularly engaged in the valuation and pricing of businesses and their securities and in advising corporate securities issuers on related matters. In arriving at our opinion, Cowen has, among other things: (1) reviewed the Company's financial statements for the fiscal years ended December 31, 1994, 1995 and 1996 and for the quarters ended September 30, 1996 and September 30, 1997, respectively, certain publicly available filings with the Securities and Exchange Commission and certain other relevant financial and operating data of the Company; (2) reviewed BioStar's financial statements for the fiscal years ended December 31, 1994, 1995 and 1996 and for the quarters ended September 30, 1996 and September 30, 1997, respectively, and certain other relevant financial and operating data of BioStar; (3) reviewed a draft Agreement, dated December 22, 1997; (4) held meetings and discussions with management and senior personnel of the Company and BioStar to discuss the business, operations, historical financial results and future prospects of the Company and BioStar; (5) reviewed financial projections furnished to us by the management of the Company, including, among other things, the capital structure, sales, net income, cash flow, capital requirements and other data of the Company we deemed relevant; (6) reviewed financial projections furnished to us by the management of BioStar, including, among other things, the capital structure, sales, net income, cash flow, capital requirements and other data of BioStar we deemed relevant; C-1 242 (7) reviewed the valuation of the Company and BioStar in comparison to other similar publicly traded companies; (8) analyzed the potential pro forma financial effects of the Transaction; and (9) conducted such other studies, analysis, inquiries and investigations as we deemed appropriate. Cowen was not requested to, and did not, solicit third party indications of interest in acquiring all or substantially all of the stock or assets of the Company. On December 22, 1997, the closing price of the Common Stock of the Company in the last transaction reported by Nasdaq National Market was $0.656 per share. In rendering our opinion, we relied upon the Company's and BioStar's respective managements with respect to the accuracy and completeness of the financial and other information furnished to us as described above. We assumed that financial forecasts, projections and estimates of operating efficiencies and potential synergies reflected the best currently available estimates and judgments of the Company's and BioStar's management as to the expected future financial performance of their respective entities. We have not assumed any responsibility for independent verification of such information, including financial information, nor have we made an independent evaluation or appraisal of any of the properties or assets of the Company or BioStar. We have visited the headquarters of the Company. With respect to all legal matters relating to the Company and BioStar, we have relied on the advice of legal counsel to the Company. Our opinion is necessarily based on general economic, market financial and other conditions as they exist on, and can be evaluated as of, the date hereof, as well as the information currently available to us. It should be understood that, although subsequent developments may affect our opinion, we do not have any obligation to update, revise or reaffirm our opinion. Our opinion does not constitute a recommendation to any stockholder as how such stockholder should vote on the proposed Transaction. Our opinion does not imply any conclusion as to the likely trading range for the Company Common Stock following consummation of the Transaction or otherwise, which may vary depending on numerous factors that generally influence the price of securities. Our opinion is limited to the fairness, from a financial point of view, of the terms of the Transaction. We express no opinion with respect to any other reasons, legal, business or otherwise, that may support the decision of the Board of Directors of the Company to approve, or the Company's decision to consummate, the Transaction. For purposes of rendering our opinion we have assumed in all respects material to our analysis, that the representations and warranties of each party contained in the Agreement are true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the Agreement and that all conditions to the consummation of the Transaction will be satisfied without waiver thereof. We have also assumed that all governmental, regulatory or other consents and approvals contemplated by the Agreement will be obtained and that in the course of obtaining any of those consents no restrictions will be imposed or waivers made that would have an adverse effect on the contemplated benefits of the Transaction. We have acted as financial advisor to the Board of Directors of the Company in connection with the Transaction and will receive a fee for our services, a significant portion of which is contingent on the consummation of the Transaction. We will also receive a fee for rendering this opinion. In addition, in the ordinary course of its business, Cowen trades the debt and equity securities of the Company for its own account and for the accounts of its customers, and, accordingly, it may at any time hold a long or short position in such securities. On the basis of our review and analysis, as described above, it is our opinion as investment bankers that, as of the date hereof, the financial terms of the Transaction are fair, from a financial point of view, to the Company. Very truly yours, Cowen & Company C-2 243 APPENDIX D -- SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW SECTION 262. APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to Section 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository. (b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to Sections 251 (other than a merger effected pursuant to subsection (g) of Section 251 of this title), 252, 254, 257, 258, 263 or 264 of this title: (1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of Section 251 of this title. (2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except: a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof; b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph. (3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under Section 253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. (c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate D-1 244 of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable. (d) Appraisal rights shall be perfected as follows: (1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsections (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of his shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of his shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of his shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or (2) If the merger or consolidation was approved pursuant to Section 228 or 253 of this title, each constituent corporation, either before the effective date of the merger or consolidation or within ten days thereafter, shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section; provided that, if the notice is given on or after the effective date of the merger or consolidation, such notice shall be given by the surviving or resulting corporation to all such holders of any class or series of stock of a constituent corporation that are entitled to appraisal rights. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given. (e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise D-2 245 entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw his demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after his written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later. (f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation. (g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. (h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted his certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that he is not entitled to appraisal rights under this section. (i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state. D-3 246 (j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all of the shares entitled to an appraisal. (k) From and after the effective date of the merger or consolidation, no stockholder who has demanded his appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of his demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just. (l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. D-4 247 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under Section 145 of the Delaware General Corporation Law (the "Delaware Code"), the Registrant has broad powers to indemnify its directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). Generally, the Registrant's Bylaws provide that the Registrant will indemnify each of its directors and officers to the fullest extent not prohibited by Delaware law, provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Registrant and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. With respect to a suit brought by or in the right of the Registrant, indemnification will not be provided for expenses incurred in connection with any claim, issue or matter as to which such person shall have been adjudged liable to the Registrant unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. The Registrant's Bylaws also provide that the Company may indemnify employees and other agents of the Company who are not directors or officers as set forth in the Delaware Code. The Registrant's Certificate of Incorporation provides for the elimination of liability for monetary damages for breach of the directors' fiduciary duty of care to the Registrant and its stockholders. These provisions do not eliminate the directors' duty of care and, in appropriate circumstances, equitable remedies such an injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to the Registrant, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for any transaction from which the director derived an improper personal benefit, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. The Reorganization Agreement provides that from and after the Effective Time of the Merger, the Registrant shall and shall cause BioStar, to the fullest extent permitted under applicable law, to indemnify, defend and hold harmless each person who served as a director or officer of the Registrant or BioStar prior to the Effective Time of the Merger against and from (i) any losses, claims damages, expenses (including reasonable attorneys' fees and court costs), liabilities or judgements and (ii) any amounts that are paid in settlement, with the consent of the Registrant (which consent will not be unreasonably withheld), of or in connection with any legal proceeding based directly or indirectly (in whole or in part) on, or arising directly or indirectly (in whole or in part) out of, the fact that such person is or was an officer or director of the Registrant or BioStar, whether pertaining to any matter arising before or after the Effective Time. In addition, the Registrant will provide directors' and officers' insurance to each of its directors and officers. II-1 248 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 2.1 -- Agreement and Plan of Merger and Reorganization dated as of December 22, 1997 among Cortech, Inc., Cortech Merger Sub, Inc. and BioStar, Inc. (attached as Appendix A to Joint Proxy Statement/Prospectus). 3.1 -- Certificate of Incorporation of Cortech, Inc.(1) 3.2 -- Proposed Certificate of Amendment to Certificate of Incorporation of Cortech, Inc. (see Appendix B). 3.3 -- Certificate of Designation for Series A Junior Participating Preferred Stock.(12) 3.4 -- Amended and Restated Bylaws of Cortech, Inc. 4.1 -- Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 10.21, 10.22, 10.30, 10.34, 10.52, 10.71, 10.72, 10.73, 10.74, 10.75, 10.76, 10.77, 10.78, 10.79 and 10.81. 4.2 -- Specimen certificate for the Common Stock of Cortech, Inc.(1) 5.1 -- Legal opinion of Pillsbury Madison & Sutro LLP. 8.1** -- Tax opinion of Pillsbury Madison & Sutro LLP. 8.2** -- Tax opinion of Cooley Godward LLP. 10.2 -- Lease Agreement dated April 2, 1992, as amended, between Lyon-Stewart Associates and Cortech, Inc.(1) 10.3 -- Lease Agreement dated March 5, 1993, as amended, between Lyon-Stewart Associates and Cortech, Inc.(5) 10.7 -- Lease Agreement dated May 14, 1993, as amended, between Lyon-Stewart Associates and Cortech, Inc.(5) 10.13 -- Purchase and Sale Agreement (Vacant Land) dated February 16, 1994, between Cortech, Inc. and Golden West Equity Properties, Inc. and Park Centre Limited Partnerships.(7) 10.14 -- Research Agreement dated June 30, 1987, as amended through December 31, 1996, between HMRI, successor-in-interest to Marion Merrell Dow Inc., and Cortech, Inc.(1) 10.19 -- Fifth Amendment of Research Agreement dated January 14, 1994, between HMRI and Cortech, Inc.(6) 10.21 -- Warrant to Purchase dated June 30, 1998, between HMRI and Cortech, Inc.(1) 10.22 -- Warrant to Purchase dated February 28, 1990, between HMRI and Cortech, Inc.(1) 10.25 -- License Agreement dated June 30, 1987, between HMRI and Cortech, Inc.(1) 10.27 -- Amended and Restated License Agreement dated as of May 28, 1993, between HMRI and Cortech, Inc.(3) 10.28 -- Sponsored Research and License Agreement dated February 13, 1987, between The John Hopkins University and Cortech, Inc.(1) 10.29 -- License Agreement dated June 30, 1987, between the Research Foundation of the State of New York and Cortech, Inc.(1) 10.30 -- Stock Purchase Agreement dated July 8, 1994, between Cortech, Inc. and the Research Foundation of State University of New York.(9) 10.31 -- Royalty Buyout Agreement dated July 8, 1994, between Cortech, Inc. and the Research Foundation of State University of New York.(9)
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EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.32* -- Development Agreement dated May 2, 1994, between Cortech, Inc. and Abbott Laboratories.(8) 10.34 -- Form of Warrant issued in connection with the CDC offering.(1) 10.35 -- Purchase Option Agreement dated February 13, 1992, between CDC and Cortech, Inc.(1) 10.36 -- Technology License Agreement dated February 13, 1992, between CDC and Cortech, Inc.(1) 10.37 -- Research and Development Agreement dated February 13, 1992, between CDC and Cortech, Inc.(1) 10.38 -- Services Agreement dated February 13, 1992, between CDC and Cortech, Inc.(1) 10.39 -- Amended and Restated Incentive Stock Option Plan of Cortech, Inc.(1) 10.40 -- 1991 Non-employee Directors' Stock Option Plan of Cortech, Inc.(2) 10.41 -- Amended and Restated 1992 Non-employee Directors' Stock Option Plan of Cortech, Inc.(6) 10.42 -- 1993 Employee Stock Purchase Plan of Cortech, Inc.(4) 10.43 -- 1993 Equity Incentive Plan of Cortech, Inc.(6) 10.45 -- Resignation and Separation Agreement dated March 10, 1994, between Cortech, Inc. and David K. Crossen.(7) 10.47 -- Executive Officers' Severance Benefit Plan.(14) 10.48 -- Sixth Amendment of Research Agreement dated March 15, 1995, between HMRI and Cortech, Inc.(14) 10.50* -- Product Development and License Agreement dated November 1, 1995, between Cortech, Inc. and SmithKline Beecham.(14) 10.51 -- Seventh Amendment of Research Agreement dated December 21, 1995, between HMRI and Cortech, Inc.(14) 10.52 -- Warrant to Purchase dated June 30, 1992, between HMRI and Cortech, Inc.(14) 10.53 -- Rights Agreement drafted as of June 13, 1995, between Cortech, Inc. and American Securities Transfer, Inc.(11) 10.54 -- Buy-Out Agreement dated September 9, 1996, between Cortech, Inc. and HMRI.(13) 10.55 -- Amendment No. 1 to Executive Officers' Severance Benefit Plan.(14) 10.57* -- Second Amendment of the Research, Development and License Agreement dated April 23, 1997, between Ono and Cortech, Inc.(15) 10.58+ -- Development Agreement between BioStar, Inc. and Asahi Chemical Industry Co., Ltd. dated as of August 1, 1997. 10.59+ -- Technology License Agreement between BioStar, Inc. and Asahi Chemical Industry Co., Ltd. dated as of August 1, 1997. 10.60+ -- Diagnostic Development and Commercialization Agreement between BioStar, Inc. and Biota Scientific Management Pty Ltd dated May 23, 1997. 10.61+ -- Distribution Agreement between BioStar, Inc. and Murex Diagnostics, Inc. dated as of January 1, 1997, as amended. 10.62+ -- Distribution Agreement between BioStar, Inc. and Wyntek Diagnostics, Inc. dated as of July 1, 1997, as amended.
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EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.63 -- Notice of Grant Award to BioStar, Inc. from the National Institutes of Health issued September 29, 1995. 10.64 -- Notice of Grant Award to BioStar, Inc. from the National Institutes of Health issued September 30, 1997. 10.65 -- Subordinated Security Agreement between BioStar, Inc. and Comdisco, Inc. dated May 3, 1995, as amended by Amendment to Subordinated Security Agreement dated as of March 20, 1996. 10.66 -- Subordination Agreement between BioStar, Inc. and Comdisco, Inc. dated as of May 3, 1995. 10.67 -- Subordinated Promissory Note payable by BioStar, Inc. to Comdisco, Inc. dated March 20, 1996. 10.68 -- Form of Convertible Subordinated Promissory Note issued by BioStar, Inc. on March 20, 1996 and April 15, 1996 to certain investors. 10.69 -- Form of Subordinated Promissory Note issued by BioStar, Inc. on June 20, 1997 to certain investors. 10.70 -- Loan and Security Agreement between BioStar, Inc. and Venture Lending dated as of May 1, 1997. 10.71 -- Warrant to Purchase Shares of Series B Preferred Stock of BioStar, Inc. issued to Dominion Ventures, Inc. dated November 2, 1992. 10.72 -- Warrant Agreement to Purchase Shares of the Series E Preferred Stock of BioStar, Inc. issued to Comdisco, Inc. dated May 3, 1995. 10.73 -- Warrant Agreement to Purchase Shares of the Series E Preferred Stock of BioStar, Inc. issued to Comdisco, Inc. dated May 3, 1995. 10.74 -- Warrant to Purchase Shares of Series E Preferred Stock of BioStar, Inc. issued to Dominion Ventures, Inc. dated February 18, 1994. 10.75 -- Warrant to Purchase Shares of Series E Preferred Stock of BioStar, Inc. issued to Silicon Valley Bank dated September 15, 1995. 10.76 -- Warrant to Purchase Shares of Series E Preferred Stock of BioStar, Inc. issued to Venture Lending dated May 1, 1997. 10.77 -- Warrant to Purchase Shares of Common Stock of BioStar, Inc. issued to Silicon Valley Bank dated October 28, 1996. 10.78 -- Form of Warrant to Purchase Shares of Common Stock of BioStar, Inc. issued to the Convertible Subordinated Noteholders. 10.79 -- Form of Warrant to Purchase Shares of Series F Preferred Stock of BioStar, Inc. issued to the Subordinated Noteholders. 10.80 -- Restated Investors' Rights Agreement among BioStar, Inc. and the investors named therein dated as of November 14, 1994, as amended. 10.81 -- Restated Investors' Rights Agreement among BioStar, Inc. and the investors named therein dated as of , 1998. 10.82 -- Master Lease Agreement between BioStar, Inc. and Comdisco, Inc. dated May 3, 1995. 10.83 -- Dominion Ventures Master Lease Agreement between BioStar, Inc. and Dominion Ventures, Inc. dated November 2, 1992. 10.84 -- Net Lease Agreement between BioStar, Inc. and Nationwide Life Insurance Company dated as of September 10, 1992, as amended by an amendment thereto dated as of February 13, 1993.
II-4 251
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.85 -- Amendment to Leases between Clear Creek II, L.P. and Cortech, Inc. dated September 8, 1997. 10.86 -- Employment Agreement between Teresa W. Ayers and BioStar, Inc. dated as of February 10, 1997. 10.87 -- Employment Agreement between Kim Stebbings and BioStar, Inc. dated as of February 10, 1997. 10.88 -- Employment Agreement between Noel T. Doheny and BioStar, Inc. dated as of February 10, 1997. 10.89 -- Employment Agreement between Edward C. Pritchard and BioStar, Inc. dated as of September 1, 1997. 10.90 -- Employment Agreement between Lyndal K. Hesterberg and BioStar, Inc. dated as of February 10, 1997. 10.91 -- Consulting Service Agreement between Alexander E. Barkas, Ph.D. and BioStar, Inc. dated as of October 1, 1997. 10.92 -- Amended and Restated Consulting Services Agreement between Thomas A. Bologna and BioStar, Inc. dated as of August 31, 1997. 10.93 -- 1995 Equity Incentive Plan of BioStar, Inc. 10.94 -- Executive Compensation and Benefits Continuation Agreement between Cortech, Inc. and Kenneth R. Lynn, dated October 14, 1997, as amended February 12, 1998. 10.95 -- Agreement, dated February 12, 1998, between Cortech, Inc. and Diarmuid F. Boran. 11.1 -- Statement re: computation of earnings per share. 23.1 -- Consent of Arthur Andersen LLP. 23.2 -- Consent of Ernst & Young LLP. 23.3 -- Consent of Pillsbury Madison & Sutro LLP (included in opinion filed as Exhibit 5.1). 23.4 -- Consent of Pillsbury Madison & Sutro LLP regarding tax matters (included in opinion filed as Exhibit 8.1). 23.5 -- Consent of Cooley Godward LLP regarding tax matters (included in opinion filed as Exhibit 8.2). 24.1 -- Power of Attorney (See page II-9). 27.1 -- Financial Data Schedule. 99.1 -- Proxy Card of Cortech, Inc. 99.2 -- Proxy Card of BioStar, Inc.
- --------------- (1) Filed as an exhibit to Cortech, Inc.'s Registration Statement on Form S-1, filed October 13, 1992, file number 33-53244, or amendments thereto and incorporated herein by reference. (2) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. (3) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended March 31, 1993, and incorporated herein by reference. (4) Filed as an exhibit to Cortech, Inc.'s Registration Statement on Form S-8, filed March 29, 1993, file number 33-60242, or amendments thereto, and incorporated herein by reference. (5) Filed as an exhibit to Cortech, Inc.'s Registration Statement on Form S-1, filed September 27, 1993, file number 33-69402, or amendments thereto and incorporated herein by reference. II-5 252 (6) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. (7) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended March 31, 1994, and incorporated herein by reference. (8) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended June 30, 1994, and incorporated herein by reference. (9) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended September 30, 1994, and incorporated herein by reference. (10) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended March 31, 1995, and incorporated herein by reference. (11) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference. (12) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference. (13) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference. (14) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference. (15) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference. * Subject to Confidential Treatment Order. ** To be filed by amendment. + The Registrant has applied for confidential treatment with respect to portions of this exhibit. (b) Financial Statement Schedules. Schedules not listed have been omitted because they are not required, are not applicable, or the information is included in the consolidated financial statements, management's discussion and analysis or notes thereto. ITEM 22. UNDERTAKINGS. (1) The undersigned Registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 253 (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (2) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (3) That every prospectus: (i) that is filed pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (4) Insofar as the indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. (5) To respond to requests for information that is incorporated by reference into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. (6) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. II-7 254 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, County of Denver, State of Colorado, on the 13th day of February, 1998. CORTECH, INC. By: /s/ KENNETH R. LYNN ------------------------------------ Kenneth R. Lynn Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kenneth R. Lynn his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming his signature as it may be signed by his said attorney to any and all amendments to said Registration Statement. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ KENNETH R. LYNN President, Chief Executive February 13, 1998 - ----------------------------------------------------- Officer and Chairman of Kenneth R. Lynn the Board, Acting Chief Financial Officer and Director (principal executive officer and principal financial and accounting officer) /s/ DONALD KENNEDY, PH.D. Director February 13, 1998 - ----------------------------------------------------- Donald Kennedy, Ph.D. /s/ ALLEN MISHER, PH.D. Director February 13, 1998 - ----------------------------------------------------- Allen Misher, Ph.D. /s/ BERT FINGERHUT Director February 13, 1998 - ----------------------------------------------------- Bert Fingerhut /s/ CHARLES COHEN, PH.D. Director February 13, 1998 - ----------------------------------------------------- Charles Cohen, Ph.D.
II-8 255 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 2.1 -- Agreement and Plan of Merger and Reorganization dated as of December 22, 1997 among Cortech, Inc., Cortech Merger Sub, Inc. and BioStar, Inc. (attached as Appendix A to Joint Proxy Statement/Prospectus). 3.1 -- Certificate of Incorporation of Cortech, Inc.(1) 3.2 -- Proposed Certificate of Amendment to Certificate of Incorporation of Cortech, Inc. (see Appendix B). 3.3 -- Certificate of Designation for Series A Junior Participating Preferred Stock.(12) 3.4 -- Amended and Restated Bylaws of Cortech, Inc. 4.1 -- Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 10.21, 10.22, 10.30, 10.34, 10.52, 10.71, 10.72, 10.73, 10.74, 10.75, 10.76, 10.77, 10.78, 10.79 and 10.81. 4.2 -- Specimen certificate for the Common Stock of Cortech, Inc.(1) 5.1 -- Legal opinion of Pillsbury Madison & Sutro LLP. 8.1** -- Tax opinion of Pillsbury Madison & Sutro LLP. 8.2** -- Tax opinion of Cooley Godward LLP. 10.2 -- Lease Agreement dated April 2, 1992, as amended, between Lyon-Stewart Associates and Cortech, Inc.(1) 10.3 -- Lease Agreement dated March 5, 1993, as amended, between Lyon-Stewart Associates and Cortech, Inc.(5) 10.7 -- Lease Agreement dated May 14, 1993, as amended, between Lyon-Stewart Associates and Cortech, Inc.(5) 10.13 -- Purchase and Sale Agreement (Vacant Land) dated February 16, 1994, between Cortech, Inc. and Golden West Equity Properties, Inc. and Park Centre Limited Partnerships.(7) 10.14 -- Research Agreement dated June 30, 1987, as amended through December 31, 1996, between HMRI, successor-in-interest to Marion Merrell Dow Inc., and Cortech, Inc.(1) 10.19 -- Fifth Amendment of Research Agreement dated January 14, 1994, between HMRI and Cortech, Inc.(6) 10.21 -- Warrant to Purchase dated June 30, 1998, between HMRI and Cortech, Inc.(1) 10.22 -- Warrant to Purchase dated February 28, 1990, between HMRI and Cortech, Inc.(1) 10.25 -- License Agreement dated June 30, 1987, between HMRI and Cortech, Inc.(1) 10.27 -- Amended and Restated License Agreement dated as of May 28, 1993, between HMRI and Cortech, Inc.(3) 10.28 -- Sponsored Research and License Agreement dated February 13, 1987, between The John Hopkins University and Cortech, Inc.(1) 10.29 -- License Agreement dated June 30, 1987, between the Research Foundation of the State of New York and Cortech, Inc.(1) 10.30 -- Stock Purchase Agreement dated July 8, 1994, between Cortech, Inc. and the Research Foundation of State University of New York.(9) 10.31 -- Royalty Buyout Agreement dated July 8, 1994, between Cortech, Inc. and the Research Foundation of State University of New York.(9) 10.32* -- Development Agreement dated May 2, 1994, between Cortech, Inc. and Abbott Laboratories.(8) 10.34 -- Form of Warrant issued in connection with the CDC offering.(1)
256
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.35 -- Purchase Option Agreement dated February 13, 1992, between CDC and Cortech, Inc.(1) 10.36 -- Technology License Agreement dated February 13, 1992, between CDC and Cortech, Inc.(1) 10.37 -- Research and Development Agreement dated February 13, 1992, between CDC and Cortech, Inc.(1) 10.38 -- Services Agreement dated February 13, 1992, between CDC and Cortech, Inc.(1) 10.39 -- Amended and Restated Incentive Stock Option Plan of Cortech, Inc.(1) 10.40 -- 1991 Non-employee Directors' Stock Option Plan of Cortech, Inc.(2) 10.41 -- Amended and Restated 1992 Non-employee Directors' Stock Option Plan of Cortech, Inc.(6) 10.42 -- 1993 Employee Stock Purchase Plan of Cortech, Inc.(4) 10.43 -- 1993 Equity Incentive Plan of Cortech, Inc.(6) 10.45 -- Resignation and Separation Agreement dated March 10, 1994, between Cortech, Inc. and David K. Crossen.(7) 10.47 -- Executive Officers' Severance Benefit Plan.(14) 10.48 -- Sixth Amendment of Research Agreement dated March 15, 1995, between HMRI and Cortech, Inc.(14) 10.50* -- Product Development and License Agreement dated November 1, 1995, between Cortech, Inc. and SmithKline Beecham.(14) 10.51 -- Seventh Amendment of Research Agreement dated December 21, 1995, between HMRI and Cortech, Inc.(14) 10.52 -- Warrant to Purchase dated June 30, 1992, between HMRI and Cortech, Inc.(14) 10.53 -- Rights Agreement drafted as of June 13, 1995, between Cortech, Inc. and American Securities Transfer, Inc.(11) 10.54 -- Buy-Out Agreement dated September 9, 1996, between Cortech, Inc. and HMRI.(13) 10.55 -- Amendment No. 1 to Executive Officers' Severance Benefit Plan.(14) 10.57* -- Second Amendment of the Research, Development and License Agreement dated April 23, 1997, between Ono and Cortech, Inc.(15) 10.58+ -- Development Agreement between BioStar, Inc. and Asahi Chemical Industry Co., Ltd. dated as of August 1, 1997. 10.59+ -- Technology License Agreement between BioStar, Inc. and Asahi Chemical Industry Co., Ltd. dated as of August 1, 1997. 10.60+ -- Diagnostic Development and Commercialization Agreement between BioStar, Inc. and Biota Scientific Management Pty Ltd dated May 23, 1997. 10.61+ -- Distribution Agreement between BioStar, Inc. and Murex Diagnostics, Inc. dated as of January 1, 1997, as amended. 10.62+ -- Distribution Agreement between BioStar, Inc. and Wyntek Diagnostics, Inc. dated as of July 1, 1997, as amended. 10.63 -- Notice of Grant Award to BioStar, Inc. from the National Institutes of Health issued September 29, 1995. 10.64 -- Notice of Grant Award to BioStar, Inc. from the National Institutes of Health issued September 30, 1997. 10.65 -- Subordinated Security Agreement between BioStar, Inc. and Comdisco, Inc. dated May 3, 1995, as amended by Amendment to Subordinated Security Agreement dated as of March 20, 1996.
257
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.66 -- Subordination Agreement between BioStar, Inc. and Comdisco, Inc. dated as of May 3, 1995. 10.67 -- Subordinated Promissory Note payable by BioStar, Inc. to Comdisco, Inc. dated March 20, 1996. 10.68 -- Form of Convertible Subordinated Promissory Note issued by BioStar, Inc. on March 20, 1996 and April 15, 1996 to certain investors. 10.69 -- Form of Subordinated Promissory Note issued by BioStar, Inc. on June 20, 1997 to certain investors. 10.70 -- Loan and Security Agreement between BioStar, Inc. and Venture Lending dated as of May 1, 1997. 10.71 -- Warrant to Purchase Shares of Series B Preferred Stock of BioStar, Inc. issued to Dominion Ventures, Inc. dated November 2, 1992. 10.72 -- Warrant Agreement to Purchase Shares of the Series E Preferred Stock of BioStar, Inc. issued to Comdisco, Inc. dated May 3, 1995. 10.73 -- Warrant Agreement to Purchase Shares of the Series E Preferred Stock of BioStar, Inc. issued to Comdisco, Inc. dated May 3, 1995. 10.74 -- Warrant to Purchase Shares of Series E Preferred Stock of BioStar, Inc. issued to Dominion Ventures, Inc. dated February 18, 1994. 10.75 -- Warrant to Purchase Shares of Series E Preferred Stock of BioStar, Inc. issued to Silicon Valley Bank dated September 15, 1995. 10.76 -- Warrant to Purchase Shares of Series E Preferred Stock of BioStar, Inc. issued to Venture Lending dated May 1, 1997. 10.77 -- Warrant to Purchase Shares of Common Stock of BioStar, Inc. issued to Silicon Valley Bank dated October 28, 1996. 10.78 -- Form of Warrant to Purchase Shares of Common Stock of BioStar, Inc. issued to the Convertible Subordinated Noteholders. 10.79 -- Form of Warrant to Purchase Shares of Series F Preferred Stock of BioStar, Inc. issued to the Subordinated Noteholders. 10.80 -- Restated Investors' Rights Agreement among BioStar, Inc. and the investors named therein dated as of November 14, 1994, as amended. 10.81 -- Restated Investors' Rights Agreement among BioStar, Inc. and the investors named therein dated as of , 1998. 10.82 -- Master Lease Agreement between BioStar, Inc. and Comdisco, Inc. dated May 3, 1995. 10.83 -- Dominion Ventures Master Lease Agreement between BioStar, Inc. and Dominion Ventures, Inc. dated November 2, 1992. 10.84 -- Net Lease Agreement between BioStar, Inc. and Nationwide Life Insurance Company dated as of September 10, 1992, as amended by an amendment thereto dated as of February 13, 1993. 10.85 -- Amendment to Leases between Clear Creek II, L.P. and Cortech, Inc. dated September 8, 1997. 10.86 -- Employment Agreement between Teresa W. Ayers and BioStar, Inc. dated as of February 10, 1997. 10.87 -- Employment Agreement between Kim Stebbings and BioStar, Inc. dated as of February 10, 1997. 10.88 -- Employment Agreement between Noel T. Doheny and BioStar, Inc. dated as of February 10, 1997. 10.89 -- Employment Agreement between Edward C. Pritchard and BioStar, Inc. dated as of September 1, 1997.
258
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.90 -- Employment Agreement between Lyndal K. Hesterberg and BioStar, Inc. dated as of February 10, 1997. 10.91 -- Consulting Service Agreement between Alexander E. Barkas, Ph.D. and BioStar, Inc. dated as of October 1, 1997. 10.92 -- Amended and Restated Consulting Services Agreement between Thomas A. Bologna and BioStar, Inc. dated as of August 31, 1997. 10.93 -- 1995 Equity Incentive Plan of BioStar, Inc. 10.94 -- Executive Compensation and Benefits Continuation Agreement between Cortech, Inc. and Kenneth R. Lynn, dated October 14, 1997, as amended February 12, 1998. 10.95 -- Agreement, dated February 12, 1998, between Cortech, Inc. and Diarmuid F. Boran. 23.1 -- Consent of Arthur Andersen LLP. 23.2 -- Consent of Ernst & Young LLP. 23.3 -- Consent of Pillsbury Madison & Sutro LLP (included in opinion filed as Exhibit 5.1). 23.4 -- Consent of Pillsbury Madison & Sutro LLP regarding tax matters (included in opinion filed as Exhibit 8.1). 23.5 -- Consent of Cooley Godward LLP regarding tax matters (included in opinion filed as Exhibit 8.2). 24.1 -- Power of Attorney (See page II-9). 27.1 -- Financial Data Schedule. 99.1 -- Proxy Card of Cortech, Inc. 99.2 -- Proxy Card of BioStar, Inc.
- --------------- (1) Filed as an exhibit to Cortech, Inc.'s Registration Statement on Form S-1, filed October 13, 1992, file number 33-53244, or amendments thereto and incorporated herein by reference. (2) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. (3) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended March 31, 1993, and incorporated herein by reference. (4) Filed as an exhibit to Cortech, Inc.'s Registration Statement on Form S-8, filed March 29, 1993, file number 33-60242, or amendments thereto, and incorporated herein by reference. (5) Filed as an exhibit to Cortech, Inc.'s Registration Statement on Form S-1, filed September 27, 1993, file number 33-69402, or amendments thereto and incorporated herein by reference. (6) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. (7) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended March 31, 1994, and incorporated herein by reference. (8) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended June 30, 1994, and incorporated herein by reference. (9) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended September 30, 1994, and incorporated herein by reference. (10) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended March 31, 1995, and incorporated herein by reference. (11) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference. 259 (12) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference. (13) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference. (14) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference. (15) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference. * Subject to Confidential Treatment Order. ** To be filed by amendment. + The Registrant has applied for confidential treatment with respect to portions of this exhibit. EX-3.4 2 AMENDED & RESTATED BYLAWS 1 EXHIBIT 3.4 BYLAWS OF CORTECH, INC. ARTICLE 1 OFFICES SECTION 1.1 REGISTERED OFFICE. The registered office of the Corporation shall be in Wilmington, Delaware. SECTION 1.2 CORPORATE OFFICE. The Corporation may have its office or offices at such place or places as the board of directors, in its discretion, may from time to time determine. ARTICLE 2 MEETINGS OF STOCKHOLDERS SECTION 2.1 TIME AND PLACE. Any meeting of the stockholders may be held at such time and such place, either within or without the State of Delaware, as shall be designated from time to time by resolution of the board of directors or as shall be stated in a duly authorized notice of the meeting. SECTION 2.2 ANNUAL MEETING. The annual meeting of the stockholders shall be held on the date and at the time fixed, from time to time, by the board of directors; provided, however, that the first annual meeting shall be held within thirteen months after the organization of the Corporation, and each succeeding annual meeting shall be held within thirteen months after the last preceding annual meeting. The annual meeting shall be for the purpose of electing a board of directors and transacting such other business as may properly be brought before the meeting. SECTION 2.3 SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the president or the board of directors and shall be called by the president or secretary at the written request of stockholders owning a majority in amount of the capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. SECTION 2.4 NOTICES. Written notice stating the place, date and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is 2 called, shall be given not less than ten nor more than sixty days before the date of the meeting, except as otherwise required by statute or the certificate of incorporation, either personally or by mail, prepaid telefax, telegram, telex, cablegram, or radiogram, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the official government mail of the United States or any other country, postage prepaid, addressed to the stockholder at his address as it appears on the stock records of the Corporation. If given personally or otherwise than by mail, such notice shall be deemed to be given when either handed to the stockholder or delivered to the stockholder's address as it appears on the stock records of the Corporation. SECTION 2.5 RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting, or at any adjournment of a meeting, of stockholders; or entitled to receive payment of any dividend or other distribution or allotment of any rights; or entitled to exercise any rights in respect of any change, conversion, or exchange of stock; or for the purpose of any other lawful action; the board of directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors. The record date for determining the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof shall not be more than sixty nor less than ten days before the date of such meeting. The record date for determining the stockholders entitled to consent to corporate action in writing without a meeting shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. The record date for any other action shall not be more than sixty days prior to such action. If no record date is fixed, (i) the record date for determining stockholders entitled to notice of or to vote at any meeting shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived by all stockholders, at the close of business on the day next preceding the day on which the meeting is held; (ii) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is required, shall be the first date on which a signed written consent setting forth the action taken or to be taken is delivered to the Corporation and, when prior action by the board of directors is required, shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action; and (iii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating to such other purpose. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. SECTION 2.6 VOTING LIST. The secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held (which place shall be specified in the notice of the meeting) or, if -2- 3 not so specified, at the place where the meeting is to be held. The list shall be produced and kept at the place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. SECTION 2.7 QUORUM. The holders of a majority of the stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute or by the certificate of incorporation. If, however, such a quorum shall not be present at any meeting of stockholders, the stockholders entitled to vote, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice if the time and place are announced at the meeting, until a quorum shall be present. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 2.8 VOTING AND PROXIES. At every meeting of the stockholders, each stockholder shall be entitled to one vote, in person or by proxy, for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date unless the proxy provides for a longer period. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the relevant statutes or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern. SECTION 2.9 WAIVER. Attendance of a stockholder of the Corporation, either in person or by proxy, at any meeting, whether annual or special, shall constitute a waiver of notice of such meeting, except where a stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A written waiver of notice of any such meeting signed by a stockholder or stockholders entitled to such notice, whether before, at or after the time for notice or the time of the meeting, shall be equivalent to notice. Neither the business to be transacted at, nor the purpose of, any meeting need be specified in any written waiver of notice. ARTICLE 3 DIRECTORS SECTION 3.1 NUMBER. The number of directors shall be one or more, as fixed from time to time by resolution of the board of directors; provided, however, that the number of directors shall not be reduced so as to shorten the tenure of any director at the time in office. The initial number of directors shall be one. -3- 4 SECTION 3.2 ELECTIONS. Except as provided in Section 3.3 of this Article 3, the board of directors shall be elected at the annual meeting of the stockholders or at a special meeting called for that purpose. Each director shall hold such office until his successor is elected and qualified or until his earlier resignation or removal. SECTION 3.3 VACANCIES. Any vacancy occurring on the board of directors and any directorship to be filled by reason of an increase in the board of directors may be filled by the affirmative vote of a majority of the remaining directors, although less than a quorum, or by a sole remaining director. Such newly elected director shall hold such office until his successor is elected and qualified or until his earlier resignation or removal. SECTION 3.4 MEETINGS. The first meeting of each newly elected board of directors elected at the annual meeting of stockholders shall be held immediately after, and at the same place as, the annual meeting of the stockholders, provided a quorum is present, and no notice of such meeting shall be necessary in order to legally constitute the meeting. The board of directors may, by resolution, establish a place and time for regular meetings which may thereafter be held without call or notice. SECTION 3.5 NOTICE OF SPECIAL MEETINGS. Special meetings may be called by the president or any two members of the board of directors. Notice of special meetings shall be given to each member of the board of directors: (i) by mail by the secretary, the president or the members of the board calling the meeting by depositing the same in the official government mail of the United States or any other country, postage prepaid, at least seven days before the meeting, addressed to the director at the last address he has furnished to the Corporation for this purpose, and any notice so mailed shall be deemed to have been given at the time when mailed; or (ii) in person, by telephone or by prepaid telefax, telegram, telex, cablegram or radiogram addressed as stated above at least forty-eight hours before the meeting, and such notice shall be deemed to have been given when such personal or telephone conversation occurs or at the time when such telefax, telegram, telex, cablegram or radiogram is delivered to such address. SECTION 3.6 QUORUM. At all meetings of the board, a majority of the total number of directors shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, except as otherwise specifically required by statute, the certificate of incorporation or these bylaws. If less than a quorum is present, the director or directors present may adjourn the meeting from time to time without further notice. Voting by proxy is not permitted at meetings of the board of directors. SECTION 3.7 WAIVER. Attendance of a director at a meeting of the board of directors shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A written waiver of notice signed by a director or directors entitled to such notice, whether before, at or after the time for notice or the time of the meeting, shall be equivalent to the giving of such notice. -4- 5 SECTION 3.8 ACTION WITHOUT MEETING. Any action required or permitted to be taken at a meeting of the board of directors may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the directors and filed with the minutes of proceedings of the board of directors. Any such consent may be in counterparts and shall be effective on the date of the last signature thereon unless otherwise provided therein. SECTION 3.9 ATTENDANCE BY TELEPHONE. Members of the board of directors may participate in a meeting of such board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. ARTICLE 4 OFFICERS SECTION 4.1 ELECTION. The Corporation shall have such officers, with such titles and duties, as the board of directors may determine by resolution, which may include a chairman of the board, president, one or more vice presidents, a secretary, a treasurer and one or more assistants to such officers. The officers shall in any event have such titles and duties as shall enable the Corporation to sign instruments and stock certificates complying with Sections 103(a)(2) and 158 of the Delaware General Corporation Law, and one of the officers shall have the duty to record the proceedings of the stockholders and the directors in a book to be kept for that purpose. The officers shall be elected by the board of directors; provided, however, that the president may appoint one or more assistant secretaries and assistant treasurers and such other subordinate officers as he deems necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as are prescribed in the bylaws or as may be determined from time to time by the board of directors or the president. Any two or more offices may be held by the same person, except the offices of president and secretary. SECTION 4.2 REMOVAL AND RESIGNATION. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any officer appointed by the president may be removed at any time by the board of directors or the president. Any officer may resign at any time by giving written notice of his resignation to the president or to the secretary, and acceptance of such resignation shall not be necessary to make it effective unless the notice so provides. Any vacancy occurring in any office of chairman of the board, president, vice president, secretary or treasurer shall be filled by the board of directors. Any vacancy occurring in any other office may be filled by the president. SECTION 4.3 CHAIRMAN OF THE BOARD. The chairman of the board shall preside at all meetings of the stockholders and of the board of directors. He shall have such additional -5- 6 authority, powers and duties as are appropriate and customary for the office of chairman as the board of directors may from time to time prescribe. SECTION 4.4 PRESIDENT. The president shall be chief executive officer of the Corporation. Subject to the direction and control of the board of directors, he shall have responsibility for the general and active management of the business of the Corporation and shall see that all orders and resolutions of the board of directors are carried into effect. He may negotiate for, approve and execute such contracts, deeds and other instruments on behalf of the Corporation as are necessary and appropriate in the general management of the business of the Corporation or as are approved by the board of directors or any committee designated by the board of directors. He shall perform such additional functions and duties as the board of directors may from time to time prescribe. SECTION 4.5 VICE PRESIDENT. The vice president or, if there is more than one, the vice presidents in the order determined by the board of directors or, in lieu of such determination, in the order determined by the president, shall be the officer or officers next in seniority after the president. Each vice president shall also perform such duties and exercise such powers as are appropriate and such as are prescribed by the board of directors or, in lieu of or in addition to such prescription, such as are prescribed by the president from time to time. Upon the death, absence or disability of the president, the vice president or, if there is more than one, the vice presidents in the order determined by the board of directors or, in lieu of such determination, in the order determined by the president, shall perform the duties and exercise the powers of the president. SECTION 4.6 ASSISTANT VICE PRESIDENT. The assistant vice president, if any, or, if there is more than one, the assistant vice presidents shall, under the supervision of the president or a vice president, perform such duties and have such powers as are prescribed by the board of directors, the president or a vice president from time to time. SECTION 4.7 SECRETARY. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, keep the minutes of such meetings, have charge of the corporate seal and stock records, be responsible for the maintenance of all corporate files and records and the preparation and filing of reports to governmental agencies (other than tax returns), have authority to affix the corporate seal to any instrument requiring it (and, when so affixed, attest it by his signature), and perform such other duties and have such other powers as are appropriate and such as are prescribed by the board of directors or the president from time to time. SECTION 4.8 ASSISTANT SECRETARY. The assistant secretary, if any, or, if there is more than one, the assistant secretaries in the order determined by the board of directors or, in lieu of such determination, by the president or the secretary shall, in the absence or disability of the secretary or in case such duties are specifically delegated to him by the board of directors, the president, or the secretary, perform the duties and exercise the powers of the secretary and shall, under the supervision of the secretary, perform such other duties and have such other powers as are prescribed by the board of directors, the president, or the secretary from time to time. -6- 7 SECTION 4.9 TREASURER. The treasurer shall have control of the funds and the care and custody of all the stocks, bonds and other securities of the Corporation and shall be responsible for the preparation and filing of tax returns. He shall receive all moneys paid to the Corporation and shall have authority to give receipts and vouchers, to sign and endorse checks and warrants in its name and on its behalf, and give full discharge for the same. He shall also have charge of the disbursement of the funds of the Corporation and shall keep full and accurate records of the receipts and disbursements. He shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as shall be designated by the board of directors and shall perform such other duties and have such other powers as are appropriate and such as are prescribed by the board of directors or the president from time to time. SECTION 4.10 ASSISTANT TREASURER. The assistant treasurer, if any, or, if there is more than one, the assistant treasurers in the order determined by the board of directors or, in lieu of such determination, by the president or the treasurer shall, in the absence or disability of the treasurer or in case such duties are specifically delegated to him by the board of directors, the president or the treasurer, perform the duties and exercise the powers of the treasurer and shall, under the supervision of the treasurer, perform such other duties and have such other powers as are prescribed by the board of directors, the president or the treasurer from time to time. SECTION 4.11 COMPENSATION. Officers shall receive such compensation, if any, for their services as may be authorized or ratified by the board of directors. Election or appointment as an officer shall not of itself create a right to compensation for services performed as such officer. ARTICLE 5 COMMITTEES SECTION 5.1 DESIGNATION OF COMMITTEES. The board of directors may establish committees for the performance of delegated or designated functions to the extent permitted by law, each committee to consist of one or more directors of the Corporation. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of such absent or disqualified member. SECTION 5.2 COMMITTEE POWERS AND AUTHORITY. The board of directors may provide, by resolution or by amendment to these bylaws, that a committee may exercise all the power and authority of the board of directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that a committee may not exercise the power or authority of the board of directors in reference to amending the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or -7- 8 resolutions providing for the issuance of shares of stock adopted by the board of directors, pursuant to Section 4 of Article V of the certificate of incorporation, fix the designations and any of the preferences or rights of shares of preferred stock relating to dividends, redemption, dissolution, any distribution of property or assets of the Corporation, or the conversion into, or the exchange of shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease, or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending these bylaws; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. SECTION 5.3 COMMITTEE PROCEDURES. To the extent the board of directors or the committee does not establish other procedures for the committee, each committee shall be governed by the procedures established in Section 3.4 (except as they relate to an annual meeting of the board of directors) and Sections 3.5, 3.6, 3.7, 3.8 and 3.9 of these bylaws, as if the committee were the board of directors. ARTICLE 6 INDEMNIFICATION SECTION 6.1 EXPENSES FOR ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, association or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with which action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. SECTION 6.2 EXPENSES FOR ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a -8- 9 party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation, or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, association or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. SECTION 6.3 SUCCESSFUL DEFENSE. To the extent that any person referred to in the preceding two sections of this Article 6 has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in such sections, or in defense of any claim issue, or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. SECTION 6.4 DETERMINATION TO INDEMNIFY. Any indemnification under the first two sections of this Article 6 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth therein. Such determination shall be made (i) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. SECTION 6.5 EXPENSE ADVANCES. Expenses incurred by an officer or director in defending any civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article 6. SECTION 6.6 PROVISIONS NONEXCLUSIVE. The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article 6 shall not be deemed exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation or under any other bylaw, agreement, insurance policy, vote of stockholders or disinterested directors, statute or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. -9- 10 SECTION 6.7 INSURANCE. By action of the board of directors, notwithstanding any interest of the directors in the action, the Corporation shall have power to purchase and maintain insurance, in such amounts as the board of directors deems appropriate, on behalf of any person who is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, association or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not he is indemnified against such liability or expense under the provisions of this Article 6 and whether or not the Corporation would have the power or would be required to indemnify him against such liability under the provisions of this Article 6 or of the Delaware General Corporation Law or by any other applicable law. SECTION 6.8 SURVIVING CORPORATION. The board of directors may provide by resolution that references to "the Corporation" in this Article 6 shall include, in addition to this Corporation, all constituent corporations absorbed in a merger with this Corporation so that any person who was a director or officer of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, employee or agent of another corporation, partnership, joint venture, trust, association or other entity shall stand in the same position under the provisions of this Article 6 with respect to this Corporation as he would if he had served this Corporation in the same capacity or is or was so serving such other entity at the request of this Corporation, as the case may be. SECTION 6.9 INUREMENT. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article 6 shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors, and administrators of such person. SECTION 6.10 EMPLOYEES AND AGENTS. To the same extent as it may do for a director or officer, the Corporation may indemnify and advance expenses to a person who is not and was not a director or officer of the Corporation but who is or was an employee or agent of the Corporation or who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, association or other enterprise. ARTICLE 7 STOCK SECTION 7.1 CERTIFICATES. Every holder of stock in the Corporation represented by certificates and, upon request, every holder of uncertificated shares shall be entitled to have a certificate, signed by or in the name of the Corporation by the chairman of the board of directors, or the president or a vice president, and by the secretary or an assistant secretary, or the treasurer or an assistant treasurer of the Corporation, certifying the number of shares owned by him in the Corporation. -10- 11 SECTION 7.2 FACSIMILE SIGNATURES. Where a certificate of stock is countersigned (i) by a transfer agent other than the Corporation or its employee or (ii) by a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature or signatures have been placed upon, any such certificate shall cease to be such officer, transfer agent or registrar, whether because of death, resignation or otherwise, before such certificate is issued, the certificate may nevertheless be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 7.3 TRANSFER OF STOCK. Transfers of shares of stock of the Corporation shall be made on the books of the Corporation only upon presentation of the certificate or certificates representing such shares properly endorsed or accompanied by a proper instrument of assignment, except as may otherwise be expressly provided by the laws of the State of Delaware or by order by a court of competent jurisdiction. The officers or transfer agents of the Corporation may, in their discretion, require a signature guaranty before making any transfer. SECTION 7.4 LOST CERTIFICATES. The board of directors may direct that a new certificate of stock be issued in place of any certificate issued by the Corporation that is alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen, or destroyed. When authorizing such issue of a new certificate, the board of directors may, in its discretion and as a condition precedent to the issuance of a new certificate, require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 7.5 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to treat the person in whose name any shares of stock are registered on its books as the owner of such shares for all purposes and shall not be bound to recognize any equitable or other claim or interest in such shares on the part of any other person, whether or not the Corporation shall have notice of such claim or interest, except as expressly provided by the laws of Delaware. ARTICLE 8 SEAL The board of directors may adopt and provide a seal which shall be circular in form and shall bear the name of the Corporation and the words "SEAL" and "DELAWARE," and which, when adopted, shall constitute the corporate seal of the Corporation. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or manually reproduced. -11- 12 ARTICLE 9 FISCAL YEAR The board of directors, by resolution, may adopt a fiscal year for the Corporation. ARTICLE 10 AMENDMENT These bylaws may at any time and from time to time be amended, altered or repealed by the board of directors, but the stockholders may make additional bylaws and may alter and repeal any bylaws whether adopted by them or otherwise. -12- EX-5.1 3 OPINION OF PILLSBURY MADISON & SUTRO LLP 1 EXHIBIT 5.1 [Pillsbury, Madison & Sutro LLP Letterhead] February 13, 1998 Cortech, Inc. 6850 N. Broadway, Suite G Denver, CO 80221 Re: Registration Statement on Form S-4 Ladies and Gentlemen: Cortech, Inc., a Delaware corporation (the "Company"), has filed a Registration Statement on Form S-4 (the "Registration Statement") with the Securities and Exchange Commission under the Securities Act of 1933, as amended, relating to the issuance of up to a maximum of 28,500,000 shares of the Company's common stock, par value $.002 per share (the "Common Stock"). The Common Stock is issuable upon the effectiveness of the merger (the "Merger") of a wholly-owned subsidiary of the Company ("Merger Sub") with and into BioStar, Inc., a Delaware corporation ("BioStar"), pursuant to the terms of that certain Agreement and Plan of Merger and Reorganization dated December 22, 1997 by and among the Company, BioStar and Merger Sub (the "Merger Agreement"). Based upon the foregoing, it is our opinion that the shares of Common Stock which are the subject of the Registration Statement, when issued and sold in accordance with the terms of the Merger Agreement, will be legally issued, fully paid and nonassessable. We hereby consent to the filing of this opinion with the Securities and Exchange Commission as Exhibit 5.1 to the Registration Statement. Very truly yours, /s/ Pillsbury Madison & Sutro LLP EX-10.58 4 DEVELOPMENT AGREEMENT 1 DEVELOPMENT AGREEMENT THIS AGREEMENT, made and entered into as of the 1st day of August, 1997, by and between BIOSTAR, INC., a Delaware corporation, having its principal place of business at 6655 Lookout Road, Boulder, Colorado 80301, USA ("BioStar") and ASAHI CHEMICAL INDUSTRY CO., LTD., a corporation organized under the laws of Japan, having its principal place of business at 1-2, Yurakucho 1-chome, Chiyoda-ku, Tokyo 100, Japan ("Asahi"). BioStar and Asahi may be referred to herein as a "Party" or together as "Parties". WHEREAS, Biostar and Asahi have concluded simultaneous with this Agreement a Technology License Agreement on August 1, 1997 ("License Agreement") under which Asahi is granted an exclusive license to develop, manufacture, have manufactured, import, improve, use and sell any Instrumented Products for use in Field I under the BioStar Technology in the Territory; and WHEREAS, Asahi is interested in the commercialization of Instrumented Product for testing [ * ] and WHEREAS, BioStar is willing to undertake to develop the Subject Product in accordance with the terms and conditions under this Agreement and the License Agreement; NOW, THEREFORE,in consideration of the foregoing and the covenants and obligations set forth below, the Parties agree as follows: 1. DEFINITIONS 1.1 "BEAR PROGRAM" shall mean the program to develop the Subject Product under this Agreement, details of which are as specified in Exhibit A hereto. 1.2 "DEVELOPMENT KNOW-HOW" shall mean any Technical Information developed by either Party or the Outside Vendors, either alone or jointly, during the course of conducting the BEAR Program. 1.3 "DEVELOPMENT PATENTS" shall mean any and all patent applications that claim the Development Know-How or any aspect thereof, and any divisionals, continuations, continuations-in-part of any such applications, any patents that issue from any of the foregoing application, and all substitutions, extensions, reissues, renewals, supplementary protection certificates and inventors' certificates with respect to any of such issued patents. 1.4 "DEVELOPMENT TERM" shall mean the period during which the BEAR Program is conducted under this Agreement. 1. * CERTAIN CONFIDENTIAL MATERIAL CONTAINED IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED 2 1.5 "DMC" shall mean the Development Management Committee formed by the Parties pursuant to Paragraph 2.2 hereof. 1.6 "EFFECTIVE DATE" shall mean the date on which both of this Agreement and the License Agreement have been fully executed by the Parties hereto. 1.7 "OIA(R) TECHNOLOGY" shall mean the optical immunoassay technology owned by BioStar. 1.8 "OUTSIDE VENDOR" shall mean BioStar's subcontractors with which BioStar shall contract in accordance with Article 3 hereof. 1.9 "STAGE 1 CRITERIA" shall mean the technical criteria set forth on Exhibit B. 1.10 "STAGE 2 CRITERIA" shall mean the technical criteria set forth on Exhibit C. 1.11 "STAGE 3 CRITERIA" shall mean the technical criteria set forth on Exhibit D. 1.12 "SUBJECT PRODUCT" shall mean an instrumented point of care product that can provide invitro diagnostic test results for quantitative and/or qualitative infectious disease assays for testing [ * ]. The Subject Product shall consist of "Instrument" and "Cartridge" and the specifications of the Subject Product are described in Exhibit H. 1.13 The terms defined in the License Agreement shall have the same meanings in this Agreement. 2. DEVELOPMENT PROGRAM 2.1 BEAR PROGRAM BioStar and Asahi agree to undertake and conduct the Development Program named "BEAR Program" pursuant to the terms and conditions of this Agreement. The BEAR Program shall be conducted in three stages. The initial stage, referred to herein as "Stage 1," shall be devoted to BioStar's efforts to [ * ] primarily using BioStar's OIA(R) Technology. The second stage of the BEAR Program, referred to herein as "Stage 2," shall be devoted to BioStar's efforts to [ * ]. The third stage of the BEAR Program, referred to herein as "Stage 3," shall be devoted to BioStar's efforts to [ * ]. The goal of the BEAR Program is to develop the Subject Product resulting from the BEAR Program. The general tasks under Stage 1 to Stage 3 of the BEAR Program are as set forth in Exhibit A attached hereto, which may be amended from time to time by the DMC in accordance with Paragraph 2.3 below. Each Party agrees to devote commercially reasonable efforts to accomplishing its obligations under the BEAR Program. 2.2 DEVELOPMENT MANAGEMENT COMMITTEE (DMC) Promptly after the Effective Date, the Parties shall form the DMC, to be comprised of a total of four (4) members, two (2) appointed by each of Asahi and BioStar. 2. 3 Each Party shall have the right to substitute different representatives as the members of the DMC as needed from time to time. Each such member shall have appropriate technical credentials, knowledge and ongoing familiarity with the BEAR Program. The Chairperson of the DMC shall be named by Asahi from among the DMC members. The DMC shall meet at least quarterly at such times and at such meeting places as shall be mutually agreed upon by the Parties. The DMC meetings may be held by telephone, if agreed by the DMC members. Each Party will designate an individual to serve as the liaison between the Parties to undertake and coordinate any day-to-day communications as may be required between the Parties relating to the BEAR Program. 2.3 DUTY AND AUTHORITY OF THE DMC The DMC shall have the following duties and responsibilities during the Development Term: (a) to define the specific development objectives of the Parties under the BEAR Program, as summarized in Exhibit A; (b) to coordinate and monitor the progress of the BEAR Program; (c) to review the results of the BEAR Program and to evaluate whether the development progress meets Stage 1 Criteria, Stage 2 Criteria and Stage 3 Criteria at the end of the respective Stage; (d) to select the candidates of the Outside Vendors; and (e) to make appropriate modifications to the general plan for the BEAR Program set forth in Exhibit A, including determining to accelerate the timing of the completion of the BEAR Program from [ * ] and any corresponding budget changes, as well as determining to extend the time periods for any of Stages l, 2, or 3. Any modification of the specifications, criteria, activities or budget set forth in Exhibits B through E shall require the full written agreement of the Parties. 2.4 BEAR PROGRAM REPORTS AND REVIEW At least semi-annually, and more often if so requested by the DMC, but not more frequently than quarterly, BioStar shall prepare a report summarizing all results, developments, and Technical Information created or resulting from its activities under the BEAR Program. Upon request by the DMC or Asahi, all Technical Information generated or developed by BioStar pursuant to the BEAR Program will be provided to the DMC and Asahi. The DMC will review the results of the BEAR Program at the end of each milestone period as set forth in Exhibit A and will propose appropriate changes to the BEAR Program based upon such results. Any such approved changes to the general plan for the BEAR Program shall be attached as amendments to Exhibit A hereto. 2.5 BIOSTAR'S DEVELOPMENT DURING STAGE 1 TO STAGE 3 2.5.1 Stage 1 Development Promptly after the Effective Date, BioStar shall conduct development efforts under the BEAR Program with the goal to [ * ] which means [ * ] 3. 4 [ * ] 2.5.2 STAGE 2 DEVELOPMENT After completing Stage 1 Development, BioStar shall conduct development efforts under the BEAR Program with the goal to [ * ] which means [ * ] [ * ] Biostar will supply [ * ] to Asahi as shown in Stage 2 Criteria. 2.5.3 STAGE 3 DEVELOPMENT After completing Stage 2 Development, BioStar shall conduct development efforts under the BEAR Program with the goal to [ * ] which means [ * ] and [ * ] BioStar will supply [ * ] to Asahi as shown in Stage 3 Criteria. 2.6 EXCLUSIVITY During the Development Term, BioStar shall not conduct or have conducted any development, manufacturing or commercialization activity of any Instrumented Products in the Territory, except pursuant to this Agreement. 3. OUTSIDE VENDOR 3.1 BioStar may, at its expense and responsibility, have Outside Vendors develop and/or manufacture the Cartridges and the Instrument, subject to Paragraph 3.2 and Article 5. 3.2 After DMC has selected the candidates of the Outside Vendors pursuant to Paragraph 2.3 (d), BioStar shall notify Asahi in writing of the name of each potential Outside Vendor before engaging in definitive negotiations with such Outside Vendor. Asahi will notify BioStar in writing within fifteen (15) days of receiving such notice if such Outside Vendor is not acceptable to Asahi. Otherwise, BioStar shall negotiate terms and present the terms of a proposed agreement with the Outside Vendor to Asahi for review prior to executing any agreement. If the terms are acceptable, Asahi shall execute a Consent Form attached as Exhibit G approving the agreement and agreeing to bear all outside Vendor costs under the agreement as provided in Paragraph 5.2.2. Unless 4. 5 otherwise specified in the Consent Form, in any event, Asahi shall own all Development Know-How and all intellectual property rights therein. BioStar shall make Outside Vendors agree to assign to Asahi any Development Know-How which the Outside Vendors have acquired in the course of the development and/or manufacture of the Cartridges and the Instrument. 4. ASAHI'S PERSONNEL Asahi may have Asahi's personnel dispatched by Asahi at its own expense participate in the BEAR Program at BioStar's facilities during the Development Term. Detailed program of such dispatch shall be mutually agreed upon by both Parties. BioStar will provide without charge office space, office equipment and other necessary facilities. 5. ASAHI'S FUNDING 5.1 In consideration of BioStar's performance as herein set forth, Asahi shall pay development cost (including the Outside Vendors' cost) to BioStar by telegraphic transfer to BioStar's designated bank account. The estimated development cost is described in Exhibit E. 5.2 Asahi shall pay to BioStar in advance at the beginning of each quarterly period the expected cost which shall be reported by BioStar to Asahi at least forty-five (45) days before the beginning of the following quarter. BioStar shall fully account for its spending on a quarterly basis and make adjustments to subsequent amounts as appropriate. Payment of the initial quarter prorated development cost of US [ * ] will be made within thirty (30) days from the Effective Date (pursuant to Exhibit E). 5.2.1 With respect to BioStar's inside cost, on a cumulative basis, Asahi's obligation to pay BioStar shall not exceed the sum of the estimated cost and contingency amounts (equal to [ * ] of BioStar's inside development cost except the cost of technology transfer) as specified in Exhibit E (i.e., US [ * ] BioStar costs in excess of the sum of the estimated cost and contingency amounts shall be fully absorbed by BioStar. 5.2.2 With respect to the Outside Vendors' cost, BioStar shall make its best efforts to minimize the amounts to pay to the Outside Vendors. In the event that the Outside Vendors' cost should exceed the estimated cost (i.e., US [ * ]) despite such BioStar's efforts, Asahi shall bear the Outside Vendor's cost including the amounts in excess of the estimated cost only if BioStar informs Asahi of the reasonable grounds for such cost increase in advance and receives Asahi's prior written consent thereof. 5. 6 5.3 Notwithstanding the foregoing, in no event shall Asahi's annual total payment to BioStar for first [ * ] exceed annual estimated cost as set forth in Exhibit E and [ * ] contingency amounts. (Asahi's payment for first year shall not exceed US [ * ] and for second year shall not exceed US [ * ] 5.4 BioStar shall maintain all BEAR Program funds provided by Asahi in a separate account and shall keep accurate financial records relating to the BEAR Program and will make such records available to Asahi or its authorized representatives during normal business hours upon reasonable notice. BioStar shall expend such funds for wages, supplies, equipment, travel and other operational expenses only in connection with the BEAR Program. 6. INTELLECTUAL PROPERTY 6.1 OWNERSHIP OF INVENTIONS Asahi shall own all Development Know-How and all intellectual property rights therein, including without limitation any Development Patents claiming such Development Know-How. BioStar agrees to assign to Asahi any Development Know-How which BioStar has acquired in the course of the BEAR Program. 6.2 PATENT PROSECUTION Asahi shall have the right, but not the obligation, to file, prosecute and maintain Development Patents claiming particular inventions within Development Know-How in any countries. In the event that Asahi elects not to file, prosecute or maintain a particular Development Patent, or to abandon prosecuting a particular patent application, or to cease paying the maintenance fees for a particular Development Patent, Asahi shall give BioStar sixty (60) day's notice before any relevant deadline, and BioStar shall have the right to pursue, at its own expense, outside the Territory prosecution of such patent application or maintenance of such patent. Each Party agrees to cooperate with the other and take all reasonable additional actions as may be reasonably required to achieve the intent of this Paragraph 6.2, including, without limitation, the execution of necessary and appropriate instruments and documents. Asahi shall provide drafts of all patent filings to BioStar for review and comment at least ten (10) days prior to the filing and shall promptly provide copies of all patent correspondence to BioStar. Asahi agrees to take BioStar's comments into account in good faith, particularly with respect to countries outside the Territory, but the final decision as to filing and/or prosecution matters shall rest with Asahi. 6. 7 6.3 PATENT ENFORCEMENT (1) BioStar and Asahi shall each give immediate notice to the other of any infringement of the Development Patents by a third party outside the Territory which may come to its attention. (2) BioStar shall have the first right, but not the obligation, to institute and conduct any legal action outside the Territory against such third party infringers of the Development Patents, and may enter into settlement agreements with the approval of Asahi not to be unreasonably withheld. Any amounts recovered by BioStar as a result of an infringement action based on the Development Patents, shall be retained solely by BioStar. (3) In the event that BioStar decides not to commence actions or proceedings against an infringer pursuant to Paragraph 6.3 (2) above, Asahi at Asahi's expense shall have the right to initiate and pursue such action provided, however, that BioStar shall cooperate with and assist Asahi in such action, at BioStar's expense, to the extent that such cooperation and assistance are reasonably available. Any amounts recovered by Asahi shall be retained solely by Asahi. 6.4 LICENSE TO BIOSTAR Unless this Agreement is terminated by Asahi under Paragraph 12.2.1.2 due to an uncured material breach by BioStar, Asahi shall grant to BioStar the exclusive, royalty-free license with the right to sublicense, under Development Know-How and Development Patents, to develop, make, have made, import, improve, use and sell any product in Fields I, II and III outside the Territory. 7. WARRANTIES 7.1 Each Party hereby warrants that it has full corporate power and authority to enter into this Agreement and to carry out the provisions hereunder. 7.2 Each Party further warrants that it shall not, during the term of this Agreement, enter into any agreement with any other Party which would be inconsistent with any terms or conditions of this Agreement. 8. INDEMNIFICATION 8.1 INDEMNIFICATION BY BIOSTAR BioStar hereby agrees to indemnify, hold harmless and defend Asahi and its officers, directors and employees against any and all liability, damages, judgments, awards or costs of defense (including without limitation reasonable attorneys' fees, expenses to 7. 8 defend and amounts paid in settlement of any action) directly resulting from any claim or claims against any of the foregoing to the extent that such claim or claims are based on the negligence or wilful misconduct of BioStar or any of its employees or agents, or such claim or claims arise out of the manufacture, use or sale of any product by BioStar which is made using the Development Know-How under the license as granted in Paragraph 6.3. 8.2 INDEMNIFICATION BY ASAHI Asahi hereby agrees to indemnify, hold harmless and defend BioStar and its officers, directors and employees against any and all liability, damages, judgments, awards or costs of defense (including without limitation reasonable attorneys' fees, expenses to defend and amounts paid in settlement of any action) directly resulting from any claim or claims against any of the foregoing to the extent that such claim or claims are based on the negligence or wilful misconduct of Asahi or any of its employees or agents, or such claim or claims arise out of the manufacture, use or sale of any product by Asahi which is made using the Development Know-How. 8.3 NOTICE AND PROCEDURES In all cases where one Party seeks indemnification by the other under this Article 8, the Party seeking indemnification shall promptly notify the indemnifying Party of receipt of any claim or lawsuit covered by such indemnification obligation and shall cooperate fully with the indemnifying Party in connection with the investigation and defense of such claim or lawsuit. The indemnifying Party shall have the right to control the defense, with counsel of its choice, provided that the non-indemnifying Party shall have the right to be represented by advisory counsel at its own expense. The indemnifying Party shall not settle or dispose of the matter in any manner which could negatively and materially affect the right or liability of the non- indemnifying Party without the non-indemnifying Party's prior written consent, which shall not be unreasonably withheld. 9. CONFIDENTIALITY 9.1 ASAHI'S OBLIGATION During the term of the License Agreement, and for a period of five (5) years thereafter, Asahi shall maintain in confidence all the OIA(R) Technology or other Technical Information, including the Development Know-How, disclosed to Asahi by BioStar. Asahi will not use, disclose or grant the use of such information except as expressly licensed or permitted under this Agreement. To the extent that disclosure is authorized by this Agreement, Asahi will obtain prior agreement from its employees, agents or consultants to whom disclosure is to be made to hold in confidence and not make use of 8. 9 such information for any purpose other than those permitted by this Agreement. Asahi will use at least the same standard of care as it uses to protect its own trade secrets or proprietary information to ensure that such employees, agents and consultants do not disclose or make any unauthorized use of such information. Asahi will promptly notify BioStar upon discovery of any unauthorized use or disclosure of such information. Nothing in this Paragraph shall prevent Asahi from filing patent applications pursuant to Paragraph 6.2 hereof. 9.2 BIOSTAR'S OBLIGATION During the term of the License Agreement, and for a period of five (5) years thereafter, BioStar shall maintain in confidence all the Development Know-How and other Technical Information disclosed to BioStar by Asahi. BioStar will not use, disclose or grant the use of such information except as expressly licensed or permitted under this Agreement. To the extent that disclosure is authorized by this Agreement, BioStar will obtain prior agreement from its employees, agents or consultants to whom disclosure is to be made to hold in confidence and not make use of such information for any purpose other than those permitted by this Agreement. BioStar will use at least the same standard of care as it uses to protect its own trade secrets or proprietary information to ensure that such employees, agents and consultants do not disclose or make any unauthorized use of such information. BioStar will promptly notify Asahi upon discovery of any unauthorized use or disclosure of such information. 9.3 EXCEPTIONS The obligations of confidentiality contained in this Article 9 will not apply to the extent that it can be established by the receiving Party by competent written proof that such information: (a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the other Party; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the other Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement; or (d) was disclosed to the receiving Party, other than under an obligation of confidentiality, by a third party, who had no obligation to the other Party not to disclose such information to others. 9.4 PUBLIC ANNOUNCEMENT The Party desiring to make any public announcement or other disclosure regarding the content of this Agreement shall inform the other Party of the proposed announcement or disclosure in reasonably sufficient time prior to public release, and shall provide the other Party with a written copy thereof, in order to allow such other Party to comment upon such announcement or disclosure. Once any such public announcement or 9. 10 disclosure has been approved by such other Party in accordance with this Paragraph, then the desiring Party may appropriately communicate information contained in such permitted announcement or disclosure. Notwithstanding the foregoing, either Party shall have the right to make such disclosure of this Agreement as is required under any applicable laws, including the rules and regulations of the Securities and Exchange Commission. 10. DISPUTE RESOLUTION This Agreement is made on the basis of mutual confidence and good faith between the Parties. If a dispute should arise between the Parties out of or relating to this Agreement or to a breach thereof, including as to the interpretation, performance or termination of this Agreement, the Parties shall initially seek to resolve amicably by negotiation. If the Parties fail to resolve the matter by good faith negotiation within a period of sixty (60) days, then either Party may institute binding arbitration of the dispute. The arbitration shall be conducted in New York, New York, USA, in English, under the Commercial Arbitration Rules of the American Arbitration Association. Judgment on the award rendered by the arbitrator shall be final and may be entered in any court having jurisdiction thereof. The expense of the arbitration (including without limitation, the award of attorney's fees to the prevailing Party) shall be paid as the arbitrator determines. Notwithstanding the foregoing, nothing in this Article shall be construed as limiting in any way the right of a Party to seek injunctive relief with respect to any actual or threatened breach of this Agreement, which breach would cause irreparable harm to the Party seeking such relief, from a court of competent jurisdiction. 11. FORCE MAJEURE No Party hereto shall be liable for damages or held in default hereunder for any non-performance or delay resulting from causes beyond its control, including failure of usual sources of supply, fire, accident, riot, war, flood, earthquake, storm or Acts of God, action or inaction of governmental authorities or agencies, or the similar causes which cannot be controlled by a Party. In case of occurrence of a force majeure event, the Party which is the victim of such event shall immediately notify the other Party of the event giving the full particulars of the cause, its expected duration and the anticipated effects thereof. 12. TERM AND TERMINATION 10. 11 12.1 This Agreement shall commence on the Effective Date and shall remain in force for [ * ] thereafter, unless the Parties agree in writing to the extension of this Agreement. 12.2 EARLY TERMINATION 12.2.1 TERMINATION BY EITHER PARTY BioStar or Asahi may terminate this Agreement upon giving notice thereof to the other Party: 12.2.1.1 In the event that the other Party files a petition in bankruptcy, or in the event that all or part of the other Party's assets are assigned to a trustee or receiver, or if an involuntary petition is filed by a third party and the other Party does not resolve such petition in its favour within sixty (60) days after filing and notice thereof, or 12.2.1.2 In the event of a material breach of this Agreement not remedied by the other Party in breach within sixty (60) days after receipt of notice by the terminating Party specifying such breach and requesting that it be remedied, unless the Party allegedly in breach submits the issue to arbitration within said sixty (60) day period. In the event that such Party submits the issue to arbitration, then diligent compliance with the arbitration decision shall be a cure for such breach, and, in the event of such a cure, this Agreement may not be so terminated, unless determined by the arbitrator. 12.2.1.3 In the event that any involuntary petition is filed as set forth in Paragraph 12.2.1.1 above, then the Party having the right to terminate this Agreement may suspend its performance hereunder until the resolution of such petition. If one Party so suspends its performance, then the other Party shall be entitled to suspend its performance until the original suspending Party resumes performance. 12.2.2 TERMINATION BY ASAHI 12.2.2.1 In the event BioStar does not achieve (a) Stage 1 Criteria during the [ * ] period from the Effective Date, or (b) Stage 2 Criteria during the [ * ] period from the Effective Date, in both cases, subject to any extensions of such time periods as the DMC may determine, Asahi may terminate this Agreement upon written notice to BioStar, which notice shall be dispatched within sixty (60) days from the end of the above respective period or extension thereof. 12.2.2.2 In addition to the above, Asahi may terminate this Agreement at any time for any reason. Asahi shall notify BioStar in writing of its desire to terminate and shall specify the effective date of termination which will be no earlier than ninety (90) days following the date of such notice. 12.3 EFFECT OF TERMINATION 12.3.1 In the event that this Agreement is terminated by Asahi pursuant to Paragraph 12.2.1, (a) Asahi shall retain its rights to the Development Know-How and Development 11. 12 Patents under this Agreement and the License Agreement shall continue in full force and effect and Asahi may develop and commercialize the Subject Product independent of BioStar, and (b) BioStar's licenses and rights granted under Paragraph 6.4 hereof shall remain in effect. In addition, if Asahi so terminates this Agreement pursuant to this Paragraph 12.3.1, and Asahi independently develops the Instrumented Product, Asahi and BioStar shall negotiate in good faith for a possible reduction in the running royalty set forth in Paragraph 4.2 of the License Agreement on the Instrumented Product, depending upon the results achieved in the course of the BEAR Program at the time of such termination. 12.3.2 In the event that this Agreement is terminated by BioStar pursuant to Paragraph 12.2.1, (a) Asahi's rights under this Agreement shall terminate and Asahi shall assign and transfer all Development Know-How and Development Patents to BioStar, and (b) the License Agreement shall continue in full force and effect and Asahi may develop and commercialize the Instrumented Product independent of BioStar. 12.3.3 In the event that this Agreement is terminated by Asahi in accordance with Paragraph 12.2.2.1, (a) Asahi may, at its option, obtain an exclusive license to manufacture and distribute Ver. 2 Manual Product for [ * ] and [ * ] and [ * ] in [ * ] in accordance with the terms and conditions as set forth in Exhibit F attached hereto, (b) Asahi shall retain its rights to the Development Know-How and Development Patents and (c) the License Agreement shall continue in full force and effect and Asahi may develop and commercialize the Instrumented Product independent of BioStar. If Asahi terminates this Agreement pursuant to Paragraph 12.2.2.1 and Asahi independently develops the Instrumented Product, Asahi and BioStar shall negotiate in good faith for a possible reduction in the running royalty set forth in Paragraph 4.2 of the License Agreement on the Instrumented Product, depending upon the results achieved in the course of the BEAR Program at the time of such termination. 12.3.4 In the event that this Agreement is terminated by Asahi in accordance with Paragraph 12.2.2.2, Asahi's rights under this Agreement and the License Agreement shall terminate and all of the Development Know-How and Development Patents shall be assigned to BioStar, provided, however, that, Asahi may, without any further payment to BioStar except that specified in Exhibit F, obtain an exclusive license to manufacture and distribute Ver. 2 Manual Product for [ * ] and [ * ] and [ * ] in [ * ] in accordance with the terms and conditions as set forth in Exhibit F attached hereto. 12.4 EFFECT OF EXPIRATION Upon the expiration of this Agreement as set forth in Paragraph 12.1 above, (a) Asahi shall retain its rights to the Development Know-How and Development Patents under this Agreement and (b) the License Agreement shall continue to be effective. If 12. 13 BioStar does not achieve Stage 3 Criteria upon expiration hereof, in addition to the above, (c) Asahi may, at its option, obtain an exclusive license to manufacture and distribute Ver. 2 Manual Product for [ * ] and [ * ] and [ * ] in [ * ] in accordance with the terms and conditions as set forth in Exhibit F attached hereto and (d) Asahi may develop and commercialize the Instrumented Product independent of BioStar. In case where Asahi independently develops the Instrumented Product, Asahi and BioStar shall negotiate in good faith for a possible reduction in the running royalty set forth in Paragraph 4.2 of the License Agreement on the Instrumented Product, depending upon the results achieved in the course of the BEAR Program at the time of such termination. 12.5 SURVIVAL Any expiration or termination of this Agreement under Paragraph 12.1 or 12.2 above shall not relieve any Party from any obligations hereunder which have accrued on or before the effective date of such expiration or termination, including Asahi's obligation to pay development cost then due, nor affect the provisions set forth in Articles 6, 8, 9 and 10 and Paragraphs 12.13-12.6, 13.3 and 13.7; except as expressly provided otherwise in Paragraph 12.3 or 12.4, if applicable. 12.6 NO-EXCLUSIVE REMEDY The right of any Party to terminate this Agreement under Paragraph 12.2.1.2 above is not an exclusive remedy, and any Party shall be entitled, if the circumstances warrant, alternatively or cumulatively, to damages for breach of this Agreement, to an order requiring performance of the obligations of this Agreement or to any other legally available remedy. 13. MISCELLANEOUS PROVISIONS 13.1 RELATIONSHIP OF THE PARTIES Neither Party is, nor shall be deemed to be, an agent or legal representative of the other Party for any purpose. Neither Party shall be entitled to enter into any contracts in the name of or on behalf of the other Party, and neither Party shall be entitled to pledge the credit of the other Party in any way or hold itself out as having authority to do so. No Party shall incur any debts or make any commitments for the other, except to the extent, if at all, specifically provided herein. 13.2 ASSIGNMENT. This Agreement may not be assigned by either Party, nor may either Party, transfer its rights under this Agreement to any third party, without prior written consent of 13. 14 the other Party, which consent will not be unreasonably withheld. Notwithstanding the foregoing, however, either Party shall be entitled to assign this Agreement, and all rights and obligations hereunder, to a successor to all or substantially all of its assets, whether by sale, merger, or otherwise, provided that either Party indicating such assignment shall provide the other Party with, where possible, thirty (30) days prior written notice or such shorter time as is possible, subject to any contractual restrictions on disclosure of such information prior to such assignment, and cause such assignee to be bound by this Agreement. This Agreement shall be binding upon the successors and assignees of the Parties hereof. In the event of assignment of this Agreement by either Party, the license granted by such assigning Party to the other Party shall not cover any intellectual property of such assignee which was not controlled by the assigning Party prior to the effective date of such assignment. 13.3 NOTICES All notices and communications hereunder shall be in writing and shall be deemed given if delivered personally or by confirmed facsimile transmission, telexed, mailed by registered or certified mail, postage prepaid, or sent by express courier service, to the Parties at the addresses set forth in the first paragraph of this Agreement (or as such other address for a Party as shall be specified by like notice to the other Party). 13.4 AMENDMENT No amendment, modification or supplement of any provision of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party. 13.5 WAIVER No provision of this Agreement shall be waived by any act, omission or knowledge of a Party or its agents or employees except by an instrument in writing expressly waiving such provision and signed by a duly authorized officer of the waiving Party. 13.6 COUNTERPARTS This Agreement may be executed in counterparts. 13.7 GOVERNING LAW This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, applicable to contracts executed and performed wholly within the State of New York. 13.8 SEVERABILITY 14. 15 Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such provision or invalidity, without invalidating the remainder of this Agreement. 13.9 ENTIRE AGREEMENT OF THE PARTIES This Agreement and License Agreement will constitute and contain the complete, final and exclusive understanding and agreement of the Parties and cancels and supersedes any and all prior negotiations, correspondence, understandings and agreements, whether oral or written, between the Parties respecting the subject matter hereof. 15. 16 IN WITNESS WHEREOF, the Parties have as of the day and year first above written duly executed this Agreement. BIOSTAR, INC. ASAHI CHEMICAL INDUSTRY CO., LTD. By: /s/ Teresa W. Ayers By: /s/ Tadashi Ikegami ---------------------------- ---------------------------- Title: President/CEO Title: Board Director ---------------------------- ---------------------------- 17 EXHIBIT A [ * ] 18 EXHIBIT B STAGE 1 PROGRAM MONTH [*] - MONTH [*]
- ------------------------------------------------------------------------------------------------------------- MONTH ACTIVITY MILESTONE (LAST DAY) - ------------------------------------------------------------------------------------------------------------- TESTS - ------------------------------------------------------------------------------------------------------------- 1. [ * ] 1 [*] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------- 2. [ * ] 2 [*] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------- 3. [ * ] 3 [*] [ * ] - ------------------------------------------------------------------------------------------------------------- 4. [ * ] 4+ tol [*] [ * ] - ------------------------------------------------------------------------------------------------------------- 5. [ * ] 4+ tol [*] [ * ] - ------------------------------------------------------------------------------------------------------------- BOR UNIT AND CARTRIDGE 1. [ * ] - [*] [ * ] - ------------------------------------------------------------------------------------------------------------- CARTRIDGE/INSTRUMENT 1. [ * ] 5 [*] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------- 2. [ * ] 5 [*] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------- 3. [ * ] 5 [*] [ * ] - ------------------------------------------------------------------------------------------------------------- o All instrument data generated will be with the BOR unit - -------------------------------------------------------------------------------------------------------------
19 EXHIBIT C STAGE 2 PROGRAM MONTH [*] - MONTH [*]
- ------------------------------------------------------------------------------------------------------------- MONTH ACTIVITY MILESTONE (LAST DAY) - ------------------------------------------------------------------------------------------------------------- TESTS - ------------------------------------------------------------------------------------------------------------- 1. [ * ] - [*] [ * ] - ------------------------------------------------------------------------------------------------------------- INSTRUMENT/CARTRIDGE - ------------------------------------------------------------------------------------------------------------- 1. [ * ] 6/7 [*] [ * ] - ------------------------------------------------------------------------------------------------------------- 2. [ * ] 8/9 [*] [ * ] - ------------------------------------------------------------------------------------------------------------- 3. [ * ] 8/9 [*] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------- 4. [ * ] 8 [*] [ * ] - ------------------------------------------------------------------------------------------------------------- 5. [ * ] 8/10 [*] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------ 6. [ * ] - [*] - ------------------------------------------------------------------------------------------------------------- 7. [ * ] - [*] [ * ] - ------------------------------------------------------------------------------------------------------------- o Supply Asahi with [ * ] instruments. - -------------------------------------------------------------------------------------------------------------
F-T = Flow Through [ * ] Bear 1.0 = [ * ] Bear 2.0 = [ * ] Bear 3.0 = [ * ] Bear 4.0 = [ * ] 20 EXHIBIT D STAGE 3 PROGRAM MONTH [*] - MONTH [*]
- ------------------------------------------------------------------------------------------------------------- MONTH ACTIVITY MILESTONE (LAST DAY) - ------------------------------------------------------------------------------------------------------------- INSTRUMENT/SYSTEM INTEGRATION - ------------------------------------------------------------------------------------------------------------- 1. [ * ] 11/12 [*] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------- 2. [ * ] -/13 [*] [ * ] - ------------------------------------------------------------------------------------------------------------- 3. [ * ] -/13 [*] [ * ] Note: [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------- 4. [ * ] - [*] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------- 5. [ * ] [*] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------- 6. [ * ] [*] - ------------------------------------------------------------------------------------------------------------- 7. [ * ] [*] [ * ] - ------------------------------------------------------------------------------------------------------------- o Milestones 11-12 occur in month [*]; Milestone 13 occurs during month [*]. o BioStar will supply [ * ] and [ * ] o BioStar will provide [ * ] - -------------------------------------------------------------------------------------------------------------
21 EXHIBIT E BEAR PROGRAM BUDGET
- ------------------------------------------------------------------------------------------------------------- MONTHS [ * ] MONTHS [ * ] MONTHS [ * ] TOTAL - ------------------------------------------------------------------------------------------------------------- BIOSTAR FEES/COSTS - ------------------------------------------------------------------------------------------------------------- BioStar Inside/Costs Processor/Reader [ * ] Cartridge [ * ] Reagents [ * ] Technology Transfer [ * ] - ------------------------------------------------------------------------------------------------------------- Total Payments to BioStar [ * ] - ------------------------------------------------------------------------------------------------------------- OUTSIDE RESOURCE COSTS - ------------------------------------------------------------------------------------------------------------- Cartridge [ * ] Processor/Reader [ * ] - ------------------------------------------------------------------------------------------------------------- Total Payments to Outside [ * ] Resource* - ------------------------------------------------------------------------------------------------------------- TOTAL BEAR PROGRAM [ * ] - -------------------------------------------------------------------------------------------------------------
* Based on range or estimates from [ * ] o All estimates in US dollars. o BioStar Inside Costs (other than Technology Transfer) will be committed at contract signing, based on budget payments agreed 90 days in advance. Savings from budgeted amounts will reduce actual payments to BioStar. o BioStar Inside Costs do not include contingency of [*] of budget amount associated with processor/reader, cartridge, and reagent. o Asahi Internal Costs not included. o BioStar headcount costs will be calculated on a basis of [ * ] 22 EXHIBIT F BASIC TERMS AND CONDITIONS OF VER.2 MANUAL PRODUCT LICENSE AGREEMENT 1. LICENSE GRANT 1.1 BioStar shall grant to Asahi an exclusive license with the right to sublicense others subject to the approval of BioStar, not to be unreasonably withheld, to manufacture, have manufactured, import, improve, use and sell [ * ] and [ * ] Ver.2 Manual Product ("Manual Product") under the BioStar Technology and Patent Rights in [ * ] 1.2 During the term of the Manual Product License Agreement, BioStar shall not assert any of the BioStar Technology or the Patent Rights against the sale or use of the Manual Product in Japan by Asahi's distributors or customers including, without limitation, hospitals, doctors, dealers and agents. 1.3 Asahi shall have the right to register "Senyo Jisshiken" to be granted under the Manual Product License Agreement in the Japanese Patent Office. 1.4 PRODUCT REGISTRATION Asahi shall have sole responsibility for diligently conducting all preclinical and clinical trials and shall diligently make all regulatory submissions necessary for the approval of the right to market the Manual Product in Japan, at Asahi's sole expense, and BioStar shall cooperate with Asahi for such trials and regulatory submissions upon reasonable request by Asahi. 2. TRANSFER OF TECHNOLOGY 2.1 Within ten (10) days after the effective date of the Manual Product License Agreement, BioStar shall deliver to Asahi without any charge to Asahi those technical documents which will be sufficient for Asahi to launch on a commercial production and sale of the Manual Product. 3. CONSIDERATION 3.1 In consideration of the right and license stipulated in 1 above, Asahi shall pay to BioStar running royalties of [ * ] on the Net Sales Value of the Manual Product manufactured and sold by Asahi or its sublicensees to their first sale customers in Japan and invoiced (with invoicing to be made contemporaneously with delivery) to such customers during the term of the Manual Product License Agreement. 1. 23 3.2 All withholding taxes imposed by Japanese Tax Laws on the amounts of consideration payable by Asahi to BioStar under the Manual Product License Agreement shall be borne by [ * ] In this connection, Asahi shall withhold such taxes to the Japanese tax authority. When Asahi so withholds, Asahi shall forward to BioStar a tax payment certificate of the Japanese tax authority for the amount so withheld. 4. EXCHANGE OF IMPROVEMENT Both parties shall discuss and decide how to carry out exchanges of their respective improvements at the time of the conclusion of the Manual Product License Agreement. 5. TERM The Manual Product License Agreement shall remain in force, until expiration, revocation or invalidation of the last to expire patent within the Patent Rights which BioStar owns as of the effective date of the Technology License Agreement. Upon expiration of the full term of the Manual Product License Agreement, each party thereto shall have and retain irrevocable, paid-up licenses granted by the other party thereto thereunder, and shall be entitled to manufacture, use and sell in any country of the world any product using or incorporating the BioStar Technology, Patent Rights and Asahi Improvement disclosed and licensed by the other thereunder. 6. APPLICATION OF TECHNOLOGY LICENSE AGREEMENT The terms defined and used in the Technology License Agreement and all provisions thereof which are not provided for hereinabove shall apply mutatis mutandis to this Exhibit and the Manual Product License Agreement unless the context clearly requires otherwise. 2. 24 EXHIBIT G OUTSIDE VENDOR CONSENT FORM Outside Vendor: __________________________________ Product or Service: _____________________________ Attached to this Consent Form is a proposed agreement or set of terms between the vendor named above (the "Vendor") and BioStar, Inc. (the "Vendor Agreement"). Asahi Chemical Industry Co., Ltd. hereby approves the Vendor Agreement for the provision of the above product or service to be used by BioStar in connection with the BEAR Program under the Development Agreement between BioStar and Asahi dated _______________, 1997 ("Development Agreement"). Asahi agrees to pay all estimated amounts due to the Vendor as set forth in the Vendor Agreement. Asahi further agrees to bear any excess amounts that may become due to the Vendor under the Vendor Agreement, provided that BioStar informs Asahi of the reasonable grounds for such cost increase in advance and receives Asahi's prior written consent to such increase, as provided in the Development Agreement. BIOSTAR, INC. ASAHI CHEMICAL INDUSTRY CO., LTD. By: By: ------------------------- ----------------------- Title: Title: --------------------- --------------------- Date: Date: ---------------------- ----------------------- 25 EXHIBIT H ASSAY SPECIFICATIONS FOR SUBJECT PRODUCT
- ------------------------------------------------------------------------------------------------------------- CLINICAL DATA - ------------------------------------------------------------------------------------------------------------- ASSAY OPTIMUM MINIMUM ACCEPTABLE - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- [ * ]
- ------------------------------------------------------------------------------------------------------------- ANALYTICAL DATA SENSITIVITY - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- SPECIFICITY - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- ASSAY REPRODUCIBILITY [ * ] - ------------------------------------------------------------------------------------------------------------- INSTRUMENT REPREDUCIBILITY [ * ] (W/CALIBRATION STDS) - ------------------------------------------------------------------------------------------------------------- RELIABILITY/HOOK EFFECT [ * ] - -------------------------------------------------------------------------------------------------------------
* [ * ] ** [ * ] 26 BEAR SYSTEM: CAPABILITIES
- ------------------------------------------------------------------------------------------------------------- INSTRUMENT OPTIMUM MINIMUM ACCEPTABLE - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------- [ * ] - -------------------------------------------------------------------------------------------------------------
27
- ------------------------------------------------------------------------------------------------------------- TO BE CARTRIDGE OPTIMUM DETERMINED MINIMUM ACCEPTABLE - ------------------------------------------------------------------------------------------------------------- Size [ * ] - ------------------------------------------------------------------------------------------------------------- Functional Areas [ * ] - ------------------------------------------------------------------------------------------------------------- Lot Configuration [ * ] - ------------------------------------------------------------------------------------------------------------- Programming Card [ * ] - ------------------------------------------------------------------------------------------------------------- Test Capacity [ * ] - ------------------------------------------------------------------------------------------------------------- Stability [ * ] - ------------------------------------------------------------------------------------------------------------- Cost [ * ] - -------------------------------------------------------------------------------------------------------------
28
- ------------------------------------------------------------------------------------------------------------- MINIMUM INSTRUMENT OPTIMUM TO BE DETERMINED ACCEPTABLE - ------------------------------------------------------------------------------------------------------------- Size [ * ] - ------------------------------------------------------------------------------------------------------------- Weight [ * ] - ------------------------------------------------------------------------------------------------------------- Color [ * ] - ------------------------------------------------------------------------------------------------------------- Form/Shape [ * ] - ------------------------------------------------------------------------------------------------------------- Keyboard [ * ] - ------------------------------------------------------------------------------------------------------------- Barcode reader [ * ] - ------------------------------------------------------------------------------------------------------------- Printer [ * ] - ------------------------------------------------------------------------------------------------------------- Power requirements [ * ] - ------------------------------------------------------------------------------------------------------------- Operatory range [ * ] - ------------------------------------------------------------------------------------------------------------- Display [ * ] - ------------------------------------------------------------------------------------------------------------- Battery-backed memory [ * ] - ------------------------------------------------------------------------------------------------------------- Approvals [ * ] - ------------------------------------------------------------------------------------------------------------- Relative Humidity [ * ] - ------------------------------------------------------------------------------------------------------------- Interface [ * ] - -------------------------------------------------------------------------------------------------------------
EX-10.59 5 TECHNOLOGY LICENSE AGREEMENT 1 TECHNOLOGY LICENSE AGREEMENT THIS AGREEMENT is made and entered into as of the 1st day of August, 1997, by and between BIOSTAR, INC., a Delaware corporation, having its principal place of business at 6655 Lookout Road, Boulder, Colorado 80301, USA ("BioStar") and ASAHI CHEMICAL INDUSTRY CO., LTD., a corporation organized under the laws of Japan, having its principal place of business at 1-2, Yurakucho 1-chome, Chiyoda-ku, Tokyo 100, Japan ("Asahi"). BioStar and Asahi may be referred to herein as a "Party" or together as "Parties." WHEREAS, BioStar owns certain proprietary technology and related know-how in the field of point of care in vitro diagnostic testing; and WHEREAS, Asahi is engaged in the diagnostic reagent business; and WHEREAS, BioStar granted Asahi an option to obtain an exclusive license to BioStar's proprietary technology by concluding a Technology Option Agreement dated February 7, 1997 ("Option Agreement"); and WHEREAS, Asahi has exercised such option, NOW, THEREFORE, in consideration of the foregoing and the covenants and obligations set forth below, the Parties agree as follows: ARTICLE 1 DEFINITIONS 1.1 "ASAHI IMPROVEMENT" shall mean and include all Technical Information owned by Asahi and which is developed by or on behalf of Asahi during the ten (10) year period following the Effective Date, which constitutes improvements to and is based upon Asahi's or its affiliate's use of the Patent Rights or the BioStar Technology in Fields I, II, or III and which is used in the development, manufacture, use or sale of the Instrumented Product. Asahi improvements shall also include technology obtained from other party or parties which Asahi has the right to pass on to BioStar without incurring any financial liability to such other party or parties. 1.2 "BIOSTAR TECHNOLOGY" shall mean all Technical Information, including the Technical Information that relates to the discovery, design, synthesis, delivery, development, testing, use, manufacture or sale of diagnostic test kits for infectious diseases based on the optical immunoassay, which are owned by BioStar or which BioStar otherwise has the right to license as of the Effective Date and during the ten (10) year period thereafter, to the extent such Technical Information is necessary or useful for Asahi to develop, manufacture, improve, use and sell any Instrumented Products. EPO consists of the following nations: Austria, Belgium, Switzerland, Germany, Netherlands, Luxembourg, Spain, France, Italy, UK, Sweden. Canada and Japan honor PCT/EPO filings with independent review. 1. * CERTAIN CONFIDENTIAL MATERIAL CONTAINED IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. 2 1.3 "DEVELOPMENT AGREEMENT" shall mean an agreement to be executed simultaneous with this Agreement under which BioStar undertakes to develop Instrumented Product for testing [ * ] 1.4 "EFFECTIVE DATE" shall mean the date on which both of this Agreement and Development Agreement have been fully executed by the Parties. 1.5 "FIELD I" shall mean the use of instrumented diagnostic tests for the following [ * ] infectious diseases: [ * ] 1.6 "FIELD II" shall mean the use of instrumented diagnostic tests for pneumonia, which consists of [ * ], and [ * ]. 1.7 "FIELD III" shall mean the use of instrumented diagnostic tests for all of the infectious diseases other than Field I and Field II, including, but not limited to, [ * ], and including [ * ] based detection of the infectious diseases. 1.8 "INSTRUMENTED PRODUCT" shall mean an instrument point of care product that can provide in vitro diagnostic test results for quantitative and/or qualitative infectious disease assays which may include any results developed under the Development Agreement. Instrumented Products will include instruments and cartridges. (The cartridges which are part of the Instrumented Products within the scope of BioStar Technology or the Patent Rights are hereinafter referred to as "Cartridge.") As used herein, the term "point of care" shall mean, in present clinical practice, in vitro diagnostic tests performed on a single sample using compact analyzers (desktop or portable hand held) devices that produce test results on a rapid basis and do not require a laboratory specialist. 1.9 "KEY PATENTS" shall mean the following three (3) Japanese patent applications of BioStar to be filed and already filed and any patent which may be granted under such applications: (A) Method and devices for [ * ] (BioStar's file reference: [ * ]; (B) [ * ] using enzyme-labeled reagents [ * ]; (C) Devices and methods for [ * ] based upon [ * ]. 1.10 "NET SALES VALUE" shall mean the gross invoice price of the Cartridges billed to the unaffiliated distributors or customers by Asahi or its sublicensees, less packaging expenses, transportation expenses, insurance premiums, trade commission to the sales agent, credit for the 2. 3 Cartridges actually returned, allowance, quantity and cash discounts or rebates, customs duties and direct tax to be levied on the Cartridges and their sales, if any, and paid by Asahi. 1.11 "PATENT RIGHTS" shall mean patents and patent applications in the Territory, including the Key Patents, which are owned or controlled by BioStar as of the Effective Date and during the ten (10) year period thereafter in the sense of having the right to grant licenses thereunder without making payment therefor to others and which would be infringed by Asahi's conduct to develop, manufacture, import, improve, use and sell any Instrumented Products in the Territory and Field(s) licensed to Asahi under this Agreement and shall include all patents which may be granted under said applications. The Patent Rights as of the Effective Date are listed in Appendix A attached hereto and made part hereof. 1.12 "TECHNICAL INFORMATION" shall mean all technology, inventions, information, data, know-how, compounds and materials (whether or not patented or patentable). 1.13 "TERRITORY" shall mean [ * ] 1.14 "VER.2 MANUAL PRODUCT" shall mean a manual point of care product that can provide in vitro diagnostic test results for qualitative infectious disease assays using flow through and visual optical immunoassay based on the BioStar Technology. ARTICLE 2 DISCLOSURE OF BIOSTAR TECHNOLOGY Within thirty (30) days after the Effective Date, BioStar shall furnish Asahi in documentary form with BioStar Technology which is listed in Appendix B attached hereto and made part hereof. In addition, BioStar shall conduct BioStar Technology assimilation programs in Boulder for the purpose of carrying out the disclosure of BioStar Technology to Asahi and/or consultation with respect to BioStar Technology, provided that the time, duration and the number of Asahi's personnel to be sent at Asahi's expense shall be mutually agreed upon by the Parties. ARTICLE 3 GRANT OF RIGHTS 3.1 LICENSE GRANT. Subject to the payment of royalties under Paragraphs 4.2 through 4.9 during the term of this Agreement, BioStar hereby grants Asahi an exclusive license with the right to sublicense others, subject to the approval of BioStar, not to be unreasonably withheld, (a) to develop, manufacture, have manufactured, import, improve, use and sell any Instrumented Products for use in Field I under the BioStar Technology and the Patent Rights in the Territory, and (b) to use the BioStar Technology and the Patent Rights for the purposes of development of any Instrumented Products in Field II and/or Field III in the Territory, which may include any regulatory submissions for the approval provided for in Paragraph 3.4 prior to Asahi's exercise of the option provided for in Paragraph 3.6. 3. 4 3.2 NON-ASSERTION. During the term of this Agreement, BioStar shall not assert any of the BioStar Technology or the Patent Rights against the sale or use of the Instrumented Products in the Field(s) licensed to Asahi under this Agreement within the Territory by Asahi's distributors or customers including, without limitation, hospitals, doctors, dealers and agents. 3.3 REGISTRATION OF RIGHTS. Asahi shall have the right to register the license granted hereunder in the patent office or other appropriate governmental offices in the Territory. This right shall include registration as "Senyo Jisshiken" in Japan. BioStar shall cooperate with Asahi in registering such license. 3.4 PRODUCT REGISTRATION. Asahi shall have sole responsibility for diligently conducting all preclinical and clinical trials for the Instrumented Product and shall diligently make all regulatory submissions necessary for the approval of the right to sell each Instrumented Product in the licensed Fields in each country in the Territory, at Asahi's sole expense, and BioStar shall cooperate with Asahi for such trials and regulatory submissions upon reasonable request by Asahi. 3.5 MARKETING EFFORTS. If Asahi fails to make regulatory submission for the approval of the right to sell each Instrumented Product in certain country in the Territory except Japan within four (4) years after obtaining the approval from the Japanese Ministry of Health and Welfare, or if Asahi fails to commence commercial sale of such Instrumented Product within two (2) years after obtaining the above-mentioned approval, an exclusive license with respect to such Instrumented Product granted to Asahi hereunder shall be converted to a non-exclusive license in such country. The above time period shall be extended as appropriate in the event BioStar does not approve an Asahi proposed sublicensee and Asahi experiences delays in identifying another sublicensee. 3.6 EXCLUSIVE OPTION. During a four (4) year period following the Effective Date, Asahi shall be granted exclusive options to obtain the same license and right with respect to any Instrumented Products for use in Field II and/or Field III as granted in Field I hereunder upon payment of the following amounts: First Exercised Option [ * ] License Fee for any and all disease applications in either Field II or Field III. Second Exercised Option [ * ] License Fee for all of applications in the remaining Field not exercised previously. The payments shall be due when the option is exercised. Paragraphs 4.2 through 4.9 shall apply to the Cartridges for which any of the above-mentioned options has been exercised. 4. 5 3.7 DISTRIBUTION OF VER.2 MANUAL PRODUCT IN JAPAN. During the five (5) year period following the Effective Date, BioStar shall not offer the right to distribute any Ver.2 Manual Product in Fields I or II to any party other than Asahi in Japan. After such five (5) year period, with respect to a Ver.2 Manual Product in Fields I or II, and from the Effective Date with respect to Ver.2 Manual Product in Field III, Asahi shall be granted the following right of first refusal with respect to exclusive distribution of any Ver.2 Manual Product in Japan. BioStar shall notify Asahi if it intends to enter into any agreement to distribute any Ver.2 Manual Product in Japan and offer Asahi the right to enter into such an agreement on terms substantially similar to those offered to the third party. If Asahi fails to accept such offer within forty-five (45) days of receipt of the offer, BioStar may make the proposed offer to a third party, provided that BioStar must not offer third parties terms and conditions which are more favorable to the distributor than those offered to Asahi without first offering such alternative terms to Asahi. ARTICLE 4 CONSIDERATION In consideration of the right and license granted and BioStar Technology disclosed to Asahi under this Agreement, Asahi shall pay to BioStar the following: 4.1 INITIAL LICENSE FEE. Asahi shall pay an initial amount of [ * ] payable in full within thirty (30) days after the Effective Date. [ * ] which Asahi has already paid to BioStar as an option period extension fee under the Option Agreement shall be credited against the above initial license fee. 4.2 RUNNING ROYALTY. Asahi shall pay to BioStar a running royalty equal to the following percentages of the Net Sales Value of all the Cartridges manufactured and sold by Asahi or its sublicenses under this Agreement to their first sale distributors or customers, domestic or foreign, and invoiced (with invoicing to be made contemporaneously with delivery) to such distributors or customers during the term of this Agreement.
TOTAL CUMULATIVE NET SALES VALUE OF CARTRIDGES MANUFACTURED AND SOLD BY ASAHI AND ITS SUBLICENSEES ROYALTY RATE --------------------------------------------------- ------------ 0-US$10,000,000 [*] US$10,000,000-US$20,000,000 [*] Over US$20,000,000 [*]
If any Cartridges are sold by Asahi to BioStar for resale by BioStar, such sale of the Cartridges shall be royalty- free but the Net Sales Value of Cartridges so sold shall be counted for determining said applicable royalty rate as if they had been sold to other customers and such Net Sales Value of the Cartridges shall be counted for computing the amount of the Net Sales Value. 5. 6 4.3 REDUCTION IN ROYALTIES. (a) If it becomes definite that all of the Key Patents are invalidated by the Japanese Patent Office, the rates of running royalties according to cumulative Net Sales Value mentioned in Paragraph 4.2 shall be reduced by [ * ] after such definite invalidation. (b) The rates of running royalties may be reduced in case where Paragraph 12.3.1, 12.3.3 or 12.4 of the Development Agreement is applicable. 4.4 CURRENCY CONVERSION. For the purpose of this Article 4, the Net Sales Value obtained for a certain royalty calculation period, as specified in Paragraph 4.6, in currency other than the United States Dollars shall be converted into the amounts of the United States Dollars, using the exchange rate for selling the United States Dollar by telegraphic transfer quoted by the Bank of Tokyo or such other first class bank in Japan mutually agreed to by both Parties on the last day of such royalty calculation period. 4.5 ROYALTY PAYABLE. The running royalty shall become payable to BioStar on the day on which the distributor or customer is billed by Asahi. 4.6 ROYALTY CALCULATION PERIOD AND PAYMENT TIME. The running royalty shall be calculated for each quarter after the start of production for commercial sale of any applicable products by or for Asahi and shall be paid to BioStar within forty-five (45) days after the end of such quarter. At the time of each royalty payment, Asahi shall submit to BioStar a royalty statement which shows in reasonable detail the calculation basis of the running royalty amount covered by such payment including the calculation of the Net Sales Value. 4.7 RECORDS AND INSPECTION. For a period of five (5) years after the payment of each running royalty is due under this Article 4, Asahi shall make and keep true, accurate and complete records, files and books of account containing all the data required for calculation and verification of such running royalty amounts paid by Asahi and of the information given in the royalty statements. Asahi shall, during normal business hours of Asahi, permit certified public accountants or other designated representative appointed by BioStar to whom Asahi has no reasonable objections to audit and inspect such records, files and books for the sole purpose of verifying the royalty amounts paid by Asahi. BioStar shall bear the cost of such audit and inspection, except if an underpayment of 5% or more with respect to any quarter is found, in which case Asahi shall reimburse BioStar for such cost and any underpayment within thirty (30) days of its receipt of BioStar's invoice therefor. 4.8 PAYMENT MANNER. All the payments due to BioStar under this Agreement shall be made in the United States currency by telegraphic transfer remittance to the BioStar account at a bank in the U.S.A. designated by BioStar. 4.9 WITHHOLDING TAXES. All withholding taxes imposed by Japanese Tax Laws on the amounts of consideration payable by Asahi to BioStar under this Agreement shall be borne by [ * ]. In this connection, Asahi shall withhold such taxes to the Japanese tax authority. 6. 7 When Asahi so withholds, Asahi shall forward to BioStar a tax payment certificate of the Japanese tax authority for the mount so withheld. ARTICLE 5 EXCHANGE OF IMPROVEMENTS 5.1 UPDATING OF BIOSTAR TECHNOLOGY. BioStar shall disclose to Asahi, during the ten (10) year period following the Effective Date, all BioStar Technology promptly after BioStar has acquired or developed it. In the event that BioStar elects not to file, prosecute or maintain a particular patent claiming such BioStar Technology, or to abandon prosecuting a particular patent application, or to cease paying the maintenance fees for a particular patent in the Territory, BioStar shall give Asahi sixty (60) day's notice before any relevant deadline, and Asahi shall have the right to pursue, at its own expense in the Territory, prosecution of such patent application or maintenance of such patent. Each Party agrees to cooperate with the other and take all reasonable additional actions as may be reasonably required to achieve the intent of this Paragraph 5.1, including, without limitation, the execution of necessary and appropriate instruments and documents. 5.2 ASAHI IMPROVEMENT. During the ten (10) year period following the Effective Date, Asahi shall disclose to BioStar all Asahi Improvements promptly after Asahi has acquired or developed. Asahi hereby grants to BioStar an exclusive license to use the Asahi Improvements in Fields I, II, and III outside the Territory without requiring BioStar to make any payment therefor. In the event that Asahi elects not to file, prosecute or maintain a particular patent claiming such Asahi Improvement outside the Territory, or to abandon prosecuting a particular patent application, or to cease paying the maintenance fees for a particular patent, Asahi shall give BioStar sixty (60) days notice before any relevant deadline, and BioStar shall have the right to pursue, at its own expense, outside the Territory, prosecution of such patent application or maintenance of such patent. Each Party agrees to cooperate with the other and take all reasonable additional actions as may be reasonably required to achieve the intent of this Paragraph 5.2, including, without limitation, the execution of necessary and appropriate instruments and documents. 5.3 TECHNOLOGY TRANSFER MEETINGS. In order to facilitate the transfer to Asahi and BioStar of the BioStar Technology and the Asahi Improvements, the Parties agree to designate one or more representatives who will meet from time to time, upon request of either Party but not more frequently than quarterly, either at alternating offices of the Parties or telephonically, to discuss the latest developments to the BioStar Technology and the Asahi Improvements. ARTICLE 6 PATENT PROSECUTION AND ENFORCEMENT 6.1 PATENT PROSECUTION. BioStar shall apply for and seek prompt issuance of, and upon issuance, maintain all of the Key Patents and all substitutions, extensions, reissues, renewals, divisions, continuations or continuations-in-part thereof or therefor in the Territory. Further, unless, after good faith discussions with Asahi, BioStar reasonably determines that it 7. 8 would not be cost effective to do so, BioStar shall apply for and seek prompt issuance of, and upon issuance, maintain all Patent Rights (except the Key Patents) to be licensed to Asahi hereunder and all substitutions, extensions, reissues, renewals, divisions, continuations or continuations-in-part thereof or therefor in the Territory. BioStar hereby agrees to apply for patents, under Patent Cooperation Treaty or respective national rules as may be applicable, immediately after the Effective Date with respect to "Method and devices for [ * ] (BioStar's file reference: [ * ] in [ * ]. Further, upon reasonable request of Asahi, BioStar shall file at BioStar's expense patent applications within the Patent Rights as of the Effective Date in any specific countries within the Territory. Asahi shall cooperate with BioStar and provide reasonable assistance to BioStar in the filing and prosecution of such patent applications. 6.2 PATENT ENFORCEMENT. (a) BioStar and Asahi shall each give immediate notice to the other of any infringement of the Patent Rights, BioStar Technology or Asahi Improvements by a third party which may come to its attention. (b) Asahi shall have the first right, but not the obligation, to institute and conduct any legal action in the Territory against such third party infringers of the Patent Rights or BioStar Technology, and may enter into settlement agreements with the approval of BioStar not to be unreasonably withheld. Any amounts recovered by Asahi as a result of an infringement action based on the BioStar Technology or the Patent Rights shall be allocated as follows: (a) Asahi shall first be paid 200% of its costs incurred in conducting such legal action, and (b) any remaining amounts shall be deemed to be Net Sales Value earned in the quarter in which such recovered amounts were paid and subject to the running royalty set forth in Paragraph 4.2. (c) In the event that Asahi decides not to commence actions or proceedings against an infringer pursuant to Paragraph 6.2(b) above, BioStar, at BioStar's expense, shall have the right to initiate and pursue such action; provided, however, that Asahi shall cooperate with and assist BioStar in such action, at Asahi's expense, to the extent that such cooperation and assistance are reasonably available. Any amounts recovered by BioStar as a result of such legal action shall be used first to pay to BioStar 200% of its costs incurred in conducting such legal action and any remaining amounts shall be shared equally by the Parties. (d) BioStar shall have the first right, but not the obligation, to institute and conduct any legal action outside the Territory against any third party infringers of the Asahi Improvements and may enter into settlement agreements with the approval of Asahi, not to be unreasonably withheld. Any amounts recovered by BioStar as a result of such infringement shall be retained solely by BioStar. (e) In the event that BioStar decides not to commence actions or proceedings against an infringer pursuant to Paragraph 6.2(d) above, Asahi, at Asahi's expense, shall have the right to initiate and pursue such action; provided, however, that BioStar shall cooperate with and assist Asahi in such action, at BioStar's expense, to the extent that such cooperation and 8. 9 assistance are reasonably available. Any amounts recovered by Asahi as a result of such legal action shall be retained solely by Asahi. ARTICLE 7 WARRANTIES BioStar hereby warrants to Asahi that BioStar has the full corporate power and authority to enter into this Agreement and to license and transfer the BioStar Technology as herein contemplated, and that nothing in this Agreement violates any agreement by which BioStar is bound. Asahi hereby warrants to BioStar that Asahi has the full corporate power and authority to enter into this Agreement and to license and transfer Asahi Improvement as herein contemplated, and that nothing in this Agreement violates any agreement by which Asahi is bound. Each Party further warrants that it shall not, during the life of this Agreement, enter into any agreement with any other party which would be inconsistent with any terms or conditions of this Agreement. ARTICLE 8 INDEMNIFICATION 8.1 INDEMNIFICATION BY BIOSTAR. BioStar hereby agrees to indemnify, hold harmless and defend Asahi and its officers, directors and employees against any and all liability, damages, judgments, awards or costs of defense (including without limitation reasonable attorneys' fees, expenses to defend and amounts paid in settlement of any action) directly resulting from any claim or claims against any of the foregoing to the extent that such claim or claims are based on the negligence or willful misconduct of BioStar or any of its employees or agents or such claim or claims arise out of the manufacture, use or sale of any product by BioStar which is made using the Asahi Improvement. 8.2 INDEMNIFICATION BY ASAHI. Asahi hereby agrees to indemnify, hold harmless and defend BioStar and its officers, directors and employees against any and all liability, damages, judgments, awards or costs of defense (including without limitation reasonable attorneys' fees, expenses to defend and amounts paid in settlement of any action) directly resulting from any claim or claims against any of the foregoing to the extent that such claim or claims are based on the negligence or willful misconduct of Asahi or any of its employees or agents or such claim or claims arise out of the manufacture, use or sale of Instrumented Product by Asahi or its sublicensees. 8.3 NOTICE AND PROCEDURES. In all cases where one Party seeks indemnification by the other under this Article 8, the Party seeking indemnification shall promptly notify the indemnifying Party of receipt of any claim or lawsuit covered by such indemnification obligation and shall cooperate fully with the indemnifying Party in connection with the investigation and defense of such claim or lawsuit. The indemnifying Party shall have the right to control the defense, with counsel of its choice, provided that the non-indemnifying Party shall have the right 9. 10 to be represented by advisory counsel at its own expense. The indemnifying Party shall not settle or dispose of the matter in any manner which could negatively and materially affect the right or liability of the non-indemnifying Party without the non-indemnifying Party's prior written consent, which shall not be unreasonably withheld. ARTICLE 9 CONFIDENTIALITY 9.1 UNDERSTANDING OF THE PARTIES. Each Party acknowledges that the information disclosed in connection with any transactions contemplated hereunder contains the confidential information and trade secrets of BioStar and Asahi, and is the property of the disclosing Party. Such information, including, but not limited to, BioStar Technology, Asahi Improvement, shall be referred to collectively, for purposes of this Article 9, as "Confidential Information." 9.2 CONFIDENTIALITY. During the term of this Agreement, and for a period of five (5) years thereafter, each Party hereto shall maintain in confidence all Confidential Information disclosed to it by the other Party hereto. Neither Party will use, disclose or grant the use of such Confidential Information except as expressly licensed or permitted under this Agreement. Each Party is, however, authorized to disclose Confidential Information to its employees, agents, consultants, sublicensees or subcontractors to the extent such disclosure is reasonably necessary, for carrying out their duties and responsibilities. To the extent that disclosure is authorized by this Agreement, the disclosing Party will obtain prior agreement from its employees, agents, consultants, sublicensees or subcontractors to whom disclosure is to be made to hold in confidence and not make use of such information for any purpose other than those permitted by this Agreement. Each Party will use at least the same standard of care as it uses to protect its own trade secrets or proprietary information to ensure that such employees, agents, consultants, sublicensees and subcontractors do not disclose or make any unauthorized use of such Confidential Information. Each Party will promptly notify the other upon discovery of any unauthorized use or disclosure of the Confidential Information. 9.3 EXCEPTIONS. The obligations of confidentiality contained in Article 9.2 will not apply to the extent that it can be established by the receiving Party by competent written proof that such Confidential Information: (a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the other Party; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the other Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement; (d) was disclosed to the receiving Party, other than under an obligation of confidentiality, by a third party who had no obligation to the other Party not to disclose such information to others; or (e) is independently developed by the receiving Party without using any of the other Party's Confidential Information. 9.4 PUBLIC ANNOUNCEMENT. The Party desiring to make any public announcement or other disclosure regarding the content of this Agreement shall inform the other Party of the proposed announcement or disclosure in reasonably sufficient time prior to public release, and shall provide the other Party with a written copy thereof, in order to allow such other Party to 10. 11 comment upon such announcement or disclosure. Once any such public announcement or disclosure has been approved by such other Party in accordance with this Paragraph, then the desiring Party may appropriately communicate information contained in such permitted announcement or disclosure. Notwithstanding the foregoing, either Party shall have the right to make such disclosure of this Agreement as is required under any applicable laws, including the rules and regulations of the Securities and Exchange Commission. ARTICLE 10 DISPUTE RESOLUTION This Agreement is made on the basis of mutual confidence and good faith between the Parties. If a dispute should arise between the Parties out of or relating to this Agreement or to a breach thereof, including as to the interpretation, performance or termination of this Agreement, the Parties shall initially seek to resolve such dispute amicably by negotiation. If the Parties fail to resolve the matter by good faith negotiation within a period of sixty (60) days, then either Party may institute binding arbitration of the dispute. The arbitration shall be conducted in New York, New York, USA, in English, under the Commercial Arbitration Rules of the American Arbitration. Judgment on the award rendered by the arbitrator shall be final and may be entered in any court having jurisdiction thereof. The expense of the arbitration (including without limitation, the award of attorney's fees to the prevailing Party) shall be paid as the arbitrator determines. Notwithstanding the foregoing, nothing in this Article shall be construed as limiting in any way the right of a Party to seek injunctive relief with respect to any actual or threatened breach of this Agreement, which breach would cause irreparable harm to the Party seeking such relief, from a court of competent jurisdiction. ARTICLE 11 FORCE MAJEURE No Party hereto shall be liable for damages or held in default hereunder for any non-performance or delay resulting from causes beyond its control, including failure of usual sources of supply, fire, accident, riot, war, flood, earthquake, storm or Acts of God, action or inaction of governmental authorities or agencies, or the similar causes which cannot be controlled by a Party. In case of occurrence of a force majeure event, the Party which is the victim of such event shall immediately notify the other Party of the event giving the full particulars of the cause, its expected duration and the anticipated effects thereof. ARTICLE 12 TERM AND TERMINATION 12.1 TERM (a) The term of this Agreement shall commence on the Effective Date and shall remain in force, until expiration, revocation or invalidation of the last to expire patent within the Patent Rights listed in Appendix A, unless terminated earlier under Paragraph 12.2. 11. 12 (b) Upon expiration of the full term of this Agreement, each Party shall retain the licenses granted to such Party under this Agreement on the terms set forth herein, except that all such licenses shall be irrevocable and paid-up. 12.2 EARLY TERMINATION. BioStar or Asahi may terminate this Agreement upon giving notice thereof to the other Party: (a) In the event that the other Party files a petition in bankruptcy, or in the event that all or part of the other Party's assets are assigned to a trustee or receiver, or if an involuntary petition is filed by a third party and the other Party does not resolve such petition in its favor within sixty (60) days after filing and notice thereof, or (b) In the event of a material breach of this Agreement not remedied by the other Party in breach within sixty (60) days after receipt of notice by the terminating Party specifying such breach and requesting that it be remedied, unless the Party allegedly in breach submits the issue to arbitration within said sixty (60) day period. In the event that such Party submits the issue to arbitration, then diligent compliance with the arbitration decision shall be a cure for such breach, and, in the event of such a cure, this Agreement may not be so terminated unless determined by the arbitrator. A breach of either Party under the Development Agreement shall in no way be deemed to be a breach by such Party under this Agreement. In the event that any involuntary petition is filed as set forth in Paragraph (a) above, then the Party having the right to terminate this Agreement may suspend its performance hereunder until the resolution of such petition. If one Party so suspends its performance, then the other Party shall be entitled to suspend its performance until the original suspending Party resumes performance. 12.3 SURVIVAL. Any expiration or termination of this Agreement under Paragraph 12.1 or 12.2 above shall not relieve any Party from any obligations hereunder which have accrued on or before the effective date of such expiration or termination, nor affect the provisions set forth in Articles 8, 9 and 10, and Paragraphs 4.7, 12.1(b), 12.3 through 12.8, 13.3 and 13.7 hereof, all of which are intended by the Parties to survive such expiration or termination. 12.4 TERMINATION BY ASAHI. In the event that this Agreement is terminated by Asahi pursuant to Paragraph 12.2, Asahi shall retain the licenses and rights granted to it under Article 3 hereof, subject to the payment of the running royalty under Paragraph 4.2. In addition, in such event, BioStar shall immediately cease to have the licenses and rights granted to it under Article 5. Further, in such event Asahi shall have the right to terminate the Development Agreement and such termination will have the consequences set forth in Paragraph 12.3.1 of the Development Agreement. 12.5 TERMINATION BY BIOSTAR. In the event that this Agreement is terminated by BioStar pursuant to Section 12.2, BioStar shall retain the licenses and rights granted to it under Article 5 hereof, and BioStar shall have the licenses and rights set forth in Paragraph 12.1 above on and after the date of the expiration of full term of this Agreement. In addition, in such event, Asahi shall immediately cease to have the licenses and rights granted to it under Article 3. Further, in such event BioStar shall have the right to terminate the Development Agreement if it 12. 13 is still in effect at such time, and Asahi shall assign and transfer to BioStar all Development Know-How and Development Patents. If such termination of this Agreement by BioStar occurs after the expiration of the Development Agreement, each Party shall retain such rights as it then possesses thereunder at the time of such termination. 12.6 RETURN OF CONFIDENTIAL INFORMATION. In the event of termination for cause under Paragraph 12.2, the Party which loses its licenses and rights hereunder shall promptly return all Confidential Information with respect to the affected products of the non-breaching Party, including copies thereof, and shall cease using the same as quickly as commercially feasible but in no case more than sixty (60) days after the effective date of such termination. The breaching Party shall certify to the non-breaching Party in writing compliance with this Paragraph 12.7 upon the return of such materials. 12.7 NO-EXCLUSIVE REMEDY. The right of any Party to terminate this Agreement under Paragraph 12.2 above is not an exclusive remedy, and any Party shall be entitled, if the circumstances warrant, alternatively or cumulatively, to damages for breach of this Agreement, to an order requiring performance of the obligations of this Agreement or to any other legally available remedy. 12.8 ASAHI'S RIGHTS IN BANKRUPTCY. All rights and licenses granted under or pursuant to this Agreement by BioStar to Asahi are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to "intellectual property" as defined under Section 101 of the U.S. Bankruptcy Code. The Parties agree that Asahi as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code. The Parties further agree that, in the event commencement of a bankruptcy proceeding by or against BioStar under the U.S. Bankruptcy Code, BioStar shall give Asahi an immediate written notice and Asahi shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, and the same, if not already in its procession, shall be promptly delivered to Asahi (a) upon any such commencement of a bankruptcy proceeding upon written request therefor by Asahi, unless BioStar elects to continue to perform all of its obligations under this Agreement, or (b) if not delivered under (a) above, upon the rejection to perform its obligations under this Agreement by or on behalf of BioStar upon written request therefor by Asahi. ARTICLE 13 MISCELLANEOUS PROVISIONS 13.1 RELATIONSHIP OF THE PARTIES. Neither Party is, nor shall be deemed to be, an agent or legal representative of the other Party for any purpose. Neither Party shall be entitled to enter into any contracts in the name of or on behalf of the other Party, and neither Party shall be entitled to pledge the credit of the other Party in any way or hold itself out as having authority to do so. No Party shall incur any debts or make any commitments for the other, except to the extent, if at all, specifically provided herein. 13. 14 13.2 ASSIGNMENT. This Agreement may not be assigned by either Party, nor may either Party transfer its rights under this Agreement to any third party, without prior written consent of the other Party, which consent will not be unreasonably withheld. Notwithstanding the foregoing, however, either Party shall be entitled to assign this Agreement, and all rights and obligations hereunder, to a successor to all or substantially all of its assets, whether by sale, merger, or otherwise, provided that either Party desiring to make such an assignment shall provide the other Party with, where possible, thirty (30) days prior written notice of such assignment or such shorter time as is possible, subject to any contractual restrictions or disclosure of such information prior to such assignment, and cause such assignee to be bound by this Agreement. This Agreement shall be binding upon the successors and assignees of the parties hereof. In the event of assignment of this Agreement by either Party, the license granted by such assigning Party to the other Party shall not cover any intellectual property of such assignee which was not controlled by the assigning Party prior to the effective date of such assignment. 13.3 NOTICES. All notices and communications hereunder shall be in writing and shall be deemed given if delivered personally or by confirmed facsimile transmission, telexed, mailed by registered or certified mail, postage prepaid, or sent by express courier service, to the Parties at the addresses set forth in the first paragraph of this Agreement (or as such other address for a Party as shall be specified by like notice to the other Party). 13.4 AMENDMENT. No amendment, modification or supplement of any provision of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party. 13.5 WAIVER. No provision of this Agreement shall be waived by any act, omission or knowledge of a Party or its agents or employees except by an instrument in writing expressly waiving such provision and signed by a duly authorized officer of the waiving Party. 13.6 COUNTERPARTS. This Agreement may be executed in counterparts. 13.7 GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, applicable to contracts executed and performed wholly within the State of New York. 13.8 SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such provision or invalidity, without invalidating the remainder of this Agreement. 13.9 ENTIRE AGREEMENT OF THE PARTIES. This Agreement and Development Agreement will constitute and contain the complete, final and exclusive understanding and agreement of the Parties and cancels and supersedes any and all prior negotiations, correspondence, understandings and agreements, whether oral or written, between the Parties respecting the subject matter hereof. 14. 15 IN WITNESS WHEREOF, the Parties have as of the day and year first above written duly executed this Agreement. BIOSTAR, INC. ASAHI CHEMICAL INDUSTRY CO., LTD. By: /s/ Teresa W. Ayers By: /s/ Tadashi Ikegami ----------------------- ----------------------------- Title: President/CEO Title: Board Director -------------------- -------------------------- 15. 16 APPENDIX A TABLE OF CONTENTS: BOOK ONE: US ISSUED PATENTS PATENT NUMBER TOPIC 1) US [ * ] [ * ] Corresponds to: EPO [ * ]; Issued [ * ] JP [ * ]; Issued [ * ] DE [ * ]; Issued [ * ] CA [ * ]; Issued [ * ] 2) US [ * ] [ * ] Corresponds to: EPO [ * ]; Issued [ * ] JP [ * ]; Issued [ * ] DE [ * ]; Issued [ * ] DENMARK [ * ]; Issued [ * ] 3) US [ * ] [ * ] Corresponds to: EPO [ * ]; Abandoned JP [ * ]; Pending DE [ * ]; Abandoned CA [ * ]; Issued [ * ] 4) US [ * ] [ * ] Corresponds to: EOP [ * ]; Abandoned JP [ * ]; Pending DE [ * ]; Issued [ * ] CA [ * ]; Issued [ * ] 5) US [ * ] [ * ] Corresponds to: WO [ * ]; Pending JP [ * ]; Pending
EPO consists of the following nations: Austria, Belgium, Switzerland, Germany, Netherlands, Luxembourg, Spain, France, Italy, UK, Sweden. Canada and Japan honor PCT/EPO filings with independent review. 1. 17
PATENT NUMBER TOPIC 6) US [ * ] [ * ] [ * ] [ * ] [ * ] Corresponds to: WO [ * ]; Pending JP[ * ]; Pending EPO [ * ]; Issued [ * ] DE [ * ]; Issued [ * ] JP [ * ]; Pending EP [ * ]; Issued DE [ * ]; Issued JP [ * ]; Pending WO [ * ]; Pending JP [ * ]; Pending EPO [ * ]; Pending 7) US [ * ] [ * ] Corresponds to: WO [ * ]; Pending JP [ * ]; Pending 8) US [ * ] [ * ] Corresponds to: EPO [ * ]; Pending 9) US [ * ] [ * ] Corresponds to: WO [ * ]; Pending JP [ * ]; Pending 10) US [ * ] [ * ] Corresponds to: JP [ * ]; Pending EPO [ * ]; Issued [ * ] DE [ * ]; Issued [ * ] EP [ * ]; Issued DE [ * ]; Issued JP [ * ]; Pending WO [ * ]; Pending JP [ * ]; Pending EPO [ * ]; Pending
2. 18
PATENT NUMBER TOPIC 11) US [ * ] [ * ] Corresponds to: WO [ * ]; Pending JP [ * ]; Pending 12) US [ * ] [ * ] Corresponds to: WO [ * ]; Pending JP [ * ]; Pending *13) US [ * ] [ * ] Corresponds to: WO [ * ]; Pending JP [ * ]; Pending *14) US [ * ] [ * ] Corresponds to: WO [ * ]; Pending JP [ * ]; Pending **15) US [ * ] [ * ] Corresponds to: EP [ * ]; Issued DE [ * ]; Issued JP [ * ]; Pending
* Provided to Dr. I. Fukawa 7/25/97 ** Mailed to Dr. I. Fukawa 7/31/97 3. 19 BOOK TWO: ISSUED INTERNATIONAL
PATENT NUMBER TOPIC 16) JP [ * ]; ISSUED [ * ] [ * ] GB [ * ]; ISSUED [ * ] EPO [ * ]; ISSUED [ * ] DE [ * ]; ISSUED [ * ] Corresponds to: US [ * ] US [ * ]
PATENT NUMBER TOPIC 17) EPO [ * ]; ISSUED [ * ] [ * ] JP [ * ]; ISSUED [ * ] DE [ * ]; ISSUED [ * ] CA [ * ]; ISSUED [ * ] Corresponds to: US [ * ] 18) EPO [ * ]; ISSUED [ * ] [ * ] JP [ * ]; ISSUED [ * ] DE [ * ]; ISSUED [ * ] DENMARK [ * ]; ISSUED [ * ] Corresponds to: US [ * ] 19) EPO [ * ]; ABANDONED [ * ] JP [ * ]; PENDING DE [ * ]; ABANDONED CA [ * ]; ISSUED [ * ] Corresponds to: US [ * ] 20) EPO [ * ]; ABANDONED [ * ] JP [ * ]; PENDING DE [ * ]; ISSUED [ * ] CA [ * ]; ISSUED [ * ] Corresponds to: US [ * ] 21) EPO [ * ]; ISSUED [ * ] [ * ] DE [ * ]; ISSUED [ * ] JP [ * ]; PENDING Corresponds to: US [ * ] US [ * ]
4. 20 BOOK THREE: PENDING INTERNATIONAL
PATENT NUMBER TOPIC 22) JP [ * ]; PENDING [ * ] EPO [ * ]; Issued DE [ * ]; Issued Corresponds to: US [ * ] US [ * ] US [ * ] 23) WO [ * ]; PENDING [ * ] JP [ * ]; PENDING EPO [ * ]; PENDING Corresponds to: US [ * ] US [ * ] 24) WO [ * ]; PENDING [ * ] JP [ * ]; PENDING Corresponds to: US [ * ]; PENDING 25) EPO [ * ]; PENDING [ * ] JP [ * ]; PENDING Corresponds to: US [ * ]; PENDING 26) WO [ * ]; PENDING [ * ] JP [ * ]; PENDING Corresponds to: US [ * ] US [ * ] US [ * ] US [ * ] US [ * ] US [ * ] US [ * ] US [ * ]; PENDING 27) EPO [ * ]; PENDING [ * ] Corresponds to: US [ * ]
5. 21 BOOK FOUR: US PENDING
PATENT NUMBER TOPIC 28) [ * ] [ * ] Corresponds to: EPO [ * ]; Issued JP [ * ]; Issued GB [ * ]; Issued DE [ * ]; Issued 29) [ * ] [ * ] Corresponds to: EPO [ * ] JP [ * ]; Issued GB [ * ]; Issued DE [ * ]; Issued 30) [ * ]; Allowed [ * ] Corresponds to: WO [ * ]; Pending JP [ * ]; Pending
6. 22 BOOK FIVE: US PENDING
PATENT NUMBER TOPIC 31) [ * ] [ * ] Corresponds to: WO [ * ]; Pending EPO [ * ]; Pending JP [ * ]; Pending JP [ * ]; Pending 32) [ * ] [ * ] International to be made
7. 23 APPENDIX B BIOSTAR METHODS - -- Methods for culture/storage of microorganisms on the FDA-cleared [ * ] Package Insert and the [ * ] - -- Historical screening methods for [ * ] - -- Historical screening methods for [ * ] - -- Historical screening methods for [ * ] and [ * ] - -- Method for Cross-reactivity study - -- Method for Interference study - -- [ * ] attachment method - -- [ * ] conjugation methods - -- Conjugate diluent formulations [ * ] - -- Analytical methods to evaluate [ * ] - -- [ * ] for [ * ] - -- Methods for [ * ] surfaces - -- Specifications for [ * ] (vendor specifications) - -- Extraction reagent formulations - -- Assay protocols - -- A copy of SOPs (Standard Operating Procedures), MPs (Manufacturing Procedures), QCPs (Quality Control Procedures) - -- A copy of Product Development Guidelines - -- Copies of BioStar Sales Training Manuals (includes customer training procedure) - -- Specifications for injection molded Version 1 plastic case EX-10.60 6 DIAGNOSTIC DEVELOPMENT/COMMERCIALIZATION AGRMT 1 -------------------------------- Dated 1997 DIAGNOSTIC DEVELOPMENT AND COMMERCIALISATION AGREEMENT BIOTA SCIENTIFIC MANAGEMENT PTY LTD ("BIOTA") AND BIOSTAR, INC. ("BIOSTAR") MALLESONS STEPHEN JAQUES SOLICITORS RIALTO 525 COLLINS STREET MELBOURNE VIC 3000 TELEPHONE (03) 9619 0619 FAX (03) 9614 1329 DX I01 MELBOURNE REF: D NICHOLSON MEL_CORP/0050360.01 * CERTAIN CONFIDENTIAL MATERIAL CONTAINED IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED 2 TABLE OF CONTENTS
PAGE 1. INTERPRETATION...........................................................................................2 2. DEVELOPMENT PROJECT......................................................................................9 3. FUNDING OF DEVELOPMENT PROJECT..........................................................................10 4. FDA CLEARANCE...........................................................................................11 5. MANUFACTURE OF DIAGNOSTIC...............................................................................11 6. SUPPLY OF COMPOUNDS.....................................................................................15 7. MARKETING, SALE AND DISTRIBUTION OF DIAGNOSTIC..........................................................15 8. MARKETING/TRADE DRESS...................................................................................17 9. SECOND GENERATION DIAGNOSTIC............................................................................18 10. PROFITS.................................................................................................18 11. BIOTA IP................................................................................................19 12. FOREGROUND IP...........................................................................................21 13. BIOSTAR IP..............................................................................................22 14. PUBLICATION OF DEVELOPMENT PROJECT RESULTS AND OTHER INFORMATION........................................24 15. CONFIDENTIALITY.........................................................................................24 16. TERM AND TERMINATION....................................................................................26 17. INDEMNITY...............................................................................................28 18. FURTHER COLLABORATION...................................................................................29 19. TAXATION................................................................................................29 20. RELATIONSHIP OF PARTIES.................................................................................30 21. NOTICES.................................................................................................30 22. ASSIGNMENT..............................................................................................31 23. WAIVER AND VARIATION....................................................................................31 24. REMEDIES CUMULATIVE.....................................................................................31 25. FURTHER ASSURANCES......................................................................................31
3 26. SUPERVENING LEGISLATION.................................................................................32 27. SEVERABILITY............................................................................................32 28. ENTIRE AGREEMENT........................................................................................32 29. GOVERNING LAW...........................................................................................32 30. ARBITRATION OF PAYMENTS.................................................................................32 31. PUBLICITY...............................................................................................33 SCHEDULE 1.......................................................................................................34 SCHEDULE 2.......................................................................................................38 SCHEDULE 3.......................................................................................................40 SCHEDULE 4.......................................................................................................44 SCHEDULE 5.......................................................................................................45 SCHEDULE 6.......................................................................................................46 SCHEDULE 7.......................................................................................................47 SCHEDULE 8.......................................................................................................49 SCHEDULE 9.......................................................................................................50
ii. 4 DIAGNOSTIC DEVELOPMENT AND COMMERCIALISATION AGREEMENT DATE: This Agreement is made on 23 May, 1997. PARTIES: BIOTA SCIENTIFIC MANAGEMENT PTY LTD a company incorporated in the State of Victoria and having its registered office at Level 4, 616 St. Kilda Road, Melbourne, Victoria, Australia ("Biota"). BIOSTAR, INC. a company incorporated in the State of Delaware, United States of America, and having its principal place of business at 6655 Lookout Road, Boulder, Colorado 80301, United States of America ("BioStar"). RECITALS: A. Biota possesses skill and expertise and has information in relation to influenza treatment and diagnosis, structure based anti-viral drug design and discovery, Compounds (defined in clause 1.1) and related chemistries having diagnostic and therapeutic applications and other Biota business, financial and technical activities. B. BioStar possesses skill and expertise in the development, manufacturing, commercialization and marketing of diagnostic products and has information in relation to technologies with diagnostic applications for point of care use, in particular its Optical Immunoassay Technology (defined in clause 1.1) and antibody know-how. C. Biota and BioStar entered into a Diagnostic Project Research Agreement as of 9 September 1996 (the "Diagnostic Project Research Agreement") pursuant to which the parties agreed to collaborate in carrying out a project to determine whether BioStar's proprietary technologies with diagnostic applications could be used in conjunction with the Compounds and Biota's proprietary chemistries for the detection of influenza (the "Project"). D. The goals of the Project described in schedule 1 of the Diagnostic Project Research Agreement have been met and Biota now wishes to further develop and commercialize a Diagnostic in accordance with the goals and specifications set out in schedule 3. E. The parties have agreed to collaborate in carrying out a Development Project to further develop the Diagnostic and in the event of the success of that work to commercialize the Diagnostic in accordance with the terms and conditions of this Agreement. 1. 5 OPERATIVE PROVISIONS 1. INTERPRETATION 1.1 In this Agreement, unless a contrary intention appears: AGREEMENT means this agreement including the recitals, schedules and annexures attached hereto, which are deemed to be incorporated into this agreement. ANTIBODY means any antibody developed or used in the course of carrying out the Project or the Development Project which could be used in the capture or detection of the influenza virus. BIOSTAR DISTRIBUTION ALLOWANCE means a percentage of BioStar's Gross Sales Revenue calculated in accordance with Schedule 7. BIOSTAR IP means any and all Intellectual Property: (a) disclosed by BioStar to Biota in the course of the Project, the Development Project or the manufacture, sale or distribution of the Diagnostic; or (b) owned by BioStar or licensed to BioStar which BioStar disclosed to Biota for the purposes of the Project or discloses to Biota for the purposes of the Development Project or for the manufacture, sale or distribution of the Diagnostic, including BioStar's Optical Immunoassay Technology and antibody know-how; or (c) created, discovered or coming into existence or arising as a result of the Project, the Development Project or in connection with the manufacture, sale or distribution of the Diagnostic; or (d) learned by Biota or BioStar in the course of carrying out the Project or the Development Project or in connection with the manufacture, sale or distribution of the Diagnostic, provided that, in the case of paragraphs (c) and (d), the Intellectual Property is related directly to BioStar's Optical Immunoassay Technology or an antibody approach to a diagnostic not incorporating a Compound or a Compound conjugate or combination and not constituting Project IP (as defined under the Diagnostic Project Research Agreement) or Foreground IP. BIOTA DISTRIBUTION ALLOWANCE means a percentage of Biota's Gross Sales Revenue relating to the sale of the Diagnostic in the US calculated in accordance with Schedule 7. BIOTA GROUP means Biota Holdings Limited and any of its subsidiaries (as defined in Division 6 of Part 1.2 of the Corporations Law). 2. 6 BIOTA IP means any and all Intellectual Property: (a) disclosed by Biota to BioStar in the course of carrying out the Project, the Development Project or the manufacture, sale or distribution of the Diagnostic; (b) owned by Biota or licensed to Biota which Biota brought to the Project or brings to the Development Project or discloses to BioStar for use in the manufacture, sale or distribution of the Diagnostic; or (c) constituting Project IP. BREACH DATE has the meaning given in clause 5.5. COMMERCIALIZATION PLAN means a plan for the commercialization of the Diagnostic in the form set out in Schedule 8. COMPOUND-BASED ASSAY means an assay incorporating a Compound or Compounds. COMPOUNDS means those compounds listed in Schedule 4 and any compounds specific for influenza detection: (a) synthesized or produced in the course of carrying out the Project or the Development Project; (b) brought to the Project or the Development Project by Biota either at the start or during the course of the Project or the Development Project; or (c) resulting from modifications or changes to any such compounds, but does not include antibodies or antibody like molecules unless such antibodies or antibody like molecules are combined or conjugated with such compounds. CONFIDENTIAL INFORMATION of a Disclosing Party means any information and know-how including Biota IP, BioStar IP or Foreground IP, as the case may be, (except information described in clause 15.2): (a) disclosed by the Disclosing Party to the Disclosee; (b) learned by the Disclosee as a result of or in relation to the Project, Development Project or the manufacture, sale or distribution of the Diagnostic; or (c) concerning this Agreement (including the terms of this Agreement), the Diagnostic Project Research Agreement or any other agreement executed or proposed between the parties or the negotiations between the parties 3. 7 relating to this Agreement or any such other agreement. CORPORATIONS LAW means the Corporations Law of the State of Victoria, Australia. COST OF GOODS includes all costs directly incurred by a party in producing goods (Diagnostic or Compounds, as the case may be) including the cost of raw materials (including GG167 chemicals), actual cost of all direct labor and any administrative costs related to such manufacture, such administrative costs to be determined in a manner which is consistent with generally accepted Australian accounting principles. DEVELOPMENT BUDGET means the budget for the Development Project set out in Schedule 2, as varied from time to time by mutual agreement of the parties under clause 3.2. DEVELOPMENT PROJECT means the collaborative project which is to be undertaken by the parties as described in Recital E and the Development Work Plan. DEVELOPMENT WORK PLAN means the work plan for the Development Project set out in Schedule 1, as varied from time to time by mutual agreement of the parties under clause 2.1. DIAGNOSTIC means a device or procedure which incorporates one or more Compounds, Antibodies, Antibody-like molecules or Ligands for use in, or in connection with diagnosing viral influenza. DIAGNOSTIC PATENTS means any Patent or Patent Applications now or hereafter applied for, granted to or made by Biota or BioStar in respect of the Diagnostic or the Intellectual Property in the Diagnostic and any continuations, continuations in part division, registrations, confirmations, re-issues, renewals or extensions of term thereof. DIAGNOSTIC PROJECT RESEARCH AGREEMENT means the agreement described as such in recital C. DISCLOSEE means the party to whom Confidential Information or Intellectual Property is disclosed or the party which learns the relevant Confidential Information from the other party. DISCLOSING PARTY means the party which discloses Confidential Information or Intellectual Property to the other party or from whom information is learned directly or indirectly. DISTRIBUTION ALLOWANCE means the Biota Distribution Allowance or the BioStar Distribution Allowance, as relevant. DUE DATE has the meaning given in clause 5.4. 4. 8 FDA means the Food and Drug Administration of the US (or any replacement or successor body). FDA CLEARANCE OF THE DIAGNOSTIC means formal FDA clearance of the sale and use of the Diagnostic for the diagnosis of influenza in the US. FDA APPROVAL OF GG167 means formal FDA approval to the use of the compound GG167 (Zanamivir) for therapeutic purposes in the treatment of influenza in the US. FORCE MAJEURE means acts of gods, fire, lightening, explosions, flood, subsidence, insurrection or civil disorder or military operations; government restraint, expropriation, prohibition, intervention, direction or embargo. FOREGROUND IP means any and all Intellectual Property: (a) created, discovered, coming into existence or arising from the carrying out of the Development Project or the manufacture, sale or distribution of the Diagnostic; or (b) learned by Biota or BioStar from the Development Project, (including the results of any evaluation or testing carried out pursuant to the Development Project) or the manufacture, sale or distribution of the Diagnostic, including without limitation, any and all Intellectual Property which: (c) relates to the structure, manufacture, use, synthesis or properties of Compounds or combinations or conjugates of Compounds; (d) relates to the therapeutic or diagnostic application of Compounds or combinations or conjugates of Compounds; or (e) is derived directly or indirectly from the use or application of Glaxo IP; but excluding any and all Intellectual Property which directly relates to BioStar IP. [ * ] GLAXO GROUP means any or all of Glaxo Wellcome plc, Glaxo Group Limited, Glaxo Wellcome Australia Ltd, Glaxo Research and Development Limited and their related bodies corporate from time to time. GLAXO IP means any and all Intellectual Property owned or possessed by Glaxo Group which Glaxo Group has disclosed or discloses to the Biota Group or BioStar for the purposes of, or in the course of the 5. 9 Project or the Development Project or the manufacture, sale or distribution of the Diagnostic. GROSS SALES REVENUE means all amounts or revenue received, receivable or derived by a party from the sale of the Diagnostic to a third party, provided that for these purposes any sales not made in an arms length, bona fide, commercial transaction will be deemed to have been at the standard commercial price list rates of the selling party for the Diagnostic, or, if none, at the fair market price. INDEPENDENT AUDITOR means the person appointed as auditor jointly by Biota and BioStar for the purposes of clause 10.6 or if they do not agree on the person to be appointed within 7 days of the end of the first Sales Year, the accountant appointed by the President of the Australian Institute of Chartered Accountants (Victorian Branch) at the request of either Biota or BioStar. INTELLECTUAL PROPERTY includes: (a) inventions, patents, copyright works and other subject matter, trade dress, designs, trade marks, trade names, logos and get up, circuit layouts, business or marketing plans, trade secrets and confidential information; (b) ideas, concepts, processes, techniques, software products and know-how; and (c) all rights conferred under statute, common law and equity in and in relation to any of the above. LIBOR means: (a) if not less than two rates for 90 day loans are displayed on Reuters page "LIBO" at or around 11:00 am (London time) on the business day before the day on which this Agreement terminates under clause 16.4, the arithmetic mean (expressed as a rate per cent per annum and rounded up to five decimal places) of not less than two of those rates selected by Biota; or (b) if Biota is unable to determine a rate under paragraph (a) because an insufficient number of rates are displayed, the rate (expressed as a rate per cent per annum and rounded up to three decimal places) specified in good faith by Biota at or around that time having regard, to the extent possible, to the offer rates otherwise quoted to Biota for loans equal to the amount due over a 90 day period at or around that time; LIGAND means any atom, ion or molecule that can complex with a target molecule and is capable of being detected. 6. 10 MINIMUM SALES VOLUME means the minimum sales volume of Diagnostic to be achieved by BioStar during the term of this Agreement as set out in Schedule 6. OPERATING MARGIN of a party means all Gross Sales Revenue of that party less: (a) the Cost of Goods of that party, provided that for these purposes any sales not made in an arms length, bona fide, commercial transaction will be deemed to have been at the standard commercial price list rates for the Diagnostic, or, if none, at the fair market price; and (b) any Distribution Allowance to which the relevant party is entitled. OPTICAL LIMMUNOASSAY TECHNOLOGY means the optical immunoassay technology described in Schedule 5. PARTIES means Biota and BioStar and PARTY means one or both of the parties as the context requires. PATENT means a patent as defined in the Patents Act 1990 (Cth) and any national or regional patent within the terms of the Patent Co-operation Treaty and includes any re-issue, renewal or extension of a patent (whether in whole or in part) and any patent of addition or any substantially similar form of protection for inventions granted in any country, the essence of which is a right in the holder of such form of protection to exclude others from making, using or selling products or processes, the subject matter of the said invention. PATENT APPLICATIONS means any patent application as defined in the Patents Act 1990 (Cth) and any national, regional or international application within the terms of the Patent Co-operation Treaty and includes any continuation, continuation in part, division, re-issue or substitution of a patent application or application for any substantially similar form of protection for inventions granted by any country, the essence of which is a right in the holder of such form of protection to exclude others from making, using or selling products or processes, the subject matter of the said invention. PERMITTED PURPOSES means for the purposes of: (i) carrying out the Development Project; or (ii) the manufacture, sale or distribution of the Diagnostic, pursuant to this Agreement. PERSONNEL of a party includes its officers, directors, employees, agents, consultants or contractors. 7. 11 PRESCRIBED TERMS means terms, conditions and warranties implied by law into some contracts for the supply of goods or services which the law expressly provides may not be excluded, restricted or modified, or may be excluded, restricted or modified only to a limited extent. PROJECT has the meaning given in Recital C. PROJECT IP means any and all Intellectual Property: (a) created, discovered coming into existence or arising from the carrying out of the Project; or (b) learned by Biota or BioStar from the Project, including the results of any evaluation or testing carried out pursuant to the Project, and not relating directly to BioStar IP but without limitation, includes any and all Intellectual Property which: (c) relates to the structure, manufacture, use, synthesis or properties of Compounds or combinations or conjugates of Compounds; (d) relates to the therapeutic or diagnostic application of Compounds or combinations or conjugates of Compounds; and (e) is derived directly or indirectly from the use or application of Glaxo IP. RELATED BODY CORPORATE has the meaning given in section 9 of the Corporations Law. SALES YEAR means a 12 calendar month period during the term of this agreement in respect of which BioStar must achieve a Minimum Sales Volume in accordance with clause 7.1 and Schedule 6. If sales start (that is product is shipped) during a calendar month, the first Sales Year shall commence on the 1st day of the subsequent month. SECOND GENERATION DIAGNOSTIC means a Diagnostic incorporating technology which is not Optical Immunoassay Technology and includes any technology licensed or otherwise made available to BioStar or a Related Body Corporate of BioStar. SPECIFICATIONS means the specifications and performance criteria for the Diagnostic set out in Schedule 3. TAXES means any and all present and future sales, use, personal property, real property, value added, turnover, stamp, documentary, interest equalization, business, occupation, excise, income, corporation, profits, gains, gross receipts, or other taxes, fees, withholdings, imposts, levies, duties or other charges of any nature whatsoever or whensoever imposed, together with any penalties, fines or interest 8. 12 thereon or similar additions thereto, imposed, levied or assessed or otherwise payable. TERRITORY means the following countries: US, Canada, Japan, Australia, New Zealand and the members forming the European Union. US means the United States of America. 1.2 Unless the contrary intention appears: (a) a reference to this Agreement or any other instrument includes any variation or replacement of either of them which does not supersede this Agreement in its entirety; (b) a reference to any thing is a reference to the whole or any part of it (unless the reference specifically excludes parts of the whole or specifically references only the part) and a reference to a group of persons is a reference to any one or more of them (unless the reference specifically refers to the group as a whole); and (C) where a word or phrase is grammatically defined in this Agreement any other parts of speech and grammatical forms of that word or phrase shall have the corresponding meanings. 1.3 Headings are inserted for convenience and do not affect the interpretation of this Agreement. 1.4 The parties acknowledge that in some respects this Agreement supersedes the Diagnostic Project Research Agreement and agree therefore that to the extent of any inconsistency between this Agreement and the Diagnostic Project Research Agreement, this Agreement shall prevail. 2. DEVELOPMENT PROJECT 2.1 BioStar shall undertake work for the purposes of and in relation to the Development Project as set out in the Development Work Plan. The parties may vary or add to the Development Work Plan only by written agreement of both parties from time to time during the term of the Agreement. The parties agree that any variation or addition to the Development Work Plan may require an amendment to the Development Budget. 2.2 BioStar shall use commercially reasonable efforts to ensure that it has sufficient facilities and qualified Personnel to enable it to comply with its obligations under this Agreement. 2.3 BioStar shall not enter into any other contract, arrangement or understanding with any third party or parties in respect of the matters covered by the Development Project or in relation to, or in any way 9. 13 involving Foreground IP without Biota's prior written consent, such consent not to be unreasonably withheld. 2.4 BioStar shall maintain full and accurate data, information and records of and concerning its work in relation to the Development Project and the results of any research studies undertaken by BioStar for the purposes of the Development Project and must make such data, information and records available to Biota as and when necessary or as and when requested by Biota. Biota shall maintain full and accurate data, information and records of and concerning its work in relation to the Development Project and the results of any research studies undertaken by Biota for the purposes of the Development Project and must make such data, information and records available to BioStar as and when necessary for the purposes of FDA Clearance of the Diagnostic. 2.5 Upon the giving of reasonable advance notice by Biota, BioStar shall permit Biota and its Personnel to enter the premises of BioStar at all reasonable times for the purpose of inspecting activities relating to the Development Project. 2.6 BioStar undertakes to Biota that it shall use all reasonable efforts to keep Biota informed of, and make available under this Agreement, new ideas, opportunities, updates in technology (including in Optical Immunoassay Technology) and technologies relating to Diagnostics and shall agree to reasonable amendments to the Development Work Plan to take account of the same from time to time. Biota undertakes to BioStar that it shall use all reasonable efforts to keep BioStar informed of, and make available under this Agreement, new ideas, opportunities, updates in technologies relating to Compounds developed by it and shall agree to reasonable amendments to the Development Work Plan to take account of the same from time to time. 3. FUNDING OF DEVELOPMENT PROJECT 3.1 Subject to this clause 3, Biota agrees to pay [ * ] in accordance with the Development Budget for the period up to FDA Clearance of Diagnostic. In the period following the FDA Clearance of the Diagnostic, the parties agree to negotiate in good faith in relation to costs in undertaking further research and development in relation to Diagnostics. 3.2 The parties may vary or add to the Development Budget by written agreement of the parties from time to time during the term of the Agreement. 3.3 BioStar agrees to use commercially reasonable efforts to conduct the Development Project in accordance with the Development Work Plan and Development Budget. 10. 14 4. FDA CLEARANCE 4.1 BioStar shall use commercially reasonable efforts to obtain FDA Clearance of a Diagnostic. BioStar must prepare an application for FDA Clearance of a Diagnostic in accordance with the Development Work Plan and shall provide Biota with a draft application and all relevant materials for submission as part of the application to the FDA in relation to the Diagnostic as soon as possible. BioStar must obtain Biota's prior written consent before lodging any original application for FDA Clearance such consent not to be unreasonably withheld. 4.2 Biota undertakes to review promptly any application for FDA Clearance submitted to it by BioStar, whether provided in whole or in part. In the event Biota fails to respond to BioStar within 30 days' after receiving any such materials Biota shall be deemed to have approved those materials. 4.3 Following submission of an application for FDA Clearance of the Diagnostic, BioStar must make all reasonable efforts to discuss the provision of any additional information to the FDA and must promptly make available to Biota copies and details of all information used or provided to FDA for the purposes of obtaining FDA Clearance of the Diagnostic, including records of conversations with the FDA and correspondence from or other information provided by or to the FDA, and must keep Biota fully informed of progress of the application for FDA Clearance of the Diagnostic. BioStar must use all reasonable efforts to maintain the confidentiality of any information containing or relating to Foreground IP or Biota IP and must request confidential treatment of the same by the FDA. 4.4 Biota agrees to pay BioStar the sum of [ * ] within 30 days after the grant of FDA Clearance of the Diagnostic. 4.5 BioStar shall provide Biota with such assistance (including executing documentation and assignments) as may be reasonably required by Biota to obtain regulatory approval to the use of the Diagnostic in the diagnosis of influenza in countries other than the US. 4.6 If FDA Clearance of a Diagnostic is obtained, BioStar shall immediately notify Biota and provide Biota with copies of the FDA Clearance of the relevant Diagnostic and any associated materials. 4.7 In addition to any other specific obligations under this Agreement, each party agrees with the other that it will comply with all applicable legislation, regulations and governmental requirements insofar as the same apply to it in the manufacture, use or sale of the Diagnostic. 5. MANUFACTURE OF DIAGNOSTIC 5.1 At the time that a [ * ], BioStar must also 11. 15 provide Biota with a draft Commercialization Plan for the Diagnostic for Biota's review and discussion with BioStar. BioStar must use all reasonable efforts to implement a mutually agreeable Commercialization Plan. 5.2 Biota hereby grants to BioStar effective upon, and subject to, Biota's approval of the FDA Application as set forth in clause 4.2 above, for the term of this Agreement, a sole and exclusive, world-wide license of Project IP and Foreground IP for the purposes of manufacturing the Diagnostic for the purposes of the sale and distribution of the Diagnostic by Biota or BioStar pursuant to this Agreement provided that: (i) the Diagnostic manufactured by BioStar conforms with the Specifications; (ii) BioStar is able to and does supply Biota with such quantity of Diagnostic as may be required by Biota from time to time; and (iii) BioStar's manufacture of the Diagnostic materially complies with all relevant legislation and regulations in the Territory, including the FDA's Good Manufacturing Practice and other applicable regulations. 5.3 For the purposes of clause 5.2(i) or (ii), BioStar shall not be taken to have failed to supply Biota with Diagnostic where: (a) Biota has failed to supply BioStar with requisite quantities of Compounds used in such Diagnostic or has supplied BioStar with defective Compounds; or (b) the failure to supply is remedied within 60 days of the date on which delivery of the relevant quantity of Diagnostic was due. 5.4 In the event that BioStar fails to supply Biota with Diagnostic as required under clause 5.2(i) or (ii): (a) BioStar must pay [ * ] to Biota within 14 days of the date being 60 days after the date on which the delivery of the relevant quantity of Diagnostic or conforming Diagnostic was due; (b) thereafter, not less than [*] of Diagnostic manufactured by BioStar from time to time must be applied by BioStar in fulfilling Biota's orders, unless otherwise agreed by the parties in writing; and (c) BioStar must fully meet Biota's requirements for Diagnostic within 6 months of the date ("Due Date") being 60 days after the date on which the delivery of the relevant quantity of Diagnostic or conforming Diagnostic was due but not supplied. 12. 16 This clause 5.4 shall only apply to the first breach by BioStar of clause 5.2(i) or (ii). For the avoidance of doubt, the parties acknowledge that in the event BioStar fails to supply Biota with Diagnostic as required under clause 5.2(i) or (ii) at any time after the date being 6 months after the Due Date, BioStar shall be in breach of its obligations under this Agreement. 5.5 For the purposes of clause 5.2(iii), BioStar shall not be taken to have failed to materially comply with relevant legislation or regulations in the Territory including the FDA's Good Manufacturing Practice and other applicable regulations, where: (a) BioStar rectifies the relevant failure; or (b) BioStar is able to, and does, supply Diagnostic in compliance with clause 5.2(iii) from an alternative BioStar manufacturing facility; within 60 days of the date on which the failure first occurred. Any failure that is not remedied within this time period shall be deemed for the purposes of this agreement to have occurred on the day being 60 days after the date on which the failure first occurred ("Breach Date"). 5.6 In the event BioStar fails to comply with clause 5.2(iii): (a) if no amount has been paid to Biota in accordance with clause 5.4(a), BioStar must pay [ * ] to Biota within 14 days of the Breach Date; and (b) BioStar must fully rectify the failure to Biota's reasonable satisfaction within 6 months after the Breach Date; This clause 5.6 shall only apply to the first failure by BioStar to comply with clause 5.2(iii), unless otherwise agreed by the parties. 5.7 As soon as BioStar becomes aware that there has been a breach of either clause 5.2(i) or 5.2(ii) it must promptly advise Biota in writing of the full details of the breach. 5.8 In the event that BioStar's failure to supply Biota with Diagnostic under clause 5.2(ii) was caused by an event of Force Majeure, BioStar's license shall only be suspended and shall recommence when the relevant event of Force Majeure ceases or is removed, provided that if BioStar is affected by an event of Force Majeure it must give Biota details of the event of Force Majeure as soon as practicable and must forthwith take all reasonable steps to remove or mitigate the relevant event of Force Majeure and BioStar keeps Biota fully informed of its progress in relation to the same. 13. 17 5.9 In order to assist BioStar in meeting Biota's requirements for the Diagnostic, Biota shall provide BioStar with an annual forecast and monthly updates of its requirements for Diagnostic, the first 90 days of which shall be considered a purchase order. 5.10 Biota must place a purchase order with BioStar for any Diagnostic required by it and BioStar must supply Diagnostic ordered pursuant to such purchase orders within 90 days of receipt of such order by delivery to the place specified in the relevant purchase order, provided that: (a) Biota may amend any purchase order by up to [*] (plus or minus) of the ordered quantity at any time in the 45 days immediately following the date of the purchase order; (b) BioStar must use its best efforts to meet any amendment in excess of [*] (plus or minus) of the ordered quantity made within the same time period at no cost to Biota; and (c) at any time during the first 6 months following the date on which Diagnostic is first supplied to Biota, Biota may cancel any purchase order provided that it reimburses BioStar for [*] of BioStar's costs (or [* ] if notice of the cancellation is given later than 45 days after the date of the purchase order) incurred in filling the relevant purchase order prior to receipt of notice of cancellation. 5.11 If the parties so agree in writing, prior to receipt of FDA Clearance of the Diagnostic, either party may sell Diagnostic for research purposes only, subject to compliance with all applicable laws. For this purpose only the licenses granted under clauses 5.2 and 7.1 shall be deemed to be effective from the time of agreement of the parties to the research sales. Sales of Diagnostic for research purposes shall not constitute sales for the purposes of calculating the Minimum Sales Volume under clause 10 and the license granted under this clause shall not be subject to meeting any sales volumes, but clause 10 shall otherwise apply to receipts from such sales. 5.12 BioStar must use all reasonable commercial efforts to produce the Diagnostic as efficiently and at as low a cost as possible consistent with the FDA's Good Manufacturing Practice and other applicable regulations. 5.13 BioStar must provide Biota with annual forecasts of Cost of Goods based on reasonable commercial efforts to accurately forecast such cost. 5.14 Biota agrees to pay BioStar an amount equal to [ * ] for the supply of Diagnostic to Biota within 30 days of invoice for the same, invoices not to be provided more frequently than monthly. 14. 18 5.15 All Diagnostic supplied to Biota by BioStar shall be shipped ex works BioStar's facilities in Boulder, Colorado (Incoterms 1990) to a port or ports nominated by Biota, provided that Biota shall pay all reasonable shipping costs. 5.16 Without limiting clause 17, BioStar agrees to take out and maintain during the term of this Agreement and any period thereafter in which it is manufacturing Diagnostic or sales or use of the Diagnostic are continuing in any country adequate product liability insurance in respect of Diagnostic manufactured by BioStar and covering liability to the value of [ * ]. 5.17 BioStar agrees to provide Biota with such technical assistance as may be reasonably required by Biota from time to time in connection with the manufacture of the Diagnostic, after sales assistance and other matters arising in connection with the manufacture (subject to clause 5.2), sale and distribution of the Diagnostic at Biota's expense. 6. SUPPLY OF COMPOUNDS 6.1 Biota agrees to sell and BioStar agrees to exclusively purchase from Biota such quantity of Compounds as may be required by BioStar for the purposes of manufacturing the Diagnostic under clause 5.2. Biota must use all reasonable commercial efforts to produce any Compounds used in the Diagnostic as efficiently and at as low a cost as possible consistent with good manufacturing practice and other applicable regulations. 6.2 BioStar agrees to pay Biota an amount equal to [ * ] for the supply of Compounds to BioStar under clause 6.1 within 30 days of invoice for the same, invoices not to be provided more frequently than monthly. 7. MARKETING, SALE AND DISTRIBUTION OF DIAGNOSTIC 7.1 Biota hereby grants to BioStar effective upon, and subject to Biota's written approval of the application for FDA Clearance of the Diagnostic made in accordance with clause 4, a sole and exclusive license for the term of this Agreement to market, sell and distribute the Diagnostic in the US, subject to BioStar selling at least the Minimum Sales Volume for each Sales Year. 7.2 If BioStar fails to achieve the Minimum Sales Volume in respect of any Sales Year during the term of the Agreement, the license granted to BioStar under clause 7.1 shall become non-exclusive. 7.3 The parties acknowledge that Biota shall have the exclusive right to market, sell and distribute the Diagnostic outside the US. 15. 19 7.4 BioStar hereby grants to Biota a contingent and exclusive (as set out below), worldwide license to use BioStar IP: (a) subject to clauses 7.1 and 7.2 for the purposes of the sale and distribution of the Diagnostic; and (b) subject to clause 5.2, the manufacture of the Diagnostic; by Biota. 7.5 Biota agrees to enter into negotiations on behalf of BioStar in good faith with the Glaxo Group concerning the sale and distribution of the Diagnostic by the Glaxo Group in the US. 7.6 Subject to agreement by the parties of the terms of any agreement for the sale of the Diagnostic to the Glaxo Group, Biota and BioStar agree that any sale of a unit of the Diagnostic by BioStar to any member of the Glaxo Group for use in the US shall be treated as a sale of a unit of Diagnostic by BioStar in determining whether BioStar has achieved the Minimum Sales Volume in any Sales Year for the purposes of clause 7.1. 7.7 (a) Either party may provide samples to customers provided that the number of samples of Diagnostic provided is approved by the other party in writing, such approval not to be unreasonably withheld. (b) For the purposes of calculating the Minimum Sales Volume for each Sales Year, provision of samples of the Diagnostic shall be disregarded. 7.8 In the event that BioStar sells the Diagnostic in conjunction with another of its products or the product of a third party, any discount applied to such combined sale shall be applied between the products pro rata to their respective list sales prices. 7.9 Biota agrees to discuss in good faith with BioStar requests by BioStar relating to the commercialization of the Diagnostic in countries in which Biota has elected not to commercialize the Diagnostic. 7.10 BioStar undertakes it shall forthwith notify Biota if it intends to enter into any arrangement for the sale or distribution of the Diagnostic with a third party who is the manufacturer of a competitive (of either the Biota Group or Glaxo Group) influenza therapeutic or the product of a third party who is the manufacturer of a competitive (of either the Biota Group or Glaxo Group) influenza therapeutic and offer Biota or Biota's nominee the right to enter into such an arrangement on terms substantially similar to those offered to the third party. If Biota or its nominee fails to accept such offer within 60 days of receipt of full details of the offer, BioStar may make the proposed offer to the party, provided that BioStar must not offer such third parties terms and 16. 20 conditions which are more favorable than those offered to Biota without first offering such alternative terms to Biota. 8. MARKETING/TRADE DRESS 8.1 If requested by BioStar, Biota agrees to seek to obtain the [ * ] from [ * ] for use by BioStar at no cost to BioStar in marketing the Diagnostic in the US under this Agreement. 8.2 BioStar agrees to use its best endeavors to promote the sale of the Diagnostic in the US, including if requested to do so by Biota and subject to any conditions imposed by Glaxo, directly contacting customers on the [ * ]. 8.3 BioStar agrees to use telemarketing at its own cost to contact potential customers who are not located in territories covered by BioStar's Flex Rep marketing program. 8.4 Biota and BioStar agree to jointly develop labeling, trade dress and trademarks to be used on or in relation to the Diagnostic in the marketing, sale and distribution of the Diagnostic in the US under this Agreement. 8.5 (a) Subject to clause 8.5(b) neither party may use any labeling, trade dress and trademarks on or in relation to the Diagnostic in the marketing, sale and distribution of the Diagnostic other than that jointly developed by the parties without the prior written consent of the other party, provided that BioStar must not unreasonably withhold or delay its consent in relation to the use of other labeling, trade dress or trademarks by Biota outside the US. (b) In the event that BioStar fails to achieve the Minimum Sales Volume in respect of any Sales Year and Biota elects to sell or distribute Diagnostic in the US, Biota shall not be required to use any of the labeling, trade dress or trademarks developed under clause 8.4 except to extent required by the FDA. 8.6 BioStar acknowledges and agrees that Biota shall own all right, title and interest in and to the Intellectual Property in the labeling, trademarks or trade dress developed under clause 8.4. To the extent that any Intellectual Property relating to the labeling, trademarks or trade dress does not vest in Biota as a result of the foregoing, BioStar undertakes to procure the assignment of such Intellectual Property to Biota at Biota's cost. 8.7 Biota agrees to grant BioStar an exclusive, royalty free license to use the said labeling, trademarks or trade dress in relation to the marketing, sale and distribution of the Diagnostic in the US for the term of this Agreement in a form to be agreed by the parties. 17. 21 9. SECOND GENERATION DIAGNOSTIC If BioStar develops a Second Generation Diagnostic during the term of this Agreement, BioStar undertakes it shall forthwith notify Biota and offer Biota the right to develop and commercialize the Second Generation Diagnostic on terms substantially similar to those set out in this Agreement. If Biota fails to accept such offer within [ * ] of receipt of reasonably sufficient details of the Second Generation Diagnostic, BioStar may offer the commercialization rights to the Second Generation Diagnostic to third parties, provided that BioStar must not offer such third parties terms and conditions which are more favorable than those offered to Biota without first offering such alternative terms to Biota. 10. PROFITS 10.1 Biota and BioStar shall [* ] be entitled to [*] of the Operating Margin of BioStar relating to the sale of the Diagnostic in the US and BioStar shall pay Biota accordingly quarterly in arrears as directed by Biota. 10.2 If BioStar fails to achieve the Minimum Sales Volumes in respect of any Sales Year as required under clause 7.1 and Biota exercises its right to market, sell and distribute Diagnostic in the US, Biota shall be entitled to [*], and BioStar shall be entitled to [*] of the aggregate Operating Margin of Biota and BioStar relating to sales of the Diagnostic in the US and shall pay each other accordingly quarterly. 10.3 Biota agrees to pay BioStar [*] of the Gross Sales Revenue of Biota relating to the sale of the Diagnostic throughout the world, excluding the US during each Sales Year and shall pay BioStar accordingly quarterly. 10.4 Biota and BioStar each agree to jointly appoint the Independent Auditor and to make their financial records available to the Independent Auditor: (i) at the end of each Sales Year; and (ii) immediately prior to the launch of GG167, if the Diagnostic has already been launched, to enable the Independent Auditor to conduct an audit of those records and to prepare a report concerning the sales volumes of Diagnostic and the amount (if any) payable by Biota and/or BioStar to each other under this Agreement. The costs of the Independent Auditor shall be borne equally by the parties and each party shall ensure that prompt payment of the Independent Auditor's fees is made. 10.5 The report prepared under clause 10.4 shall include details for the relevant period of: 18. 22 (a) BioStar's Cost of Goods in manufacturing Diagnostic for supply to Biota under clause 5.1; (b) Biota's Cost of Goods in manufacturing Compounds for supply to BioStar under clause 6.2; (c) the number of units of Diagnostic sold by BioStar to third parties in the US; (d) the Operating Margin of each of Biota and BioStar relating to their sale of Diagnostic; (e) the Gross Sales Revenue of each of Biota and BioStar relating to their sale of Diagnostic; (f) the Biota Distribution Allowance; (g) the BioStar Distribution Allowance; and (h) a reconciliation of the amounts (if any) payable by Biota and/or BioStar to each other under this Agreement during the relevant Sales Year against the actual payments made. 10.6 As soon as possible after receipt of the Independent Auditor's report and no later than 30 days after receipt of the same, each party shall ensure that, if the Independent Auditor's report indicates that there has been a shortfall, in or overpayment, of any payments required to have been made by that party under this Agreement, payment of such shortfall is made or the amount of any overpayment is refunded as the case may be. 11. BIOTA IP 11.1 BioStar shall, and shall ensure that its Personnel shall: (a) keep all Biota IP confidential; (b) use Biota IP solely for the Permitted Purposes; (c) not disclose, without Biota's written consent Biota IP to any person other than BioStar Personnel to whom disclosure is necessary for any of the Permitted Purposes, and then only to the extent necessary; and (d) not to reproduce any of the Biota IP except as necessary for any of the Permitted Purposes or with the prior permission of Biota; unless 19. 23 (e) the relevant Biota IP is in the public domain or becomes part of the public domain otherwise than as a result of a wrongful act of BioStar, (f) such intellectual property was not acquired directly or indirectly from Biota; or (g) BioStar independently developed the Intellectual Property without reference to Biota IP and can demonstrate such independent development through competent written records. Without limiting the foregoing, BioStar agrees not to disclose any Biota IP to the FDA without complying with clause 4. 11.2 BioStar acknowledges and agrees that: (a) it has no rights whatsoever in or in relation to Biota IP other than to use the Biota IP for the Permitted Purposes; (b) it will not assert any ownership in respect of the Biota IP against Biota or any third party from whom Biota may have licensed the Biota IP; (c) subject to the terms of this Agreement, third parties may also be granted by Biota rights to use the Biota IP. 11.3 BioStar shall ensure that its Personnel to whom Biota IP may be disclosed execute a confidentiality undertaking in the form agreed by the parties. 11.4 BioStar agrees to make all reasonable endeavors to prevent Biota IP and Glaxo IP from being used for the benefit of any third party other than Biota or Glaxo (as the case may be), their respective licensees, or third parties otherwise entitled to use the same. 11.5 Biota shall be responsible for drawing the specifications for, prosecuting, obtaining and maintaining the Diagnostic Patents (subject to clause 13.5, except to the extent the relevant patent includes only BioStar IP) which shall be in the name of Biota. 11.6 BioStar shall provide, and shall ensure that its employees or consultants provide Biota with such assistance as may be reasonably required by Biota to file, prosecute, obtain or maintain any Diagnostic Patent provided that Biota shall pay BioStar's actual costs of such consultants. 11.7 Biota represents and warrants to BioStar on the date of this Agreement and on each date Biota IP is provided to BioStar that to the best of Biota's knowledge, having made all reasonable enquiries, the Biota IP and any work undertaken by Biota for the Permitted Purposes does not and will not infringe the Intellectual Property of any third party. 20. 24 11.8 Biota hereby grants BioStar a non-exclusive license under the Diagnostic Patents and Biota IP to the extent necessary to enable BioStar to exercise its rights under clauses 5 and 7. 11.9 Biota will promptly and fully inform BioStar in writing of: (a) any infringement or threatened infringement of Biota's rights in and to Biota's IP and patents associated with that intellectual property; (b) any unauthorized use of Biota's IP; or (c) any challenge or threat of challenge to the grant or validity of any patent associated with Biota's IP or any part thereof or of Biota's right to use Biota's IP or any part thereof as contemplated by this Agreement, which may come to Biota's attention; to the extent that the same are relevant to the Diagnostic. 12. FOREGROUND IP 12.1 BioStar acknowledges and agrees that all Foreground IP vests in and is the exclusive property of Biota and save as provided in clause 12.3, BioStar has no right, title or interest whatsoever in or in relation to Foreground IP. To the extent that the Foreground IP does not vest in Biota as a result of the foregoing BioStar undertakes to procure the assignment of such Foreground IP to Biota and to provide all information, execute all documents and do all acts and things necessary or desirable to give effect this clause 12. 12.2 BioStar must disclose to Biota all Foreground IP (except Foreground IP which is discovered by or in conjunction with Biota), as soon as reasonably practicable after becoming aware of that Foreground IP. 12.3 Biota hereby grants BioStar a non-exclusive license to use the Foreground IP to the extent necessary to enable BioStar to exercise its rights under clause 7. BioStar acknowledges that subject to the terms of this Agreement third parties may also be granted by Biota rights to use the Foreground IP. 12.4 Subject to the terms of this Agreement, the parties acknowledge and agree that Biota shall have the exclusive right to commercially exploit and to protect any Foreground IP in whatever manner Biota may choose, including without limitation, licensing of any third party or filing any patent application during or after termination of this Agreement. Except as provided for in this Agreement (including clause 16.9) Biota must not commercialize Foreground IP in a manner which uses BioStar IP developed in the project without obtaining from BioStar a royalty bearing license to do so (which will be negotiated in good faith and will not be unreasonably withheld by BioStar). 21. 25 12.5 In the event that the parties do not proceed with an application for FDA Clearance or commercialization of the Diagnostic in accordance with clauses 4 and 5 or the termination of this Agreement, BioStar must promptly return to Biota, upon demand, all material in its possession, power and control, or in the possession, power or control of its Personnel in which Biota IP, Foreground IP or Confidential Information of Biota is contained or embodied, or from which it may be reproduced. BioStar shall promptly thereafter provide Biota with a statutory declaration made by its representative or an authorized officer declaring that neither they nor their Personnel have any such material in their possession, power or control. 13. BIOSTAR IP 13.1 Biota shall, and shall ensure that its Personnel shall: (a) keep all BioStar IP confidential; (b) use BioStar IP solely for the Permitted Purposes; (c) not disclose, without BioStar's written consent, BioStar IP to any person other than Biota Personnel to whom disclosure is necessary for the Permitted Purposes, and then only to the extent necessary; and (d) not to reproduce any of the BioStar IP except as necessary for the Permitted Purposes and with the prior permission of BioStar; unless (e) the relevant BioStar IP is in the public domain or becomes part of the public domain otherwise than as a result of a wrongful act of Biota, (f) such intellectual property was not acquired directly or indirectly from BioStar, or (g) Biota independently developed the Intellectual Property without reference to BioStar IP and can demonstrate such independent development through competent written records. 13.2 Biota acknowledges and agrees that: (a) it has no rights whatsoever in or in relation to BioStar IP other than to use BioStar IP for the Permitted Purposes; (b) it will not assert any ownership in respect of the BioStar IP against BioStar or any third party from whom BioStar may have licensed the BioStar IP; and 22. 26 (c) subject to clause 16.7 and the terms of this Agreement, third parties may also be granted by BioStar rights to use the BioStar IP. 13.3 Biota agrees to make all reasonable endeavors to prevent BioStar IP from being used for the benefit of any third party other than Biota, Biota licensees, or third parties otherwise entitled to use the same. 13.4 Biota shall ensure that its Personnel to whom BioStar IP may be disclosed execute a confidentiality undertaking in the form nominated by BioStar and approved by Biota. 13.5 Biota acknowledges and agrees that all BioStar IP vests in and is the exclusive property of BioStar and Biota has no rights whatsoever in or in relation to the BioStar IP other than as expressly provided in this Agreement. To the extent that any BioStar IP does not vest in BioStar as a result of the foregoing Biota undertakes to procure the assignment of such Intellectual Property to BioStar. Biota acknowledges and agrees that nothing in this Agreement shall be interpreted as providing Biota with a license to use BioStar IP, except as necessary for the Permitted Purposes or as provided in clause 16.9. BioStar must take such steps as are reasonably required to protect BioStar IP used in the Diagnostic in the countries listed in Schedule 9, including making application, prosecuting and maintaining patents in countries nominated by Biota and shall keep Biota informed as to the status of such applications and prosecutions. If BioStar fails to apply, prosecute or maintain patents in relation to BioStar IP used in the Diagnostic in additional countries nominated by Biota, Biota may apply for (in BioStar's name or subsequently assign the same to BioStar) and proceed with patent applications, prosecutions or take such steps as it deems necessary to maintain patents at its cost and expense, provided that Biota has first advised BioStar of its intention to do so. BioStar must render, and procure where necessary its employees or consultants to render, all reasonable assistance to Biota in relation to filing prosecution, obtaining or maintaining any such patents, including execution of relevant documentation. 13.6 BioStar represents and warrants to Biota on the date of this Agreement and on each date BioStar IP is provided to Biota that to the best of BioStar's knowledge, having made all reasonable enquiries, the BioStar IP and any work undertaken by BioStar for the Permitted Purposes does not and will not infringe the Intellectual Property of any third party. BioStar will promptly and fully inform Biota in writing of: (a) any infringement or threatened infringement of BioStar's rights in and to BioStar IP and patents associated with that intellectual property; (b) any unauthorized use of BioStar IP; or (c) any challenge or threat of challenge to the grant or validity of any patent associated with BioStar IP or any part thereof or of 23. 27 BioStar's right to use BioStar IP or any part thereof as contemplated by this Agreement, which may come to BioStar's attention. 13.7 In the event that the parties do not proceed with an application for FDA Clearance or commercialization of a Diagnostic in accordance with clauses 4 and 5 or the termination of this Agreement, Biota must promptly return to BioStar, upon demand, all material in its possession, power and control, or in the possession, power or control of its Personnel in which BioStar IP is contained or embodied, or from which it may be reproduced. Biota shall promptly thereafter provide BioStar with a statutory declaration made by its representative or an authorized officer declaring that neither they nor their Personnel have any such material in their possession, power or control. 14. PUBLICATION OF DEVELOPMENT PROJECT RESULTS AND OTHER INFORMATION Without limiting clause 4 and clause 15 and except as permitted under this Agreement, neither Biota nor BioStar shall publish or otherwise disclose information describing or relating to the results of the Development Project or the studies undertaken for the purposes of the Development Project or otherwise arising in connection with the Permitted Purposes without the prior written consent of the other party, which must not be unreasonably withheld or delayed. 15. CONFIDENTIALITY 15.1 The Disclosee shall, and shall ensure that its Personnel shall: (a) keep all Confidential Information of the Disclosing Party confidential; (b) not use Confidential Information of the Disclosing Party except as permitted by this Agreement; (c) not disclose, without the Disclosing Party's prior written consent, Confidential Information of the Disclosing Party to any person other than the Disclosee's Personnel to whom disclosure is necessary for the Permitted Purposes, and then only to the extent necessary, or to whom disclosure is otherwise permitted by this Agreement; and (d) not reproduce any of the Confidential Information of' the Disclosing Party except as necessary for the Permitted Purposes or with the prior permission of the Disclosing Party. 15.2 Nothing in this Agreement prohibits disclosure of information which: (a) at the time of first disclosure to the Disclosee is in the public domain; 24. 28 (b) after disclosure to the Disclosee becomes part of the public domain otherwise than as a result of the wrongful act of a party or one of that party's disclosees; (c) the Disclosee can show by written records was in its possession at the time of first disclosure and was not acquired directly or indirectly from the other party under a confidentiality obligation; (d) is received from a third party provided that it was not acquired directly or indirectly by that third party from a party to this Agreement under a confidentiality obligation; (e) is required to be disclosed by law, the Australian Stock Exchange Limited or any government or governmental body, authority or agency having authority over the Disclosee; (f) is required to be disclosed in connection with legal proceedings relating to this Agreement or enforcement of a Disclosee's rights under this Agreement; or (g) is independently developed without reference to the Disclosee's Confidential Information, which independent development the Disclosee can demonstrate through competent written records. The onus shall be on the party alleging the same to prove that one of the above exceptions applies. 15.3 Except as permitted by this Agreement, irrespective of whether information disclosed to the Disclosee constitutes Confidential Information of the Disclosing Party or not, the Disclosee agrees to use all reasonable endeavors to prevent information disclosed by the Disclosing Party from being used for the benefit of any third party other than the Disclosing Party, or in the case of Biota, Biota's licensees or third parties otherwise entitled to use the same. Similarly except as permitted by this Agreement, irrespective of whether the results of the Development Project or other discoveries are to be kept confidential, the Disclosee agrees to take all reasonable endeavors to prevent the results of the Development Project or other discoveries arising in connection with the Permitted Purposes from being used for the benefit of any person other than the Disclosing Party. 15.4 Each party acknowledges that the rights in information disclosed or otherwise communicated by the other party may be the rights of Biota, BioStar or of a third party. In particular, BioStar acknowledges that Biota has obligations of confidence to Glaxo Group in respect of certain Confidential Information. 15.5 The Disclosee acknowledges that damages may not be a sufficient remedy for the Disclosing Party for any breach of this Agreement and that the Disclosing Party is entitled to seek specific performance or 25. 29 injunctive relief (as appropriate) as a remedy for any breach or threatened breach by the Disclosee of this Agreement, in addition to any other remedies available to the Disclosing Party at law or equity. 15.6 The confidentiality obligations in this Agreement are to continue after, and survive, the termination of this Agreement, unless superseded by a further written agreement relating to confidentiality. 16. TERM AND TERMINATION 16.1 This Agreement commences on the date of execution of this Agreement and shall continue until the last of the Diagnostic Patents has expired or, if there are no Diagnostic Patents, the date being [*] years after the date of this Agreement, unless terminated earlier in accordance with this clause 16 or extended for one or more additional one year terms by the written agreement of the parties. 16.2 Either party may terminate this Agreement immediately if the other party: (a) becomes insolvent, goes or is put into liquidation or dissolution (other than by way of reconstruction), or any action, steps or proceedings are taken to effect any of the foregoing which proceedings are not terminated within 60 days or otherwise permanently discontinues business; or (b) makes any compromise, assignment or composition with its creditors generally, has a receiver, manager, administrator, secured creditor or other custodian appointed to it or taking possession of all or a substantial part of its assets or business, or otherwise seeks to take advantage of insolvency laws, which proceedings are not terminated within 60 days; or (c) is in breach of any of its obligations under this Agreement and has not rectified such breach within 45 days (or such longer period as the parties agree in writing is reasonable in the circumstances) of receiving a notice from the first party to do so. 16.3 Biota may immediately terminate this Agreement by giving notice in writing to BioStar if any competitor of Biota or the Glaxo Group in the fields of influenza therapeutics or influenza diagnostics acquires the power to vote in respect of or to dispose of or control the disposal of more than [*] of the outstanding voting shares of BioStar. 16.4 Biota may, at any time prior to submission of an Application for FDA Clearance of the Diagnostic, terminate this Agreement by giving not less than 60 days written notice to BioStar. 16.5 In the event that Biota terminates this Agreement under clause 16.4: 26. 30 (a) Biota agrees to reimburse BioStar for all expenses directly and reasonably incurred by BioStar as a result of such termination upon production of satisfactory, documented evidence of such expenditure; and (b) if BioStar is meeting the Diagnostic specifications and goals set out in Schedule 3 at the time of termination, Biota agrees to grant BioStar a license to use Biota IP and Foreground IP to the extent necessary to enable BioStar to commercialize a Compound-based assay in the US on the following terms: (i) BioStar shall repay Biota [*] of all payments made to BioStar by Biota under the Diagnostic Project Research Agreement and this Agreement (including any and all development, feasibility or incentive payments) plus interest at LIBOR over the period from the date of the relevant payment to the date of termination of this Agreement; and (ii) BioStar shall pay Biota [*] royalty on the Operating Margin of BioStar relating to the sale of all products incorporating the Compound-based assay by BioStar; such payments to be made immediately prior to the first sale or other return from such commercialization. 16.6 Termination of this Agreement for any reason does not affect: (a) any rights of a party against the other party which: (i) arose prior to the time at which such termination occurred; or (ii) otherwise relate to or may arise at any future time from any breach or non-observance of obligations under this Agreement occurring prior to termination; (b) the rights and obligations of the parties under clauses 10, 11, 12, 13, 14, 15, 16 and 18. 16.7 BioStar agrees that it shall not, and shall procure that none of its Related Body Corporates, engage in research studies, research, assistance or development in respect of any device or procedure for use in or in connection with the diagnosing influenza virus other than with Biota: (a) during the term of this Agreement; and (b) for a period of 2 years from the termination of this Agreement (for any reason other than a breach by Biota or termination by Biota for reasons that do not relate to BioStar's performance or condition or the progress of the Development Project), 27. 31 unless BioStar has first offered Biota the opportunity to engage in such research studies, assistance or development on terms substantially similar to those set out in this Agreement in writing and Biota has declined that offer in writing, or more than 45 days have elapsed from the date of receipt of such offer by Biota. BioStar must provide Biota with all necessary information to enable Biota to assess any such offer. 16.8 If the parties do not elect to extend the term of this Agreement under clause 16.1, Biota agrees to grant BioStar the non-exclusive right to manufacture the Diagnostic for supply to Biota upon terms substantially similar to those granted to BioStar under clause 5 after termination of this Agreement. 16.9 If upon termination of this Agreement, BioStar does not elect to manufacture the Diagnostic for Biota under clause 16.8, or if this Agreement is terminated by Biota under clauses 16.2 or 16.3, BioStar hereby grants to Biota or its nominee an exclusive world-wide license to use the BioStar IP for the purposes of developing, manufacturing, selling and distributing the Diagnostic. Biota agrees to pay BioStar a reasonable royalty for the grant of such license, the amount of which will be negotiated in good faith. 17. INDEMNITY 17.1 Except as expressly provided by Prescribed Terms (if any) or as otherwise expressly provided in this Agreement, a party will not be liable to the other party (whether arising in contract, in tort, under statute or in any other way and whether due to negligence, willful or deliberate breach or any other cause) under this Agreement or for any act, omission or event arising out of this Agreement for or in respect of any direct or indirect liability, loss, damage, cost, charge or expense. 17.2 A party ("Indemnifying Party") must indemnify the other party ("Innocent Party") and hold the Innocent Party harmless from all claims, actions, demands, liability, costs, charges and expenses: (a) arising out of or relating directly to the actions of the Indemnifying Party under or performed in accordance with this Agreement; (b) arising directly as a result of the death or personal injury of the Personnel of the Indemnifying Party, except to the extent that such death or personal injury is caused by the negligence or willful conduct of the Innocent Party; or (c) arising out of the claim by a third party against the Innocent Party alleging that the Innocent Party's use or exploitation of any Intellectual Property or Confidential Information of the Indemnifying Party, whether on its own or as part of the Diagnostic or Foreground IP, infringes any Intellectual Property of that third party. 28. 32 17.3 If an act or omission of a party ("Indemnifying Party") or its officers, employees, agents or contractors is in breach of this Agreement or is negligent or willful and: (a) the other party ("Innocent Party") suffers direct loss or damage; or (b) such act or omission directly results in a claim against the Innocent Party by a third party, the Indemnifying Party shall indemnify and hold harmless the Innocent Party from such direct loss or damage, or any costs or damages or settlement payments arising as a direct result of such claim, provided the Innocent Party shall not agree to any settlement without the prior consent of the Indemnifying Party (such consent not to be unreasonably withheld). 17.4 Each indemnity in this Agreement is a continuing obligation, separate and independent from the other obligation of the parties and survives termination or expiry of this Agreement. 17.5 It is not necessary for a party to incur expense or make payment before enforcing a right of indemnity conferred by this Agreement. 17.6 Each party warrants to the other that it has in place and will keep current during the term of this Agreement and for any additional period required to cover claims arising out of the Development Project or this Agreement and will not vitiate or render void or voidable adequate insurance coverage which will insure it in respect of any liability which one party may have to the other or to third parties as a result of or arising out of the Development Project or this Agreement. 18. FURTHER COLLABORATION Nothing in this Agreement shall prevent Biota from undertaking a collaborative project or entering an agreement with a third party for the purpose of or in relation to the use of Biota IP or Foreground IP in conjunction with the Intellectual Property of such third party to develop one or more diagnostics, provided that in the event Biota enters into a collaboration with a third party and develops and markets an influenza diagnostic in competition to the Diagnostic, BioStar's obligations under clause 7.1 to sell at least the Minimum Sales Volume for each Sales Year shall cease. 19. TAXATION Biota and BioStar agree that a payment made under this Agreement will be net of any Taxes. Biota and BioStar agree that the payor of any such Taxes must provided to the payee all information and documents 29. 33 that will enable the payee to claim any credit, refund or rebate to which the payee is entitled in respect of Taxes levied on a payment. 20. RELATIONSHIP OF PARTIES Neither party is, and nothing in this Agreement shall be taken as making either party, an agent, employee or partner of the other. 21. NOTICES 21.1 Except as otherwise expressly provided, a notice, approval, consent or other communication in connection with this Agreement: (a) must be in writing and legible; and (b) must be left at the address of the addressee, or sent by prepaid ordinary post (airmail if posted to or from a place outside Australia) to the address of the addressee or sent by facsimile to the facsimile number of the addressee and marked for the attention of the representative which is specified in this clause or if the addressee notifies another address or facsimile number or representative then to that address or facsimile number or representative. The address, facsimile number, and representative of each party is: Biota Address: Biota Scientific Management Pry Ltd Level 4 616 St Kilda Road Melbourne Vic 3004 Facsimile: 61 3 9529 2261 Attention: Company Secretary BioStar Address: 6655 Lookout Road Boulder, Colorado, 80301 Facsimile: (303) 530 6641 Attention: President 21.2 A notice, approval, consent or other communication takes effect from the time it is received unless a later lime is specified in it. 21.3 A letter or facsimile is taken to be received: (a) in the case of a posted letter, on the third (seventh, if posted to or from a place outside Australia) day after posting; 30. 34 (b) in the case of facsimile, on production of a transmission report by the machine from which the facsimile was sent which indicates that the facsimile was sent in its entirety to the facsimile number of the recipient provided that where transmission is completed after 5pm on a business day or is sent on a day that is not a business day, the message will not be deemed to have been received until the next business day; and (c) in the case of a letter sent by an internationally recognized courier, on the third day after its sent. 22. ASSIGNMENT A party cannot sell, assign, pledge or otherwise transfer or dispose of its rights or interests under this Agreement, or novate any of its rights under this Agreement without the prior written consent of the other party, unless such sale, assignment, pledge or other transfer or disposal is part of the sale or disposal of the entire undertaking of that party and in the case of BioStar such sale or disposal is not to a competitor of Biota or the Glaxo Group in the fields of influenza therapeutics or diagnostics. 23. WAIVER AND VARIATION A provision of or a right created under this Agreement may not be: (a) waived except in writing signed by the party granting the waiver; or (b) varied except in writing signed by both parties. 24. REMEDIES CUMULATIVE The rights, powers and remedies provided in this Agreement are cumulative with and not exclusive of the rights, powers or remedies provided by law independently of this Agreement. 25. FURTHER ASSURANCES Each party agrees, at its own expense, on the request of the other party, to: (a) do everything reasonably necessary to give effect to this Agreement and the transactions contemplated by it, including without limitation the execution of documents; and (b) use its best endeavors to cause relevant third parties to do likewise. 31. 35 26. SUPERVENING LEGISLATION Any present or future legislation which operates to vary an obligation or right, power or remedy of a person in connection with this Agreement is excluded except to the extent that its exclusion is prohibited or rendered ineffective by law. 27. SEVERABILITY If the whole or any part of a provision of this Agreement is void, unenforceable or illegal in a jurisdiction it is severed for that jurisdiction. The remainder of this Agreement has full force and effect and the validity or enforceability of that provision in any other jurisdiction is not affected. This clause has no effect if the severance alters the basic nature of this Agreement or is contrary to public policy. 28. ENTIRE AGREEMENT This Agreement and the Diagnostic Project Research Agreement constitute the entire agreement of the parties about its subject matter and all other agreements, undertakings and negotiations on the subject matter cease to have any effect. 29. GOVERNING LAW 29.1 This Agreement and the transactions contemplated by this Agreement are governed by the law in force in the State of Victoria, Australia. 29.2 Each party irrevocably and unconditionally submits to the non-exclusive jurisdiction of the courts of the State of Victoria and courts of appeal from them for determining any dispute concerning this Agreement or the transactions contemplated by this Agreement. Each party waives any right it has to object to an action being brought in those courts, to claim that the action has been brought in an inconvenient forum, or to claim that those courts do not have jurisdiction. 30. ARBITRATION OF PAYMENTS 30.1 Any dispute, controversy or claim between the parties as to financial or payment issues under this Agreement (other than entitling a party to proceed for equitable relief) which cannot be promptly resolved between the parties is to be resolved by arbitration, administered by the Australian Commercial Disputes Centre Limited, conducted at Melbourne and held in accordance with and subject to the Commercial Arbitration Act 1984 (Vic). 32. 36 30.2 Arbitration shall be effected by a single arbitrator appointed in accordance with clause 30.3. Such arbitration shall be held in Victoria or such other place as the parties may agree. The arbitration shall be conducted in accordance with the Institute of Arbitration Australian Rules for the Conduct of Commercial Arbitrations. The arbitrator shall not be an employee of either party nor a person who has been connected with work under this Agreement. The Arbitration shall be private and confidential. The arbitrator may award whatever interest the arbitrator considers reasonable. 30.3 For the purposes of the arbitration proceedings under clause 20.1, the parties agree to appoint an arbitrator from any international firm of chartered accountants. If the parties do not agree on the arbitrator to be appointed, the arbitrator is to be a person nominated by the Secretary General for the time being of the Australian Commercial Disputes Centre Limited in Victoria. 31. PUBLICITY The parties shall maintain confidentiality concerning the terms of this Agreement and details of its subject matter (including details of the Development Project, its progress and results, the manufacture, sale and distribution of the Diagnostic and any submission for FDA approval made under this Agreement) and no public announcement or communication relating to the negotiations of the parties or the existence, subject matter or terms of this Agreement, may be made or authorized by a party without the prior written approval of the other party except that a party may make a disclosure in relation to this Agreement: (a) to its professional advisers, bankers, financial advisers and financiers upon those persons undertaking to keep confidential any information so disclosed; or (b) to comply with any applicable law or requirement of any regulatory body including the Australian Stock Exchange Limited. In such a case the party proposing to make the disclosure shall use all reasonable endeavors to ensure the other party consents to the content and form of the disclosure. EXECUTED as an agreement 33. 37 SCHEDULE 1 DEVELOPMENT WORK PLAN 1. Activities for the Project are shown in the attached table. Detailed activities and review points are shown in attached Overview of Project Flow. Phases II and III correspond with internal development process Steps 4, 5 and 6, Phase IV represents Steps 7 and 8, and Phase V represents Steps 9-11. 2. Monthly reports will be provided on progress. 3. An early prototype for international research will be tested during Phase III clinical trials in Australia commencing 1 May 1997. 4. Delivered "research use only" product will be available for Phase III clinical trials in the US and international sale by [ * ]. The purchase price of product by Glaxo Wellcome will be jointly negotiated by Biota and BioStar. It will be developed in accordance with BioStar's product development guidelines and in compliance with the FDA's Device Design Requirements. 5. The FDA position on approval criteria indicates that an influenza diagnostic will be accepted for review under a 510(k) format. The diagnostic clearance will be based on the clinical study protocol, claims and intended use. 34. 38
- ------------------------------------------------------------------------------------------------------------------- PHASE II PHASE III PHASE IV PHASE V - ------------------------------------------------------------------------------------------------------------------- 1 July - [ [ 1 April - 30 June 1997 14 September 1997 * ] * ] - ------------------------------------------------------------------------------------------------------------------- 1. Surface optimization 1. Tolerance testing 1 International clinicals 1. Technical support 2. Conjugate optimization 2. Formulation tolerance 2. Product of Phase III 2. Data analysis 3. Extraction reagents 3. Process tolerance trials 3. 510k submission 4. Sample types 4. Qualification runs 1 & 2 3. Product for 4. FDA Q&A responses 5. Controls 5. Characterize international sales 5. Reimbursement 6. Stability studies performance of 4. Qualification Run 3/ 7. SOPs, QCPs, MPs analytical sensitivity, scale up 8. FDA Protocols analytical specificity/ 5. Unit cost confirmed 9. FDA Education cross reactivity, 6. Kit stability studies 10. Customer feedback interference 7. US clinicals 11. Prototype for 6. Shipping studies 8. Customer feedback Australian Phase III 7. In-house clinicals 9. Reimbursement trials 8. Trials site selection 9. Customer feedback - -------------------------------------------------------------------------------------------------------------------
DEVELOPMENT WORK PLAN - COMPOUND BASED INFLUENZA DIAGNOSTIC RESEARCH PROGRAM PROGRAM GOAL To incorporate Biota Compounds with BioStar's [ * ] Optical ImmunoAssay surfaces into a delivery format that can achieve analytical sensitivity greater than the Becton Dickinson assay in an assay time of 15 minutes or less. SPECIFIC GOALS 1. Analytical sensitivity greater than [ * ] for at least two influenza A and B strains. 2. A minimum number of steps and reagents [ * ] 3. As rapid as possible [ * ] 4. [ * ] OVERVIEW Funding for research on a compound-based assay has been committed for up to one year. It is BioStar's aim that a working assay will be available sooner which can be evaluated on clinical samples to establish the feasibility of the assay format. Initial efforts will focus on identification of candidate compounds and formats so that the path chosen has the highest likelihood of success. Preparation of new compounds will be done in conjunction with [ * ] of Biota Chemistry Laboratory. Reagent selection and formatting will be initiated including evaluation of alternate attachment and anti-reflective layers and determination of which optical stack will provide optimal binding and sensitivity of the compound or compound carrier complex. After selecting the appropriate compound/carrier combination and surface chemistry, formulation of ancillary components such as diluent, extraction reagents and wash will be included. Clinical specimens (i.e. from naturally infected patients) as well as spiked samples from normal healthy volunteers will be included during the later phases of feasibility to insure that we are capable of handling clinical specimens. If the project demonstrates assay feasibility, a further development agreement with Biota may be negotiated. ACTIVITIES FOR APRIL 1997 1. Review progress to date on current status of compound-based assay formats. 2. Coordinate with [ * ] (6 months to completion) 35. 39 3. Continue the [ * ] 4. Initiate the production of [ * ] for subsequent testing. 5. Confirm the [* ] results. 6. Initiate conjugation of [ * ] surfaces. 7. Coordinate with [ * ] on the construction of [ * ] ACTIVITIES [ * ] APRIL - JUNE 1997 This quarter will see the initiation of work on the [ * ] OIA surfaces and the initial attempts at the transfer of the compound based assays to the new surfaces. A library of optical test surfaces will be created with the assistance of [ * ] at BioStar. We will also identify a number of potential assay formats and begin the evaluation of these formats. JULY - SEPTEMBER 1997 The second quarter will focus on development of specific assay conditions required for the [ * ] compound based assay. During this quarter we should be able to select the specific compound/carrier combination which will provide for a working assay. It is anticipated that we may need additional compound/carrier combinations synthesized based on the best choice out of the initial library, which will allow us to optimize the performance of the selected components. We will also complete the evaluation of the optical stack options which were created during the preceding quarter. Ancillary components, which are required for the formatting of the compound based assay (dilutents, extraction reagents, wash, substrate options) will be identified and formulated. It is recognized that a prototype device (plastic parts to hold the test surface and absorbent backing) will need to be identified. It is possible that we will be able to tap into components being developed for other programs. [ * ] will be tested when available from [ * ] OCTOBER-DECEMBER 1997 Using the assay components developed to date, the assay will be evaluated on spiked samples from normal healthy volunteers and frozen samples from specimen banks. It is likely that we will need to re-optimize the assay based on these results and repeat the testing. Preliminary evaluation of component stability will be initiated. Evaluation of extraction buffers will also be undertaken at this time. [ * ] The [ * ] focuses on evaluation of the compound-based assay using clinical specimens from a broad age range of patients. It is anticipated that fresh specimens may pose different extraction or handling characteristics than may have been seen using banked, frozen specimens. Therefore, it is likely that final optimization of portions of the assay may be required. Final performance characteristics will be established on the [ * ] compound-based assay. 36. 40 REPORTING At the beginning of each month, a written report, detailing the results from the work of the preceding month as well as the anticipated direction of the work of the next month will be forwarded from BioStar to Biota. This may be accompanied by either teleconference or video conferences between Biota staff and BioStar staff to discuss the results and then arrive at consensus at the direction for the anticipated research. 37. 41 SCHEDULE 2 DEVELOPMENT BUDGET
- ------------------------------------------------------------------------------------------------------------------ PHASE II PHASE III PHASE IV PHASE V (%) (%) (%) (%) - ------------------------------------------------------------------------------------------------------------------ 1 April - 1 July - [ [ 30 June 1997 14 Sept 1997 * ] * ] - ------------------------------------------------------------------------------------------------------------------ FTES 100% = 1 FTE - ------------------------------------------------------------------------------------------------------------------ [ * ] - ------------------------------------------------------------------------------------------------------------------ [ * ] - ------------------------------------------------------------------------------------------------------------------ [ * ] - ------------------------------------------------------------------------------------------------------------------ [ * ] - -------------------------------------------------------------------------------------------------------------------- [ * ] - ------------------------------------------------------------------------------------------------------------------ [ * ] - ------------------------------------------------------------------------------------------------------------------ [ * ] - ------------------------------------------------------------------------------------------------------------------ [ * ] - ------------------------------------------------------------------------------------------------------------------ [ * ] - ------------------------------------------------------------------------------------------------------------------ [ * ] - ------------------------------------------------------------------------------------------------------------------ [ * ] - ------------------------------------------------------------------------------------------------------------------ Totals: Phases II-V [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------------ TOTAL [ * ] - ------------------------------------------------------------------------------------------------------------------ Continuation of compound based work from [ * ] [ * ] - ------------------------------------------------------------------------------------------------------------------ GRAND TOTAL [ * ] - ------------------------------------------------------------------------------------------------------------------
Biota will pay costs (US dollars) for each phase of development according to the following schedule:
- ---------------------------------------------------------------------------------------------------------------------- PAYMENT: TOTAL USD PHASE DATE DEVELOPMENT 1 RESEARCH 2 PAYMENT - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ----------------------------------------------------------------------------------------------------------------------
38. 42 - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- [ * ] - ---------------------------------------------------------------------------------------------------------------------- TOTAL [ * ] [ * ] [ * ] - ----------------------------------------------------------------------------------------------------------------------
1. For Phase II-V 2. For continuing compound-based research 1. If the choice is made by 1 April to proceed with a non-antibody based assay system, then antibody related expenses would not be charged to the program. 2. Compound based research will continue from [ * ] at the level of [ * ]. The objective is to continue the optimization of a compound based approach for a new version of the influenza diagnostic. 3. Clinical study costs may vary once the precise protocol is agreed upon with the FDA. Actual clinical study costs would be used. Any reconciliation with estimates can occur during Phase V. 4. Payments will be made 60 days in advance on the indicated date by wire transfer. 5. Before payments are made for Phase II, invoices will be provided to Biota incorporating any antibody costs required for the development. Payments will then be adjusted accordingly. 6. Before payments are made for Phase IV, invoices will be provided to Biota based on the cost of US clinicals and the protocol agreed with the FDA. Payments will then be adjusted accordingly. 39. 43 SCHEDULE 3 DIAGNOSTIC SPECIFICATIONS AND GOALS A. CRITICAL FEATURES 1. Clinical Sensitivity: [*] of resolved viral tissue culture for Influenza A and B. Resolution may be with a variety of methods. 2. Clinical Specificity: [*] of resolved viral tissue culture for Influenza A and B. Resolution may be with a variety of methods. 3. Costs of goods sold at: Test Volume 1 million devices/year $TBD 3 million devices/year $TBD 5 million devices/year $TBD 4. Ease of Use: CLIA moderately complex device equivalent. Time to test completion: < or equal to 15 minutes. No result interpretation before test completion is intended. B. MARKET 1. > or equal to 20 tests per month practices. C. SPECIMEN / SWAB TYPES 1. Stock, sterile Dacron or rayon tipped swabs (hollow or solid, no wood). (BD or equivalent.) PBS for washes/gargles. 2. Swabs/washes are supplied by user. They are not included in the assay kit. D. WORKFLOW / EASE OF USE 1. Tests can be run in a lab area with: (a) no unique drain or ventilation, and (b) 1000-2000 Lux and 100-200 foot candles illuminance. 2. Multiple tests (< or equal to 10) can be run simultaneously, limited only by the operator's ability to sequence reagents, time steps, and read a result between the test completion time and time limit for result stability. 3. Assay performed at room temperature, i.e. 15(degree) - 30(degree)C. 4. No sample manipulation or pretreatment occurs before use with the test. 5. Endpoint of the test is a crisp-edged, distinct color change that is limited to a presence/absence interpretation. E. SYSTEM COMPONENTS 1. Extraction tube 40. 44 2. OIA device 3. Extraction reagent, conjugate, wash, and substrate (if required) are contained within the kit. 4. Controls (positive and negative). F. DEVICE 1. Current, 1.0 version OIA test device (silicon wafer based). 2. Each device is a single test. 3. Area 1" x 5/8" (2.5 x 1.6 cm) for writing or affixing label of patient name/ID is provided. 4. Visually read surface. 5. Materials compatibility with: [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] 6. Surface optically coated silicon wafer, static (non-porous). 7. Device material: commodity resin, white color, matte finish 8. Absorbent papers: equivalent to those in use with [ * ] G. STABILITY 1. Shipping [ * ] [ * ] [ * ] d. FYI. Consider an indicator, e.g. temperature dot, for shipment acceptability at delivery. 2. Shelf Life: a. at market entry: [ * ] at room temperature b. after six months on market: [ * ] months at room temperature c. humidity: TBD 3. Result: should remain stable for not less than [ * ]. H. STORAGE 1. [ * ] at time of manufacture for device [ * ] at time of manufacture for reagents 41. 45 I. ASSAY PROCESSING STEPS 1. Direct Detection a. Swab/sample and extraction reagent are combined b. Conjugate added to sample/extraction tube c. Sample added to OIA surfaces d. Wait/wash e. Substrate added to OIA surface f. Wait/wash g. Read J. WITHIN DEVICE CONTROLS 1. Procedural control utilizing purified antigen or anti-species capture antibody to produce color only if free conjugate has been captured and is incorporated on the device surface. K. EXTERNAL CONTROLS 1. Positive and negative controls are provided. These controls may be solutions or lyophilised. L. ANALYTICAL PERFORMANCE 1. Analytical Sensitivity: [ * ] 2. Analytical Specificity: [ * ] 3. No x-reactivity with normal throat flora. 4. Preservative Efficacy Testing (PET) - ProClin - USP + rechallenge. M. LABELING / PACKAGE INSERT 1. Require labels/package inserts in six languages: English, Spanish, French, German, Japanese and Italian. Translations to be provided by Biota. 2. Symbology (storage, sampling, etc.) should be used whenever possible (TBD what symbols are commonly used). 3. Abbreviate ex-US package inserts to required content to meet 97 EU standards. 4. No unit labeling. 5. Controls will meet FDA guidelines for review of Calibration and Quality Control Labeling for In Vitro Diagnostic Devices (1 Feb. 1996). N. PACKAGING 1. Utilize recyclable materials whenever possible. 2. Thirty test kits and 100 test kits sizes. 42. 46 3. Inner and outer packaging TBD a. no unit packaging b. require packaging in six languages: English, Spanish, French, German Japanese and Italian. 4. Symbology (storage, sampling, etc.) should be used whenever possible (TBD what symbols are commonly used). 5. Put labeling, i.e. name and lot information on the front of the package for easy viewing. O. SHIPPING 1. USA a. ship via ground transportation to distributors (5 days) at room temperature. b. two to three days air distribution to customers - TBD 2. International a. air shipments - 5 days maximum b. kit tolerance to 5 days, unprotected 3. Drop test: no damage with 3 x 36" (1m.) falls. 4. Other shipping tests as per ASTM and UPS standards - TBD P. REAGENTS 1. Conjugate a. liquid b. TBD chemistry 2. Extraction Reagent a. liquid b. TBD chemistry 3. Substrate a. liquid b. Custom BioStar formulation 4. Wash a. liquid b. TBD chemistry 43. 47 SCHEDULE 4 COMPOUNDS [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] 44. 48 SCHEDULE 5 OPTICAL IMMUNOASSAY Optical Immunoassay (OIA) refers to the interaction of light with thin biological films on an optical support. Three major areas are covered. First the design and construction of the optical support, second the methods and instruments used for detecting the changes in the incident light as a result of interaction with the optical support, and third, the assays and methods for amplification of OIA techniques. The optical support may be defined as any solid support selected for specific optical characteristics. The required optical characteristics are tied to the detection method to be used in the final assay format. The optical support may be further described by inclusion of one or more optical thin film or anti-reflective layer. The optical support also includes thin films of materials designed to promote the adhesion or binding of the biological thin films to the support. Second, OIA also includes the methods and instruments useful of the measurement, quantization, or interpretation of the signal generated as a result of light's interaction with the optical support. These methods include visual interference effects, ellipsometry, comparison ellipsometry, changes in the state or degree of polarization for a polarized light source, and related thin film measurement technologies. Third, OIA covers the amplification of the signal generated on a thin film optical support. The critical feature of such an amplification process is that the method and materials amplify the mass or thickness change on the surface of the optical support while maintaining the original thin film properties and characteristics of the support. 45. 49 SCHEDULE 6 MINIMUM SALES VOLUMES 1. PERIOD AFTER FORMAL LAUNCH OF GGI67 COMPOUND AS THERAPEUTIC AGENT IN TREATMENT OF INFLUENZA IN THE US BioStar shall sell a minimum number of units of Diagnostic during each year commencing on the first day of the month immediately following the month in which the formal launch of GG167 occurs as follows:
- --------------------------------------------------------------------------------------------- PERIOD (SALES YEARS) AFTER FORMAL MINIMUM NUMBER OF UNITS OF DIAGNOSTIC LAUNCH OF GG167 TO BE SOLD BY BIOSTAR IN THE UNITED STATES OF AMERICA DURING SALES YEAR INDICATED - --------------------------------------------------------------------------------------------- Year 1 [ * ] - --------------------------------------------------------------------------------------------- Year 2 [ * ] - --------------------------------------------------------------------------------------------- Year 3 [ * ] - --------------------------------------------------------------------------------------------- Year 4 [ * ] - --------------------------------------------------------------------------------------------- Year 5 [ * ] - --------------------------------------------------------------------------------------------- Each year thereafter [ * ] - ---------------------------------------------------------------------------------------------
2. PERIOD PRIOR TO FORMAL LAUNCH OF GG167 COMPOUND AS THERAPEUTIC AGENT IN TREATMENT OF INFLUENZA IN THE US In the event that FDA Clearance of the Diagnostic is granted and the use of the Diagnostic is launched prior to the formal launch of GG167, BioStar shall sell a minimum number of units of Diagnostic during each year commencing on the first day of the month immediately following the month in which the formal launch of the Diagnostic occurs and prior to the formal launch of GG167 as follows:
- ----------------------------------------------------------------------------------------------- PERIOD (SALES YEARS) AFTER FORMAL MINIMUM NUMBER OF UNITS OF DIAGNOSTIC LAUNCH OF THE DIAGNOSTIC TO BE SOLD BY BIOSTAR IN THE UNITED STATES DURING SALES YEAR INDICATED - ----------------------------------------------------------------------------------------------- Year 1 [ * ] - ----------------------------------------------------------------------------------------------- Each year thereafter [ * ] - -----------------------------------------------------------------------------------------------
For the purposes of this schedule 6, the number of units sold is the number of units sold to third parties or classes of third parties who have been approved in writing by Biota. 46. 50 SCHEDULE 7 DISTRIBUTION ALLOWANCES 1. BIOSTAR DISTRIBUTION ALLOWANCE 1.1 PERIOD AFTER FORMAL LAUNCH OF GG167 COMPOUND AS THERAPEUTIC AGENT IN TREATMENT OF INFLUENZA IN THE US. The BioStar Distribution Allowance shall be equal to a percentage of the Gross Sales Revenue of BioStar relating to its sale of Diagnostic in the US during each year after the formal launch of GG167 as follows:
- --------------------------------------------------------------------------------------- PERIOD (SALES YEARS) AFTER FORMAL DISTRIBUTION ALLOWANCE EQUAL TO LAUNCH OF GG167 FOLLOWING PERCENTAGES OF GROSS SALES REVENUE OF BIOSTAR RELATING TO SALE OF DIAGNOSTIC IN THE US DURING SALES YEAR INDICATED - --------------------------------------------------------------------------------------- Year 1 [*] - --------------------------------------------------------------------------------------- Year 2 [*] - --------------------------------------------------------------------------------------- Year 3 [*] - --------------------------------------------------------------------------------------- Year 4 [*] - --------------------------------------------------------------------------------------- Year 5 [*] - --------------------------------------------------------------------------------------- Each year thereafter [*] - ---------------------------------------------------------------------------------------
1.2 PERIOD PRIOR TO FORMAL LAUNCH OF GGL67 COMPOUND AS THERAPEUTIC AGENT IN TREATMENT OF INFLUENZA IN THE US. In the event that FDA Clearance of the Diagnostic is granted and the Diagnostic is launched prior to the formal launch of GG167, shall be as follows during each year after the formal launch of the Diagnostic and prior to the formal launch of GG167.
- --------------------------------------------------------------------------------------- PERIOD (SALES YEARS) AFTER FORMAL LAUNCH DISTRIBUTION ALLOWANCE EQUAL TO FOLLOWING OF THE DIAGNOSTIC PERCENTAGES OF GROSS SALES REVENUE OF BIOSTAR RELATING TO SALE OF DIAGNOSTIC IN THE US DURING SALES YEAR INDICATED - --------------------------------------------------------------------------------------- Year 1 [*] - --------------------------------------------------------------------------------------- Each year thereafter [*] - ---------------------------------------------------------------------------------------
The Distribution Allowance set out in this paragraph 1.2 will be decreased from [*] to [*] with effect from the formal launch of GG167. 47. 51 2. BIOTA DISTRIBUTION ALLOWANCE Biota Distribution Allowance shall be equal to a percentage of the Gross Sales Revenue of Biota relating to the sale of Diagnostic in the US as follows:
- --------------------------------------------------------------------------------------- PERIOD FOLLOWING THE DISTRIBUTION ALLOWANCE EQUAL TO FOLLOWING COMMENCEMENT OF SALES OF DIAGNOSTIC BY PERCENTAGES OF GROSS SALES REVENUE OF BIOTA BIOTA IN THE US RELATING TO SALE OF DIAGNOSTIC IN THE US DURING SALES YEAR INDICATED - --------------------------------------------------------------------------------------- Year 1 [*] - --------------------------------------------------------------------------------------- Year 2 [*] - --------------------------------------------------------------------------------------- Year 3 [*] - --------------------------------------------------------------------------------------- Year 4 [*] - --------------------------------------------------------------------------------------- Year 5 [*] - --------------------------------------------------------------------------------------- Each year thereafter [*] - ---------------------------------------------------------------------------------------
48. 52 SCHEDULE 8 PRO-FORMA COMMERCIALIZATION PLAN The commercialization plan will include: 1. PERFORMANCE DATA (a) Preclinical data for sensitivity and specificity (b) 510(k) trial site data (if available) (c) Competitive performance comparison 2. FORECAST / BUILD PLANS (a) Domestic forecast (customer kits, sample kits) (b) International forecast (customer kits, sample kits) (c) Worldwide production plan/inventory projections 3. PRODUCT LABELING Samples of labels, package insert draft, cartons, procedure card 4. PHOTOGRAPHS Photographs appropriate for early publicity 5. TRAINING MATERIALS To include: US market overview Medical positioning/justification versus other methods Reimbursement position Financial justification for use Troubleshooting guide Operator instrumentation Competitive comparisons CLIA materials 6. COLLATERAL MATERIAL Drafts of sales sheets 49. 53 SCHEDULE 9 BIOSTAR PATENT COUNTRIES Austria Belgium Switzerland Germany Benelux (Belgium, Netherlands, Luxembourg) Spain France United Kingdom Italy Sweden Japan Canada Mexico United States of America Australia EXECUTION PAGE SIGNED by Richard Wadley ) as authorized representative for BIOTA ) SCIENTIFIC MANAGEMENT PTY LTD in the ) presence of: ) ) ) ) /s/ Phillip Andrew Reece ) - -------------------------------------- ) Signature of witness ) ) ) Phillip Andrew Reece ) /s/ Richard Wadley - -------------------------------------- ) -------------------------------- Name of witness (block letters) ) By executing this Agreement the ) signatory warrants that the ) signatory is duly authorized to ) execute this Agreement on behalf ) of BIOTA SCIENTIFIC MANAGEMENT ) PTY LTD Biota Scientific Mgt Pty Ltd. ) Level 4 - 616 St Kilda Rd. ) - -------------------------------------- ) Address of witness Melbourne. ) ) ) Director, Research and Development ) - -------------------------------------- ) Occupation of witness ) SIGNED by ) as authorized representative for BIOSTAR, ) INC. in the presence of: ) ) ) /s/ Noel T. Doheny ) - -------------------------------------- ) Signature of witness ) ) ) Noel T. Doheny ) /s/ Teresa W. Ayers - -------------------------------------- ) -------------------------------- Name of witness (block letters) ) By executing this Agreement the ) signatory warrants that the ) signatory is duly authorized to ) execute this Agreement on behalf ) of BIOSTAR, INC. 6650 Lookout Road ) Boulder CO 80503 ) - -------------------------------------- ) Address of witness ) ) ) Exec VP Commercial Development ) - -------------------------------------- ) Occupation of witness ) EX-10.61 7 DISTRIBUTION AGREEMENT 1 DISTRIBUTION AGREEMENT THIS AGREEMENT, made effective this 1st day of January, 1997, by and between BioStar, Inc., a corporation organized and existing under the laws of the state of Delaware and having its principal place of business at 6655 Lookout Road, Boulder, Colorado 80301 (hereinafter referred to as "BIOSTAR") and Murex Diagnostics, Inc., a corporation organized and existing under the laws of the State of Delaware and having its principal place of business at 3075 Northwoods Circle, Norcross, Georgia 30071 (hereinafter referred to as "MDI"). WITNESSETH THAT: WHEREAS, the parties entered into a Distribution Agreement dated as of September 1, 1995 (the "PRIOR AGREEMENT") pursuant to which BioStar appointed MDI as a distributor with respect to certain BioStar products; and WHEREAS, the parties desire to amend and restate the Prior Agreement to read in full as set forth below. NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants set forth herein, the parties hereto mutually agree as follows: ARTICLE I DEFINITIONS The following definitions, whether used in the singular or in the plural, shall apply throughout this Agreement: 1.1 "AFFILIATE" shall mean any corporation which controls, is controlled by or is under common control with a party to this Agreement. A corporation shall be regarded as in control of another corporation if it owns or directly or indirectly controls at least forty percent (40%) of the voting stock of the other corporation, or in the absence of the ownership of at least forty percent (40%) of the voting stock of a corporation, if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation. 1.2 "CONTRACT YEAR" shall mean the period of twelve (12) successive calendar months commencing on the 1st day of January 1997, and each successive twelve (12) month period thereafter. 1.3 "EFFECTIVE DATE" shall mean the date appearing at the beginning of this Agreement. 1.4 "MANUFACTURING COSTS" shall mean and include the cost of direct labor (including allocable employee benefits and employment taxes), direct material and other charges incurred directly for the manufacture of a Product (including costs of quality control), and normal production overhead (i.e., indirect labor, maintenance, depreciation of the manufacturing equipment and facilities and other allocable overhead of the manufacturing factory), all 1. * CERTAIN CONFIDENTIAL MATERIAL CONTAINED IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED 2 determined in accordance with generally accepted accounting principles applied on a consistent basis. 1.5 "NATIONAL ACCOUNTS" shall mean: (i) the following reference laboratories: [ * ] (ii) the following hospitals: [ * ] ; and (iii) any National Accounts mutually agreed to in writing by MDI and BioStar. 1.6 "PRODUCTS" shall mean the rapid human in vitro diagnostic products set forth in Appendix A attached hereto and made a part hereof, and such other diagnostic products, if any, as may be added thereto from time to time by the parties in accordance with Section 2.9 hereof. 1.7 "SPECIFICATIONS" shall mean the product and packaging specifications for each Product referred to in Appendix A attached hereto and made a part hereof, each of which has been mutually agreed upon and in respect of new products added pursuant to Section 2.9 will be mutually agreed upon in good faith by the parties hereto, giving due consideration to applicable regulatory requirements; and determined in accordance with applicable analytical methodology set forth in such specifications. 1.8 "TERRITORY" shall have the meaning set forth in Section 2.2 below. 1.9 "TRADEMARKS" shall mean those trademarks and trade names, whether or not registered in the United States, trade dress and packaging which (a) are owned by either party, and (b) are applied to or used in connection with a Product. 1.10 "TERM" shall have the meaning set forth in Section 6.1 below. ARTICLE II DISTRIBUTORSHIP 2.1 GRANT. (a) LICENSE GRANT. Subject to the terms of this Agreement, BioStar hereby grants to MDI and MDI hereby accepts from BioStar a non-transferable right and license for the Term, (i) to market, sell, demonstrate and distribute for sale the Products in the Territory, (ii) to reproduce the related documentation as necessary for the purpose of furnishing such documentation in conjunction with the sale of the Products, and (iii) the right to use the Trademarks in connection with the Products. (b) NON-TRANSFERABLE LICENSE. MDI is not authorized to establish subdistributors or sell to persons other than hospitals and reference laboratories, except with BioStar's prior written consent. (c) REPRESENTATION REGARDING BIOSTAR INTELLECTUAL PROPERTY. MDI hereby acknowledges and agrees that title and interests and rights of ownership in and to the Intellectual Property (as defined in. Section 10.1 below), and all copies, in any form, of all or part thereof, are and remain with, and shall be the sole and exclusive property of, BioStar. 2. 3 2.2 TERRITORY AND EXCLUSIVITY. The license granted to MDI set forth in Section 2.1 above shall be for the following territories on the following terms (collectively, the "TERRITORY"): (a) TERRITORIES AND EXCLUSIVITY. Except as set forth in subsection (c) below, MDI shall have the right and license to distribute the following Products to hospitals and reference laboratories located in the United States. (i) GBS. BioStar hereby grants MDI the exclusive right to distribute BioStar's GBS Product to all National Accounts, hospitals and reference labs located in the United States; provided, however, that this right shall be non-exclusive with respect to those hospitals and reference labs being served by BioStar as of March 15, 1997 (the "BIOSTAR ACCOUNTS"). (ii) GAS. BioStar hereby grants MDI the exclusive right to distribute BioStar's GAS Product to all National Accounts, hospitals and reference labs located in the United States; provided, however, that this right shall be non-exclusive with respect to the BioStar Accounts and with respect to key hospitals identified by mutual agreement of BioStar and MDI, which are decision-makers who influence physician office lab diagnostic test kit purchasing decisions. (iii) CHLAMYDIA. BioStar hereby grants MDI the non-exclusive right to distribute BioStar's Chlamydia Product to all National Accounts, hospitals and reference labs located in the United States; provided, however, that MDI acknowledges and agrees that it does not have any right to distribute BioStar's bundled Chlamydia/Zithromax Product which is being distributed by General Injectables and Vaccines, Inc. in public health facilities based in hospitals but does have the exclusive right to distribute BioStar's Chlamydia Product to Bergen Clinical Lab located in Englewood, New Jersey. (iv) ALL PRODUCTS. Notwithstanding the foregoing, BioStar hereby grants MDI the non- exclusive right to distribute BioStar's GBS, GAS and Chlamydia Products in Alaska and Hawaii to all hospitals, reference labs and physician office labs. (b) BIOSTAR ACCOUNT TRANSFERS. In the event that BioStar agrees to transfer any of the BioStar Accounts for GBS or GAS to MDI, MDI agrees to accept an increase in the sales minimums comparable to the 1996 sales by BioStar to such BioStar Account. In the event that MDI transfers any customers for the Products to BioStar, BioStar agrees to decrease the sales minimums comparable to the 1996 sales by MDI for any such customers. (c) BIOSTAR RETAINED TERRITORIES. BioStar shall retain Methodist Hospital System in Indiana, as well as all other territories outside of the Territory, including but not limited to, managed care organizations, all physician office laboratories (outside of Alaska and Hawaii), clinics, student health centers and integrated delivery systems (which are agreed upon in writing by BioStar and MDI). BioStar may consider assigning MDI as an agent for these accounts in its sole discretion subject to a separate agreement of the parties. (d) OTHER TERRITORIES. BioStar, in its sole discretion, may consider a business plan proposal from MDI with respect to MDI serving as BioStar's distributor for the Products to hospitals and reference laboratories located in Canada, South America and Central America. 3. 4 MDI's proposal should contain the specific reasons why MDI is the best distribution option for BioStar in these territories and specific sales performance commitments for a three (3) year period. 2.3 EXCLUSIVITY AND SALES REVENUES. Subject to Section 6.2, BioStar may convert MDI's appointment from exclusive to non-exclusive for the Territory as further described below unless MDI purchases [ * ] of the agreed minimum of Product during each six (6) month period and [ * ] for each twelve (12) month period. Murex shall have six (6) months to make up shortfall to purchases from previous annual term. These minimums will be specific to the Products available during the contract period and are as set forth in Appendix B. In the event that MDI has not achieved the sales revenue targets in any given period during the Term then BioStar may elect to convert any of MDI's exclusive rights under this Agreement set forth in Section 2.2 to non-exclusive upon ninety (90) days prior written notice. The only exception to this loss of exclusivity would be if BioStar fails to provide product in sufficient quantity (as defined in Article III, 3.1) or quality (as defined in Article VIII) in accordance with this Agreement to fulfill Purchase Orders submitted by Murex to BioStar which, in the aggregate, exceed such agreed minimums. BioStar and MDI will meet quarterly to review MDI's performance against the sales revenue targets. 2.4 SALES REVENUE MINIMUMS FOR SUBSEQUENT CONTRACT YEARS. During the last three (3) months of 1997 and of each subsequent Contract Year, the parties shall meet to discuss and negotiate in good faith the minimum for the following Contract Year, taking into account end user Product pricing, competition and other relevant marketing issues as well as regulatory issues. In the event the parties are unable to agree upon minimums, the minimums for the next Contract Year shall be an equivalent of 1.1 times the purchase volume of the preceding year. 2.5 MDI'S OBLIGATIONS. MDI agrees to use its best efforts to promote and maximize the sale, marketing and distribution of the Products. MDI shall distribute the Products in the Territory under BioStar's designated Trademarks for the Products and in their original condition and packaging. (a) MDI REPRESENTATIONS AND WARRANTIES. MDI represents and warrants that it has adequate financial resources, management, sales force and facilities (including warehouse facilities, business offices and clerical staff): (i) to acquire and maintain a reasonable inventory of Products; (ii) to sell and promote the sale of the Products as herein provided; and (iii) to perform all of its obligations under this Agreement. (b) MDI MARKETING AND SUPPORT OBLIGATIONS. (i) (A) MDI shall designate Regional Sales Managers and a reasonable number of salespersons to perform MDI's obligations hereunder with regard to the Products and such Regional Sales Manager and salespersons shall attend BioStar training on new Products as set forth in Section 4.8 below, (B) MDI shall establish a specific bonus program for its sales organization, and (C) MDI shall establish sales targets for each of its sales representatives in their respective territories; 4. 5 (ii) MDI shall engage in advertising and sales promotional activities in the Territory including, but not limited to (a) advertising the Products in professional medical journals published in the Territory, (b) participating in national trade shows for medical diagnostic products, (c) displaying the Products within such shows, (d) qualifying the Products to all existing, active MDI accounts in the Territory within sixty (60) days after Product training, and (e) promoting the Products to all existing active MDI National Accounts; (iii) MDI shall use the literature, catalogs and technical brochures with respect to the Products which BioStar may, from time to time, furnish MDI, free of charge, and in reasonable quantities; (iv) MDI, at its own expense, may prepare additional advertising and promotional materials. All of MDI's advertising and promotional materials shall designate the Products by the Trademarks and shall identify the Products as BioStar's being marketed by MDI as a distributor for BioStar. MDI shall submit all advertising and promotional material for the Products which it generates to BioStar for review and approval; and (v) MDI shall provide the following support for National Accounts: (a) MDI will ensure that National Accounts present BioStar products at least twice per year to each listed account, (b) MDI National Account Managers will make joint calls with BioStar management on National Accounts at least once per year per account, and (c) MDI will provide monthly reports to BioStar's Vice President of Sales/National Accounts regarding MDI's National Account call activities and the status of all National Accounts. (c) MDI'S BUSINESS CONDUCT. (i) MDI shall at all times conduct its business in a manner as will reflect favorably on BioStar and the Products and will not engage in any deceptive, misleading, illegal and unethical business practice. MDI shall consult with BioStar regarding any advertising or trade practice which might affect the good name, Trademarks, goodwill or reputation of BioStar or its Products; and (ii) MDI undertakes not to solicit sales of Products outside the Territory. (d) MDI'S OBLIGATION TO KEEP BIOSTAR INFORMED. MDI shall keep BioStar fully informed of all governmental, commercial and industrial activities and plans which do or could affect the sale of the Products in the Territory including any significant reduction or other alteration of MDI's sales staff which materially adversely affects the sale or other distribution of the Products. (e) CUSTOMER LIST. MDI shall establish and maintain a system of record keeping identifying each end user by name, address and designation of type of practice or business and the date of sale and lot number for each of the Products sold (the "CUSTOMER LIST"). If the customer does not deliver the Products directly to end users then MDI shall require the customer to maintain a similar Customer List. MDI will provide BioStar with electronic sales reports by the 10th day of each month for all GAS sales only for BioStar commission purposes. The electronic reports shall include the following information: name of customer, 5. 6 customer ID, customer state with zip code, product number, product quantity, unit and extended pricing, purchase order number, invoice or ship date. During the Term, the Customer List is to be used by BioStar as a tool for commission purposes and to identify reference accounts only. (f) TECHNICAL SUPPORT OBLIGATIONS. MDI shall provide technical assistance and support to its customers, including support for customer product evaluations as outlined in Appendix C. (g) COMPETING REPRESENTATION. MDI agrees not to engage directly or indirectly in the manufacture, sale, promotion or distribution of similar or analogous products which may be competitive with the Products, in any manner whatsoever (including, but not limited to the use of similar technology, use or application), during the term of this Agreement; provided, however, that MDI shall be entitled to distribute the Reveal GAS product. 2.6 BIOSTAR'S OBLIGATIONS. BioStar will make available to MDI the following marketing support for the Territory: (a) Training for MDI sales and marketing personnel no more than twice per year for two (2) continuous days at MDI's offices in Atlanta. At BioStar's expense, BioStar will provide the sales trainer and pay associated travel expenses, appropriate sales training material and product literature. MDI shall bear all other expenses for its sales and marketing personnel. (b) Copies of BioStar's monthly mailings to its sales representatives, including marketing and technical tips and other sales information. (c) Copies of third party publications and scientific support material for the Products. (d) Support for MDI's customer product evaluations as outline in Appendix C. (e) BioStar shall keep MDI fully informed of all governmental, commercial and industrial activities and plans which do or could affect the sale of the Products in the Territory including any significant reduction or other alteration of BioStar's sales staff which materially adversely affects the sale or other distribution of the Products. 2.7 RIGHT OF FIRST NEGOTIATION. BioStar hereby grants MDI the right of first negotiation during the Term to become a distributor in the Territory for any diagnostic products which BioStar develops after the Effective Date on an exclusive basis or some other basis mutually agreed upon by BioStar and MDI; provided, however, that this Section 2.7 shall not apply to any products which BioStar develops in cooperation with any third party or for which BioStar does not have, or is unable to obtain, the right to appoint MDI as a distributor. 6. 7 ARTICLE III MANUFACTURE BY AND SUPPLY FROM BIOSTAR 3.1 PURCHASE OF PRODUCTS. MDI undertakes to purchase the Products in its name and for its own account. Purchase of Products shall be made on a monthly basis and shall be made by delivery to BioStar, ninety (90) days in advance of the requested delivery date, written purchase orders for the Products (the "PURCHASE ORDERS"). All Purchase Orders shall be subject to acceptance by BioStar at its principal place of business. In the event of any inconsistency between the terms and conditions of a Purchase Order and this Agreement, this Agreement shall prevail. 3.2 PACKAGING. BioStar shall deliver the Products to MDI in finished form, ready for delivery to MDI's customers. All unique labeling, direction circulars and cartons used by BioStar in connection with the supply of Products to MDI shall be approved in advance by MDI prior to the first delivery of each Product. BioStar agrees to review all packaging changes in advance with MDI. 3.3 REGULATORY APPROVALS. BioStar shall be fully responsible for obtaining and maintaining United States Food and Drug Administration (hereinafter referred to as "FDA") approval in respect to Products. Any provision of this Agreement to the contrary notwithstanding, the obligations of BioStar to supply and MDI to purchase from BioStar any Product under this Agreement are expressly conditioned upon receipt of all required regulatory approvals for such Product, including but not limited to approval by the FDA for such Product, and unless such approvals are granted, BioStar shall be under no obligation to supply and MDI shall be under no obligation to purchase such Product. 3.4 FORECASTS. No later than ten (10) days after the Effective Date and at least ninety (90) days prior to the beginning of the second and each subsequent Contract Year during the term of this Agreement, MDI shall provide BioStar with a written rolling purchase forecast of the quantity for each Product by package size which MDI expects to purchase from BioStar during the following Contract Year (the "FORECAST"). The Forecast shall be reviewed and updated with BioStar by MDI on at least a monthly basis during each Contract Year. ARTICLE IV PRICES AND PAYMENTS 4.1 BASE PRICES. The per kit Base Prices of the Products ordered by MDI hereunder in respect of sales shall be as follows:
- ---------------------------------------------------------------------------- PRODUCT BASE PRICE TO MDI - ---------------------------------------------------------------------------- GAS-30 [ * ] - ---------------------------------------------------------------------------- GAS-100 [ * ] - ---------------------------------------------------------------------------- GBS-30 [ * ] - ---------------------------------------------------------------------------- Chlamydia [ * ] - ----------------------------------------------------------------------------
7. 8 4.2 PAYMENT. Payment shall be due to BioStar not later than thirty (30) days following the date of invoice. Payment shall be made to BioStar in United States Dollars. BioStar shall not invoice MDI for any Product prior to the shipment of such Product and the forwarding to MDI of the batch records relating to such Product. 4.3 PRICE CHANGES. At least ninety (90) days prior to the end of the Contract Year ending 12/31/98 and each Contract Year thereafter, MDI and BioStar shall meet and negotiate in good faith the purchase price to govern the purchase of each Product for the next succeeding Contract Year (the "NEW PRICE YEAR"). The Base Price of each Product will be reviewed annually taking into account market conditions and any changes in the cost of manufacture of the Product. In the event no agreement is reached on a price revision following such review, BioStar shall be entitled to adjust the Base Price by sixty percent (60%) of the USA Consumer Price Index (All Item) over the preceding contract period. All orders received and accepted by BioStar prior to the effective date of the price increase will be billed at the price in effect at the time of acceptance of the order. All other orders for shipment for the quarter after the effective date of the price increase will be billed at the increased price. 4.4 SPECIFIC BUSINESS OPPORTUNITIES. In certain situations BioStar and Murex may mutually agree to pursue specific business opportunities at special prices. It is agreed that BioStar and Murex will establish a rebate system appropriate for the situation. 4.5 PROFIT REBATE (WHITE SLIPS). In the event that BioStar notifies MDI of an MDI customer (e.g., a hospital) who is delivering Product to outpatient accounts, the parties hereto will meet to discuss an appropriate profit rebate mechanism from MDI to BioStar in respect to such accounts. Any such rebate will be subject to: (a) BioStar clearly demonstrating the quantities of such outpatient accounts and BioStar's loss of direct sales to such accounts; (b) deduction of all reasonable costs of MDI to service such customer or outpatient accounts up to a maximum of [ * ] of MDI's net revenues from sales of Products to such customer or outpatient accounts; and (c) deduction of White Slips of hospitals being shipped directly by BioStar that are not being serviced by a BioStar representative. 4.6 SAMPLES. BioStar will provide samples to MDI at a reduced cost for promoting the Products. These samples will be priced at [ * ] of the Base Price (the "DISCOUNT") to MDI. MDI shall purchase the sample Products at the Base Price and shall provide BioStar with a report detailing the samples ordered (the "SAMPLE REPORT"). BioStar shall credit or rebate the Discount to MDI based upon the Sample Report. Volume will be limited to sixty (60) tests of each Product per MDI representative per month. 8. 9 ARTICLE V DELIVERY AND ACCEPTANCE 5.1 DELIVERY. In the absence of specific instructions from MDI, the shipping and packaging method used will be at the discretion of BioStar. Deliveries shall be made FCA BioStar's (or BioStar's designated supplier's) manufacturing facility and shall be shipped to MDI's address as set forth in this Agreement. Unless MDI's Purchase Order specifies the name of a carrier, BioStar will select the carrier. BioStar shall bear the risk of loss until such time as a shipment has been placed on board the carrier, at which time the risk of loss shall be borne by MDI. Any claims for damage or loss in transit shall be placed by MDI through the carrier. All shipments will be shipped by BioStar freight collect, or if prepaid by BioStar, such freight will be subsequently billed to MDI and MDI will reimburse BioStar for such freight. BioStar may deliver in advance of estimated delivery dates upon prior notice to and agreement by MDI. At MDI's option, BioStar will insure the shipments against damage to or loss of Products. Any shipping insurance so provided by BioStar will be subsequently billed to MDI and MDI will reimburse BioStar for such expense. 5.2 ACCEPTANCE. MDI shall inspect all goods, and shall validate the quantity of goods, promptly upon receipt thereof at the shipping destination. MDI will notify BioStar if any order quantities are incorrect. MDI may reject any goods which fail in any significant respect to meet BioStar's acceptance specifications prevailing on the date of delivery. Goods not rejected by written notification to BioStar within twenty-one (21) days of receipt shall be deemed to have been accepted. Rejected goods shall be returned freight prepaid to BioStar within ten (10) days of rejection. As promptly as possible but not later than thirty (30) days after receipt by BioStar of properly rejected goods, BioStar shall, at its option and expense, either repair or replace rejected goods. The party shipping the goods pursuant to this Section 5.2 shall bear the entire risk of loss for goods during shipment. Any insurance proceed payable in respect of any loss incurred shall be paid to the party bearing the risk of loss for such goods to the extent of the loss incurred therefor. BioStar will prepay transportation charges back to MDI and shall reimburse MDI for any costs of transportation incurred by MDI in connection with the return to BioStar of properly rejected goods; otherwise, MDI shall pay transportation charges in both directions. ARTICLE VI TERM; TERMINATION 6.1 TERM. Except as otherwise expressly provided in this Agreement: (a) INITIAL TERM. The initial term of this Agreement shall extend from the Effective Date for a period of one (1) year with the option to renew for three (3) successive one (1) year periods as set forth in subsection (b) below (collectively, the "TERM)." (b) RENEWAL OPTION. MDI shall have the right and option to renew the term of this Agreement for three (3) successive periods of one (1) Contract Year by giving BioStar written notice thereof at least ninety (90) days prior to the end of the initial Contract Year or any 9. 10 subsequent renewal Contract Year, provided MDI has met its minimum sales revenue targets through September for the concluding Contract Year. 6.2 TERMINATION BY MDI. In addition and without prejudice to any other rights or remedies, this Agreement may be terminated by MDI as follows: (a) TERMINATION FOR BREACH OR DEFAULT BY BIOSTAR GENERALLY. This Agreement may be terminated by MDI in the event of the breach or default by BioStar of the terms and conditions hereof; provided, however that with respect to a breach or default other than (i) BioStar's inability to supply the Products otherwise than for a cause reasonably beyond its control, as provided in Section 11.1 hereof, MDI shall first give BioStar written notice of the proposed termination or cancellation of this Agreement, specifying the grounds therefor, and BioStar shall have ninety (90) days after such notice is given to cure such default. If not so cured, this Agreement shall terminate or be deemed canceled at the expiration of such ninety (90) days. (b) TERMINATION FOR SPECIFIC BREACHES OR DEFAULTS BY BIOSTAR. This Agreement may be terminated or canceled by MDI upon sixty (60) days' written notice for failure of BioStar to supply the Products other than by reason of a cause reasonably beyond its control, as provided in Section 11.1 hereof, which failure is not cured prior to the expiration of such sixty (60) days. Anything in this Agreement to the contrary notwithstanding, the failure of BioStar to meet a delivery date of quantities of Products within forecasted levels on at least three (3) occasions in any twelve (12) month period or the delivery by BioStar of nonconforming Products on at least three (3) occasions in any twelve (12) month period shall be deemed to substantially impair the value of this Agreement to MDI and in either such event, MDI shall have the right, in addition to any other legal or equitable remedies which it may have, to terminate and cancel the remainder of this Agreement upon ninety (90) days prior notice to BioStar. 6.3 TERMINATION BY BIOSTAR. In addition and without prejudice to any other rights or remedies, this Agreement may be terminated by BioStar as follows: (a) TERMINATION FOR BREACH OR DEFAULT BY MDI GENERALLY. This Agreement may be terminated by BioStar in the event of the breach or default by MDI of the terms and conditions hereof; provided, however, that with respect to a breach or default other than (i) MDI's sale of a competitive product, as provided in Section 2.5(g); (ii) MDI's failure to make timely payments to BioStar, as provided in Section 4.2, or (iii) MDI's failure to meet at least seventy-five percent (75%) of the minimum sales goals for any twelve (12) month period, BioStar shall first give MDI written notice of the proposed termination or cancellation of this Agreement, specifying the grounds therefor, and MDI shall have ninety (90) days after such notice is given to cure such default. If not so cured, this Agreement shall terminate or be deemed canceled at the expiration of such ninety (90) days. (b) TERMINATION FOR SPECIFIC BREACHES OR DEFAULTS BY MDI. This Agreement may be terminated or canceled by BioStar immediately upon written notice to MDI for (i) MDI's sale of a competitive product (except the sale of the Reveal GAS product), as provided in Section 2.5(g); or (ii)upon fifteen (15) days written notice for MDI's failure to make timely payments to BioStar, as provided in Section 4.2, or (iii) upon ninety (90) days notice for 10. 11 MDI's failure to meet at least seventy-five percent (75%) of the minimum sales goals for any twelve (12) month period. 6.4 TERMINATION BY EITHER PARTY. Notwithstanding anything in this Agreement to the contrary, either party shall have the right, in addition and without prejudice to any other rights or remedies, to terminate this Agreement immediately upon written notice to the other party if: (a) (i) all or a substantial portion of the assets of the other party are transferred to an assignee for the benefit of creditors, to a receiver or to a trustee in bankruptcy, (ii) a proceeding is commenced by or against the other party for relief under bankruptcy or similar laws and such proceeding is not dismissed within sixty (60) days, or (iii) the other party is adjudged bankrupt; (b) the other party shall cease to carry on business; (c) an event described in Section 11.1 continues for a period of three (3) months, provided that the party seeking a termination gives the other party thirty (30) days prior written notice; or (d) for convenience upon at least ninety (90) days prior notice. 6.5 EFFECT OF TERMINATION. (a) EFFECT ON AGREEMENT AND OUTSTANDING INVOICES. Termination or cancellation of this Agreement is not a release and shall not relieve either party from any obligation under this Agreement which may have accrued prior thereto, including any confidentiality obligation of either party under Article XIII of this Agreement. Upon termination, the due date of all outstanding invoices to MDI for Products shall automatically be accelerated to become due and payable by immediate wire transfer on the effective date of termination but after the reconciliation of both parties financial statements, even if longer terms have been previously agreed to. All orders or portions thereof remaining unshipped as of the effective date of termination shall automatically be canceled. (b) PENALTY FOR TERMINATION FOR CONVENIENCE. (i) If BioStar terminates this Agreement for convenience pursuant to Section 6.4(d) and provides MDI with less than twelve (12) months prior written notice, then BioStar agrees to pay MDI the following: (a) [ * ] of MDI's sales for the previous Contract Year up to a maximum of [ * ], and (b) up to [ * ] of MDI's marketing and sales promotion expenses which are supported by invoices not yet realized. (ii) If MDI terminates this Agreement for convenience pursuant to Section 6.4(d) and provides BioStar with less than twelve (12) months prior written notice, then MDI agrees to pay BioStar the following: (a) [ * ] of MDI's sales for the previous Contract Year up to [ * ], (b) up to [ * ] 11. 12 [ * ] of BioStar's marketing and sales promotion expenses which are supported by invoices not yet realized. 6.6 MDI'S DUTIES UPON TERMINATION. Upon the termination or expiration of this Agreement, MDI agrees to do the following: (a) refrain thereafter from representing itself as a distributor of BioStar or using any Trademarks or trade names of BioStar; (b) immediately return to BioStar or immediately destroy (i) all Confidential Information of BioStar including advertising materials, and (ii) all other printed material in its possession or under its control containing or bearing any Trademark or trade names of BioStar; (c) deliver to BioStar current Customer Lists, as well as Customer Lists prepared by MDI's customers within fifteen (15) days of BioStar's request; and (d) make available to BioStar for a period of one year for inspection and copying all books and records of MDI that pertain to MDI's performance of and compliance with its obligations, warranties and representations under this Agreement. 6.7 PRODUCT REPURCHASE IN THE EVENT OF TERMINATION. In the event of termination of this Agreement, BioStar shall not be obligated to repurchase from MDI the latter's inventory of Products. BioStar shall be entitled at its election to repurchase all or any portion of such new and unused inventory at the original invoice price less [ * ]. For the purposes of the sale of the inventory or any part thereof pursuant to this Section 6.7, BioStar shall be permitted to inspect the inventory to verify its condition prior to making payment. Any such sale shall be carried out promptly after termination of this Agreement. 6.8 PRODUCT SALE AFTER TERMINATION. Notwithstanding the foregoing, if BioStar terminates this Agreement pursuant to Section 6.4(d) and only provides MDI with ninety (90) days prior notice, MDI shall be entitled to sell its inventory of Products for an additional ninety (90) days after termination provided that MDI is otherwise complying with the provisions of Section 6.6 above. 6.9 GUARANTEE OF SUPPLY TO MDI NATIONAL ACCOUNTS. In the event that this Agreement is terminated for any reason, BioStar agrees to continue to supply Products to the National Accounts which MDI identifies to BioStar for the term of and according to the terms and conditions of MDI's agreement with such National Accounts. ARTICLE VII WARRANTIES AND INSPECTIONS 7.1 WARRANTIES. BioStar covenants and warrants as follows: (a) All Products supplied hereunder shall, at the time of sale and shipment to MDI (i)be approved by the FDA. for marketing in the Territory, (ii)meet the applicable Specification and requirements set forth in Appendix A hereto; (iii) have a minimum shelf-life 12. 13 equal to six (6) months, (iv) be free from material faults and defects in workmanship. Notwithstanding the above, the shelf-life of Products added to this Agreement by the parties will be individually determined. (b) BioStar guarantees that no Products supplied hereunder will, at the time of shipment and delivery, (i) be adulterated, misbranded, banned or restricted within the meaning of the Federal Food, Drug and Cosmetic Act, as amended, or (ii) be a product which may not under the provisions of Section 404 or 505 of such Act be introduced into interstate commerce. This guarantee shall be a continuing guarantee and shall be binding upon merchandise shipped or delivered by BioStar to MDI before the receipt by MDI of written notice of revocation thereof. (c) All Products supplied hereunder will be manufactured and packaged in accordance with, and will materially meet, all other applicable federal, state and local laws, including but not limited to FDA regulations covering good manufacturing practices. (d) The required tests and quality control procedures shall have been carried out by BioStar on Product delivered prior to delivery and results shall be available for inspection by MDI; and (e) Human-based materials incorporated into Product shall have been tested and found free from HIV I+II and Hepatitis BsAg viruses and other contaminants as agreed in the tests and quality control procedures and that any additional tests required for MDI to sell the Products in the Territory shall be completed. (f) All animal derived materials incorporated into Product shall have been obtained from sources acceptable to all relevant US authorities for importation into and use in the US; and (g) Product shall be generally safe when used by trained individuals in a clinical testing site in accordance with the procedures and specifications included in its instructions. 7.2 WARRANTY DISCLAIMER AND LIMITATION. BIOSTAR DOES NOT WARRANT THE MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OF THE PRODUCTS OR THE PERFORMANCE THEREOF AND DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO PRODUCTS, SPECIFICATIONS, SUPPORT, SERVICE OR ANYTHING ELSE, OTHER THAN THE WARRANTY CONTAINED HEREIN. BIOSTAR HAS NOT AUTHORIZED ANYONE TO MAKE ANY REPRESENTATION OR WARRANTY OTHER THAN THE LIMITED WARRANTY CONTAINED HEREIN. The warranties shall apply only if BioStar's examination discloses to BioStar's satisfaction that alleged defects actually exist and were not caused by misuse, unauthorized modifications, neglect, improper use or storage, attempts to repair, or the like, or by accident, fire, or other hazard. In the event that there is a dispute between the parties with respect to the existence of a warranty claim the dispute shall be resolved in accordance with the provisions of Section 8.3 below. 13. 14 7.3 NO WARRANTY PASS-THROUGH. MDI shall not pass through to its customers or any other third party the warranties made by BioStar under Section 7.1, shall make no other representations to its customers or any other third party on behalf of BioStar, and shall expressly indicate to its customers that they must look solely to MDI in connection with any problems, warranty, claim or other matters concerning the Products. No warranty, representation or agreement herein shall be deemed to be made for the benefit of any customer of MDI or any other third party. 7.4 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS, REVENUE, DATA, OR USE, INCURRED BY EITHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT OR BASED ON A WARRANTY, EVEN IF THE OTHER PARTY OR ANY OTHER PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF IMPLIED WARRANTIES, OR LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY. MDI ACKNOWLEDGES THAT THE ALLOCATION OF RISKS AND BENEFITS UNDER THIS AGREEMENT ARE BASED ON, AND THE FEES PAID UNDER THIS AGREEMENT WOULD BE GREATER IN THE ABSENCE OF, THE LIMITATIONS DESCRIBED ABOVE. 7.5 MDI RIGHT TO INSPECT. (a) MDI shall have the right during regulation business hours to inspect any facility on a biannual basis with appropriate advance notice where Products are manufactured. BioStar further agrees to cooperate fully with, and to provide all data and records relating to the production of the Products, including but not limited to analytical methodologies and quality assurance records reasonably requested by the authorized representatives of MDI, but not including any proprietary financial information. (b) Notwithstanding anything herein to the contrary, any failure on the part of MDI to discover any nonconformance either during the production process or upon inspection of shipments shall not relieve BioStar of its warranties hereunder. ARTICLE VIII WARRANTY CLAIMS 8.1 QUALITY ASSURANCE DOCUMENTATION. Each delivery of Products shall be accompanied by documentation in a form agreed between the Managers of Quality Assurance at both parties certifying: (a) that the tests and quality control procedures have been carried out by BioStar on Products delivered prior to delivery and that Products delivered have satisfied these tests and quality control procedures as described; (b) the date of manufacture of Products; and 14. 15 (c) the date of expiration of shelf life of Products. 8.2 EFFECT OF ACCEPTANCE ON WARRANTY CLAIMS. MDI's acceptance of products pursuant to Section 5.2 above shall in no way prejudice MDI's right to a replacement in the event that Product does not conform to the warranties given in Section 7.1. Notwithstanding the aforesaid, MDI will not have the right to a replacement in the event that the nonconformity of the Products to such warranties is due to transport and storage conditions which are different than those previously recommended by BioStar to MDI based on data obtained from transit studies. 8.3 RESOLUTION OF WARRANTY CLAIMS. In the event of any dispute arising between the parties which they are unable to settle amicably as to the quality and/or conformity of the Product to the Specification when used in accordance with the procedures included in the Product's instructions, taking account of the terms of this Agreement and in particular the warranties of BioStar under Section 7.1, the matter shall be referred to a suitable, mutually agreed upon laboratory of repute in the United States, independent of the parties who shall be requested to make a determination with respect to the quality and/or conformity of the Product. That is, if quality and/or conformity of the disputed Product is found to be in accordance with the terms of this Agreement, the expense, including the laboratory expense, shall be borne by MDI; otherwise the expense, including the laboratory expense, shall be borne by BioStar. The parties agree that any such determination shall be final and binding on both parties and that the laboratory shall act as expert, not arbitrator. 8.4 BATCH SAMPLE RETENTION. BioStar shall retain samples from each batch of Product for at least three (3) months after the expiration date sufficient for the purpose of verification in the case of complaints from purchasers or other users of the Product. 8.5 REPLACEMENT OF DEFECTIVE PRODUCT. Product found to be in breach of BioStar's obligations under this Agreement and in particular Section 7.1 (or determined in accordance with Section 8.3 to be so) shall be replaced by BioStar without charge forthwith (including reimbursement for freight charges) and in any event within forty five (45) days of such discovery or determination. MDI or its Affiliates shall return to BioStar if so requested by a reasonable method non-complying Product in accordance with the directions of and at the cost of BioStar. If the Product is found to be complying pursuant to Section 8.3, then all costs associated with returning the Product to MDI shall be in accordance with the directions of and at the cost of MDI. 8.6 QUALITY CONTROL/QUALITY ASSURANCE INVESTIGATION. (a) If MDI reasonably considers it necessary in the light of customer complaints it receives in respect of Product (or when an appropriate Regulatory Authority requires it), BioStar shall at MDI's request instigate a quality control/quality assurance investigation in respect of Product and report its findings to MDI as soon as such findings are available and in any event provide a preliminary report within two (2) weeks after the receipt of MDI's request. (b) If BioStar's findings are not in MDI's reasonable opinion considered adequate to explain and resolve the problem or complaint giving rise to MDI's request, BioStar 15. 16 shall allow MDI the rights to raise specific questions about the complaint and the findings and any other matter pertinent thereto, to examine relevant documentation and to audit relevant manufacturing procedures at BioStar's manufacturing premises and BioStar shall ensure that its relevant personnel shall provide MDI with such reasonable information and assistance as MDI may require in this regard. ARTICLE IX PRODUCT WITHDRAWALS 9.1 PRODUCT WITHDRAWALS. BioStar shall promptly notify MDI of and shall provide MDI with copies of any correspondence and other documentation received or prepared by BioStar in connection with any of the following events: (a) receipt of a regulatory letter from the FDA in connection with BioStar's manufacture, or a third party's manufacture, of any Product; (b) the recall of any Product; (c) the withdrawal of any Product from the market; (d) any regulatory' comments or inquiry from a government entity requiring a response or action by BioStar or a third party manufacturer with respect to any Product; or (e) receipt of customer complaints about a Product which relate to the clinical efficacy of such Product. 9.2 PRODUCT CHANGES. In advance of making any change in the composition of, the manufacturing process for, or the labeling of any Product which would require FDA notification, BioStar will notify MDI and provide a reasonable time for MDI to understand such changes. BioStar shall be responsible for obtaining all relevant FDA or other US government approvals prior to shipping such Product to MDI for sale in the US. 9.3 COSTS OF PRODUCT WITHDRAWAL, NOTIFICATION, LABEL CHANGE, ETC. In the event of a recall, market withdrawal, market notification or label change or correction of a Product, BioStar shall reimburse MDI for all documented costs and expenses associated with such action (including actual direct labor and postage costs); provided that the reason for such a recall is attributable to a defect or failure of the Product or an error, omission, act, failure or regulatory non-compliance by BioStar in the manufacture of the Product. Such costs and expenses shall be substantiated in a reasonably satisfactory manner. ARTICLE X INTELLECTUAL PROPERTY 10.1 OWNERSHIP OF INTELLECTUAL PROPERTY. BioStar shall retain all of its rights, title and interest in and to and ownership of all copyrights, trademarks, trade secrets, patents and all other industrial and intellectual property embodied in the Products including any improvements 16. 17 or enhancements to the Products (the "INTELLECTUAL PROPERTY"). Except as otherwise expressly provided in this Agreement, MDI has no right, title or interest in the Products or any industrial or intellectual property relating to the Products and shall not reproduce or otherwise use, in whole or in part, the Products. MDI shall keep each and every item to which BioStar retains title free and clear of all claims, liens, and encumbrances except those of BioStar, and any act of MDI, voluntary or involuntary, purporting to create a claim, lien or encumbrance on such item shall be void. 10.2 USE OF TRADEMARKS. MDI hereby grants BioStar the right to use MDI's Trademarks on the Products BioStar' supplies to MDI for distribution hereunder. Each party agrees to use the designation TM or the designation specified by the owner of the Trademark in connection with such party's use of the Trademark of the other party. (a) Each party acknowledges the validity of the other party's right, title and interest in such other party's Trademarks and shall not have, assert or acquire any right, title or interest in or to any of such other party's Trademarks, except to the extent expressly provided herein. If a party, in the course of its business in the distribution of the Products, acquires any goodwill or reputation in any of the Trademarks of the other party, then at the expiration or termination of this Agreement all such goodwill or reputation automatically shall vest in the owner of the Trademark without any separate payment or other consideration of any kind to the other party, and the licensee of the Trademark agrees to take all such actions necessary to effect such vesting. (b) MDI shall use BioStar's Trademarks only in connection with its distribution and promotion of the Products and shall use BioStar's Trademarks in the manner reasonably directed by BioStar. BioStar shall use MDI's Trademarks solely on the Products supplied by BioStar to MDI for distribution hereunder and only in the manner directed by MDI. (c) Each party shall, at the request and expense of the owner of the Trademark, do such acts or things as the owner of the Trademark may reasonably require for the purpose of obtaining, maintaining, enforcing and preserving any of the Trademarks, trade names or other proprietary rights of the owner of such proprietary rights in the Territory; provided, however, that each party agrees that only the owner of the proprietary rights has the right to enjoin any infringement or registration by a third party of the Trademarks, trade names or similar rights. Each party shall give the other party notice of any infringement or threatened infringement of any of such other party's Trademarks used in connection with the Products. Such notice shall include the full facts of the infringement or threatened infringement known to it, including the identity of the suspected infringer, the place of the asserted infringement and evidence thereof. Each party agrees to cooperate fully with the owner of the Trademark at the expense of the owner of the Trademark if such owner sues to enjoin such infringement. (d) Each party shall not (nor shall it attempt to) adopt, use, or register any acronym, trademark, trade name or other marketing name of the other party or any confusingly similar work or symbol as part of such party's own name or the name of its Affiliates or the names of the products which it markets. 17. 18 ARTICLE XI EXCUSES FOR NONPERFORMANCE 11.1 FORCE MAJEURE. No party shall be held liable or responsible for failure or delay in fulfilling or performing any obligation of this Agreement in case such failure or delay is due to Acts of God, strikes or other labor disputes, governmental regulations or actions, inability to obtain or provide material, labor, equipment or transportation, or any other condition beyond the reasonable control of the affected party. (a) Each party agrees to give the other party prompt written notice of the occurrence of any such condition, the nature thereof, and the extent to which the affected party will be unable to fully perform its obligations hereunder. Each party further agrees to use all reasonable efforts to correct the condition as quickly as possible, and to give the other party prompt written notice when it is again fully able to perform such obligations. (b) All quantities of Products not shipped by BioStar hereunder due to any such condition shall be confirmed, in writing, by the parties immediately after such condition has been corrected. 11.2 PRODUCT ALLOCATION. If, as a result of conditions as set forth in Section 11.1 above, BioStar at any time is unable fully to supply the orders of MDI and BioStar's other customers, BioStar shall equitably allocate its available resources and production capacity among MDI, BioStar and/or BioStar's other customers, taking into consideration the respective requirements of each of the parties during a reasonable time period prior to the allocation, as well as such requirements during the allocation period. ARTICLE XII INSURANCE; INDEMNIFICATION 12.1 PRODUCT LIABILITY INSURANCE. (a) BioStar shall take out and maintain, at its own expense, during the term of this Agreement and for a minimum of two (2) years following the expiration, termination or cancellation of this Agreement, at least five million dollars ($5,000,000) of product liability coverage from an insurance company or companies reasonably satisfactory to MDI. The insurance policy relating to such coverage shall name MDI as an additional insured by way of endorsement or otherwise. MDI will notify BioStar prior to contacting BioStar's insurance company for any reason. (b) Promptly upon execution of this Agreement, BioStar shall cause to be delivered to MDI an insurance certificate evidencing the insurance coverage required by Section 12.l(a). Such insurance certificate shall name MDI as an additional insured and shall include a certification that such insurance coverage includes contractual coverage for BioStar's liability under this Agreement. 18. 19 12.2 INDEMNIFICATION BY BIOSTAR. BioStar shall indemnify, defend and hold harmless MDI and MDI's directors, officers, employees and agents from and against any and all losses, costs, liabilities or expenses (including costs and reasonable fees of attorneys and other professionals) arising out of or in connection with BioStar's performance under or breach of this Agreement to the extent caused by, in whole or in part, any negligent act or omission or willful misconduct of BioStar or BioStar's employees or agents, including but not limited to any act or omission that contributes to (i) any personal injury, sickness, disease or death; (ii) any damage to or destruction of any property of BioStar; or (iii) any violation of any statute, ordinance or regulation. 12.3 INDEMNIFICATION BY MDI. MDI shall indemnify, defend and hold harmless BioStar and BioStar's directors, officers, employees and agents from and against any and all losses, costs, liabilities or expenses (including costs and reasonable fees of attorneys and other professionals) arising out of or in connection with MDI's performance under or breach of this Agreement to the extent caused by, in whole or in part, any negligent act or omission or willful misconduct of MDI or MDI's employees or agents, including but not limited to any act or omission that contributes to (i) any personal injury, sickness, disease or death; (ii) any damage to or destruction of any property of BioStar; or (iii) any violation of any statute, ordinance or regulation. ARTICLE XIII CONFIDENTIALITY During the term of this Agreement and for a period of five (5) years thereafter, any information which is disclosed by one party (either BioStar or MDI) (the disclosing party) to the other party (either BioStar or MDI) (the recipient) in confidence under this Agreement, including but not limited to the existence of this Agreement, shall be treated by the recipient as Confidential Information and shall be used by the recipient only in carrying out the purposes of this Agreement. For the purposes of this Agreement, the term "CONFIDENTIAL INFORMATION" shall mean and include any and all business and financial information (including, without limitation, Product Specifications, instructions, know-how, and inventions claimed by BioStar's patents) relating to the Products and all information which a party should reasonably expect to be considered Confidential Information. Confidential Information may be communicated orally, in writing or in any other recorded or tangible form. The foregoing obligations regarding confidentiality and use of Confidential Information shall not apply to Confidential Information (i) which at the time of disclosure is in the public domain; (ii) which after disclosure is published or otherwise becomes part of the public domain through no fault of the recipient, but only after it is published or comes into the public domain; (iii) which the recipient can document by written records as having been its possession at the time of disclosure hereunder; (iv) which the recipient can document by written records as having been received by it after the time of disclosure from a third party who did not acquire it directly or indirectly under an obligation of confidence from the disclosing party; and (v)which the recipient can document by written records to have been independently developed by the recipient. Each party acknowledges that irreparable injury will result to the other in the event of a breach or threatened breach of any of the provisions of this Article and agrees that in the event of a breach or threatened breach, the complaining party shall be entitled, in addition to any other available remedy, to seek injunctive and other equitable relief 19. 20 from a court of competent jurisdiction. The obligations contained in this Article shall survive the termination of this Agreement. ARTICLE XIV MISCELLANEOUS PROVISIONS 14.1 RELATIONSHIP OF THE PARTIES. Nothing herein contained shall be deemed to constitute the relationship of partners, joint venturers nor of principal and agent between MDI and BioStar. 14.2 ASSIGNMENT. Neither MDI nor BioStar shall assign this Agreement without the prior written consent of the other; provided, however, that BioStar, without such consent, may assign or sell this Agreement in connection with the transfer or sale of all or substantially all of the assets of its diagnostics business. Any permitted assignee shall assume all assigned obligations of its assignor under this Agreement. No assignment shall relieve either MDI or BioStar of responsibility for the performance of any accrued obligation which it then has hereunder. Any consent required hereunder shall not be unreasonably withheld. 14.3 WAIVER. Either party's waiver of any breach or failure to enforce any of the terms and conditions of this Agreement, at any time, shall in no way affect, limit or waive such party's right thereafter to enforce and compel strict compliance with every term and condition of this Agreement. 14.4 SEVERABILITY. If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall apply only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. 14.5 CAPTIONS. The captions at the beginning of the several Articles of this Agreement have been inserted for convenience only and shall not be used in any way to construe or interpret this Agreement. 14.6 NOTICES. all notices required or permitted to be given under this Agreement shall be in writing and shall be sent by registered or certified mail (return receipt requested), postage prepaid, or by telex or facsimile (confirmed by such registered or certified mail), and shall be deemed to have been given upon mailing. Any such notices shall be addressed to the receiving party at such party's address set forth below or at such other address as may from time to time be furnished by a similar notice by either party. If to MDI: If to BioStar: Murex Diagnostics, Inc. BioStar, Inc. 3075 Northwoods Circle 6655 Lookout Road Norcross, Georgia 30071 Boulder, Colorado 80301 Fax: (770) 449-4018 Fax: (303) 530-6641 20. 21 14.7 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Georgia. 14.8 COUNTERPARTS. Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original, but all of which together shall constitute the same instrument. 14.9 ENTIRE AGREEMENT. This Agreement represents the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior agreement or understanding among them with respect to the subject matter hereof. No provision hereof may be amended, modified, terminated or revoked except by a writing signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their respective, duly authorized representatives as of this day and year first above written. Agreed to for an on behalf of Agreed to for an on behalf of BIOSTAR, INC. MUREX DIAGNOSTICS, INC. /s/ Teresa W. Ayers /s/ Robert V. Ahlgren - --------------------------------- -------------------------------- Teresa W. Ayers Robert V. Ahlgren President/Chief Executive Officer General Manager, Americas Date: 7-7-97 Date: July 7, 1997 ---------------------------- --------------------------- 21. 22 APPENDIX A PRODUCT LIST, PRODUCT SPECIFICATIONS AND PACKAGING SPECIFICATIONS
- ----------------------------------------------------------- PRODUCT PRODUCT AND PACKAGING SPECIFICATIONS - ------- ------------------------------------ - ----------------------------------------------------------- GAS-30 o Shelf Life - 6 months minimum o Certificate of Analysis provided - ----------------------------------------------------------- GAS-100 o Shelf Life - 6 months minimum o Certificate of Analysis provided - ----------------------------------------------------------- GBS-30 o Shelf Life - 6 months minimum o Certificate of Analysis provided - ----------------------------------------------------------- Chlamydia-30 o Shelf Life - 6 months minimum o Certificate of Analysis provided - -----------------------------------------------------------
23 APPENDIX B SALES MINIMUM FOR CONTRACT YEAR 1997
- ---------------------------------------------------------------------------- PRODUCT MINIMUM UNITS ------- ------------- - ---------------------------------------------------------------------------- GAS-30 [ * ] - ---------------------------------------------------------------------------- GAS-100 [ * ] - ---------------------------------------------------------------------------- GBS-30 [ * ] - ---------------------------------------------------------------------------- Chlamydia-30 [*] - ----------------------------------------------------------------------------
24 APPENDIX C CLINICAL EVALUATIONS MANAGEMENT PROCESS AGREEMENT BETWEEN BIOSTAR AND MUREX APPROVED 1/7/97 MUREX RESPONSIBILITIES REGISTRATION o Register all evaluations with over 100 samples and any others where investigator plans to publish data o Submit all necessary information to Lyndal Hesterberg in writing-See form attached (Lyndal's Fax is: 303-530-6627) PROTOCOL APPROVAL o Ensure account submits protocol in writing to Lyndal before evaluation starts o Use BioStar protocols wherever possible TRAINING o Train all personnel involved in evaluation and inform Lyndal that evaluation has begun and approximate time to finish FOLLOW UP o Follow up during first week of evaluation to answer questions at least once preferably in person to ensure account is comfortable reading OIA results -ask account to save all completed tests. o Follow up by telephone weekly after evaluation has started to resolve problems quickly and bring in BioStar as needed. o Provide feedback to Lyndal by voicemail during evaluation at least once per month during evaluation (1-800-637-3717 ext. 604) FINAL DATA o Supply final data to BioStar for analysis o Do not read results or alter any data from account please! o Provide feedback on customer decision as a result of study-to convert, change protocols, stay with competition, etc. BIOSTAR RESPONSIBILITIES REGISTRATION o Keep current database of all evaluations submitted PROTOCOL APPROVAL o Approve protocol or provide feedback on protocol changes within 5 business days TRAINING o Provide Proficiency Panels to Murex reps as needed to teach reading FOLLOW UP o Make contact at least once during first 2 weeks of evaluation o Provide ongoing telephone support as needed o Provide field support for critical influential evaluations if problems cannot be resolved over the telephone FINAL DATA o Analyze data and provide feedback to customer as needed within 5 business days 25 AMENDMENT THIS AGREEMENT, made effective this 27th day of January, 1998, by and between BioStar, Inc., a corporation organized and existing under the laws of the state of Delaware and having its principal place of business at 6655 Lookout Road, Boulder, Colorado 80301 (hereinafter referred to as "BIOSTAR") and Murex Diagnostics, Inc., a corporation organized and existing under the laws of the State of Delaware and having its principal place of business at 3075 Northwoods Circle, Norcross, Georgia 30071 (hereinafter referred to as "MDI"). WHEREAS, the parties entered into a Distribution Agreement dated as of January 1, 1998 (the "DISTRIBUTION AGREEMENT") pursuant to which BioStar appointed MDI as a distributor with respect to certain BioStar products; and WHEREAS, the parties desire to amend certain provisions of the Distribution Agreement to correct drafting errors. NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants set forth herein, the parties hereto mutually agree as follows: 1. The references to Section 2.9 in Section 1.6 (definition of "Products") and Section 1.7 (definition of "Specifications") are amended so that the reference is to Section 2.7. 2. Section 2.7 is amended to read in full as follows: 2.7 RIGHT OF FIRST NEGOTIATION. BioStar hereby grants MDI the right of first negotiation during the Term to become a distributor in the Territory for any OIA rapid human invitro microbiological diagnostic products which BioStar develops after the Effective Date on an exclusive basis or some other basis mutually agreed upon by BioStar and MDI; provided, however, that this Section 2.7 shall not apply to any products which BioStar develops in cooperation with any third party or for which BioStar does not have, or is unable to obtain, the right to appoint MDI as a distributor. 3. The Distribution Agreement shall remain in full force and effect, except as modified by this Agreement. IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their respective, duly authorized representatives as of this day and year first above written. Agreed to for and on behalf of Agreed to for and on behalf of BIOSTAR, INC. MUREX DIAGNOSTICS, INC. /s/ TERESA W. AYERS /s/ ROBERT V. AHLGREN - --------------------------------- ------------------------------ Teresa W. Ayers Robert V. Ahlgren President/Chief Executive Officer General Manager, Americas EX-10.62 8 DISTRIBUTION AGREEMENT 1 DISTRIBUTION AGREEMENT BIOSTAR, INC./WYNTEK DIAGNOSTIC, INC. THIS AGREEMENT ("Agreement"), made effective this 1st day of July, 1997, by and between BioStar, Inc., a corporation organized and existing under the laws of the state of Delaware and having its principal place of business at 6655 Lookout Road, Boulder, Colorado 80301 (hereinafter referred to as "BioStar") and Wyntek Diagnostics, Inc., a corporation organized and existing under the laws of the State of California and having its principal place of business at 6146 Nancy Ridge Drive, San Diego, CA 92121 (hereinafter referred to as "Wyntek"). WHEREAS, BioStar(R) is engaged in the business of developing and marketing various in vitro diagnostic products which utilize Optical ImmunoAssay (OIA(R)) technology and products ancillary thereto, and is seeking additional products to market through its sales organization, and WHEREAS, Wyntek is also engaged in the business of developing and marketing various in vitro diagnostic products and is seeking an improved method of distribution of its products. NOW, THEREFORE in consideration of the mutual covenants and obligations set forth below, the parties hereby agree as follows: ARTICLE I DEFINITIONS The following definitions, whether used in the singular or in the plural, shall apply throughout this Agreement: 1.1 "CONTRACT YEAR" shall mean the period of twelve (12) successive calendar months commencing on the 1st day of July, 1997, and each successive twelve (12) month period thereafter. 1.2 "EFFECTIVE DATE" shall mean the date appearing at the beginning of this Agreement. 1.3 "PRODUCT(S)" shall mean the rapid human in vitro diagnostic products set forth in Appendix A attached hereto and made a part hereof, and such other diagnostic products, if any, as may be added thereto from time to time by the parties in accordance with Section 2.6 hereof. 1.4 "SPECIFICATIONS" shall mean the product and packaging specifications for each Product referred to in the Quality Control Agreement, Exhibit A, attached hereto and made a part hereof, each of which has been mutually agreed upon and, in respect of new products added pursuant to Section 2.6, will be mutually agreed upon in good faith by the parties hereto and set forth in such product and packaging specifications, giving due consideration to applicable regulatory requirements. 1.5 "TERRITORY" shall have the meaning set forth in Section 2.2 below. 1. * CERTAIN CONFIDENTIAL MATERIAL CONTAINED IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED 2 1.6 "TRADEMARKS" shall mean those trademarks and trade names, whether or not registered in the United States, trade dress and packaging which (a) are owned by BioStar, and (b) are applied to or used in connection with a Product. 1.7 "TERM" shall have the meaning set forth in Section 6.1 below. 1.8 "PURCHASE PRICE" shall be the price BioStar pays Wyntek for the Products in Appendix A under the column titled "Cost/Test." ARTICLE II DISTRIBUTORSHIP 2.1 LICENSE. Subject to the terms of this Agreement, Wyntek hereby grants to BioStar and BioStar hereby accepts from Wyntek a non-exclusive right and license for the Term, (i) to market, sell, demonstrate and distribute for sale the Products in the Territory, and (ii) to label the Products as BioStar products manufactured for BioStar. The foregoing license includes a right to sublicense to distributors. 2.2 TERRITORY. The license granted to BioStar set forth in Section 2. 1 above shall be for the right and license to distribute the Products in the Territory. "Territory" shall mean the United States, including without limitation managed care outpatient facilities, physician offices, urgent care facilities, clinics, student health centers, public school facilities, public health facilities, hospitals and reference laboratories located in the United States. The rights to sell the Products in additional areas or markets may be discussed and agreed to separate from this contract. 2.3 BIOSTAR'S OBLIGATIONS. BioStar agrees to use its best efforts to promote and maximize the sale, marketing and distribution of the Products in the Territory. BioStar may distribute the Products in the Territory under the Trademarks. BioStar, at its own expense, may prepare advertising and promotional materials. All of BioStar's advertising and promotional materials shall designate the Products by the Trademarks and shall identify the Products as being manufactured for BioStar. (A) REPRESENTATIONS AND WARRANTIES. BioStar represents and warrants that it has adequate financial resources, management, sales force and facilities (including warehouse facilities, business offices and clerical staff): (i) to acquire and maintain a reasonable inventory of Products; (ii) to sell and promote the sale of the Products as herein provided; and (iii) to otherwise perform all of its obligations under this Agreement. (B) CUSTOMER LIST. For regulatory purposes, BioStar shall establish and maintain a system of record keeping identifying each end user by name, address, the date of sale and lot number for each of the Products sold (the "Customer List"). If the customer does not use the Products itself, but rather delivers the Products to other end users, then BioStar shall require the customer to maintain a similar Customer List. (C) TECHNICAL SUPPORT OBLIGATIONS. BioStar shall provide technical assistance and support to its customers who purchase the Products. 2. 3 2.4 WYNTEK'S OBLIGATIONS. Wyntek will make available to BioStar the following support: (A) REPRESENTATIONS AND WARRANTIES. Wyntek represents and warrants that it has adequate financial resources, management and facilities (including manufacturing and warehouse facilities, business offices and clerical staff): (i) to produce and maintain an inventory of Products sufficient to meet its supply obligations under this Agreement; and (ii) to otherwise perform all of its obligations under this Agreement. (B) Wyntek shall keep BioStar fully informed of all governmental, commercial and industrial activities and plans of which it has knowledge which Wyntek believes does or could affect the sale of the Products in the Territory. (C) Wyntek will support BioStar's marketing efforts by conducting meetings to train BioStar personnel for the sale, after-sale service and support of the Product sold in the Territory pursuant to this Agreement. Such support will include training of BioStar employees at BioStar's offices specifically as it relates to new product introductions and QC/QA standards. Wyntek will be responsible for the cost of transportation and living expenses for its training staff. (D) TECHNICAL ASSISTANCE. Any technical support BioStar may reasonably require for the promotion, sale, after-sale service and support of Product sold in the Territory pursuant to this Agreement. (E) Copies of third party publications and scientific support material for the Products. (F) Support for BioStar's customer product evaluations as needed and agreed to by both parties. 2.5 RESERVATION OF RIGHTS. Wyntek agrees not to develop private label agreements with other companies for the United States domestic market for the products listed in Appendix A and subsequent products that may be listed in Appendix A that contain more favorable terms than the contract with BioStar. 2.6 NOTIFICATION OF INTENT TO MARKET. Wyntek agrees to notify BioStar of plans to market new Products and, if it is appropriate, to discuss including the distribution of the new Products in the agreement between BioStar and Wyntek. ARTICLE III MANUFACTURE BY AND SUPPLY FROM WYNTEK 3.1 PURCHASE OF PRODUCTS. BioStar undertakes to purchase the Products in its own name and for its own account. Purchase of Products shall be made on a monthly basis and shall be made by delivery to Wyntek, sixty (60) days in advance of the requested delivery date, of written purchase orders for the Products (the "Purchase Orders"). The first thirty days represent committed purchase volumes. BioStar may increase or decrease stated purchase volumes for the second thirty (30) days by up to 20%, provided a written purchase order is placed at Wyntek at 3. 4 least thirty (30) days prior to requested delivery. In the event of any inconsistency between the terms and conditions of a Purchase Order and this Agreement, this Agreement shall prevail. 3.2 PACKAGING TO OCCUR AS FOLLOWS. (A) FOR THE STREP A PRODUCT. Initially, Wyntek shall deliver the Products to BioStar in finished form (in packaging designed by BioStar), ready for delivery to BioStar customers. BioStar is to develop artwork for all packaging and deliver this artwork to Wyntek. Wyntek will produce all packaging using the BioStar artwork. The packaging shall include all Wyntek labeling, package inserts and cartons with artwork designed by BioStar. As soon as possible, but, prior to December 31, 1997, Wyntek will initiate shipments of strips in tube, reagents in bottles, test tubes and tray to BioStar for BioStar to package. BioStar will be responsible for purchase of swabs, package inserts and packaging required for the completion of the assembly of the Product and the Product packaging. Cost of the Products is listed in Appendix A. (B) FOR THE HCG PRODUCT. Wyntek shall deliver the Products to BioStar in finished form (in packaging designed by BioStar), ready for delivery to BioStar's customers. BioStar is to develop artwork for all packaging and deliver this artwork to Wyntek. Wyntek will produce all packaging using the BioStar artwork. The packaging includes all Wyntek labeling, package inserts and cartons using the BioStar artwork. (C) Wyntek will purchase a set quantity of BioStar packaging and labeling material. At the transition of final assembly for the Strep A product from Wyntek to BioStar, BioStar will pay Wyntek for all of the unused material at Wyntek's cost. BioStar will also pay for any set up fees for the initiation or changes of BioStar packaging and labeling. 3.3 REGULATORY APPROVALS. Wyntek shall be fully responsible for obtaining and maintaining United States Food and Drug Administration (hereinafter referred to as "FDA") approval/clearance with respect to all Products. Any provision of this Agreement to the contrary notwithstanding, the obligations of Wyntek to supply and BioStar to purchase from Wyntek any Product under this Agreement are expressly conditioned upon receipt of all required regulatory approvals for any such Product, including but not limited to approval/clearance by the FDA for any such Product, and unless such approvals are granted, Wyntek shall be under no obligation to supply and BioStar shall be under no obligation to purchase any such Product. ARTICLE IV PRICES AND PAYMENTS 4.1 PRICES; TAXES. The per test prices of the Products are set forth in Appendix A. Prices listed on Appendix A do not include sales, use, or excise or similar taxes. The amount of any present, retroactive or future sales, use, excise or similar tax applicable to BioStar's purchase of Products will be paid by BioStar. 4.2 PAYMENT. Payment shall be due to Wyntek not later than forty-five (45) days following the date of the invoice. Payment shall be made to Wyntek in United States Dollars by check. Wyntek shall not invoice BioStar for any Product prior to the shipment of such Product. 4. 5 4.3 PRICE CHANCES. At least ninety (90) days prior to the end of the Contract Year ending 6/30/98 and each Contract Year thereafter, Wyntek and BioStar shall meet and negotiate in good faith the purchase price to govern the purchase of each Product by BioStar from Wyntek for the succeeding Contract Year. The purchase price of each Product will be reviewed annually taking into account market conditions and any changes in the cost of manufacture of the Product. In the event no agreement is reached on a price revision following such review, Wyntek shall be entitled to adjust the purchase price fifty percent (50%) of the US Consumer Price Index (All Items) over the preceding contract period, provided Wyntek can document to BioStar's satisfaction that Wyntek's costs have increased an equivalent amount. All orders received and accepted by Wyntek prior to the effective date of the price increase will be billed at the price in effect at the time of acceptance of the order. All other orders will be billed at the increased price. 4.4 SPECIFIC BUSINESS OPPORTUNITIES. In certain situations, BioStar and Wyntek may mutually agree to pursue specific business opportunities at special prices. It is agreed that BioStar and Wyntek will establish a pricing system appropriate for each situation. 4.5 CAMDON LABORATORY AND MEDICAL SUPPLY, PRICING. Camdon will be contacted jointly by BioStar and Wyntek upon the signing of the agreement to determine which source (BioStar or Wyntek) Camdon will use for product supply. 4.6 SAMPLES. BioStar will purchase from Wyntek [ * ] 10-test BioStar-labeled kits. Wyntek agrees to sell these [ * ] 10-test kits to BioStar for a total of [ * ]. These [ * ] kits are to be delivered to BioStar as soon as possible, but no later than July 15, 1997. In addition, BioStar may purchase additional 10-kits for [ * ] per kit. These kits are to be purchased as agreed to in 3.1. Wyntek will supply BioStar one (1) up or two (2) up sample kits of the hCG test in printed envelopes. Wyntek will supply the sample tests at no charge and BioStar will pay for the printing and other materials. Initially, [ * ] two (2) up kits are to be delivered to BioStar as soon as possible, but no later than July 15, 1997. Additional tests will be ordered as agreed to in 3.1. ARTICLE V DELIVERY AND ACCEPTANCE 5.1 DELIVERY. Wyntek shall use its best efforts to deliver Products ordered by BioStar on or before the requested delivery date to the extent that such date is at least thirty (30) days from the date Wyntek receives the order. All shipments will be ground; any expediting of shipments will be charged to BioStar. Deliveries shall be made FOB BioStar's facility and shall be shipped to BioStar's address as set forth in this Agreement. Delivery quantities shall be plus or minus 10% of the order quantity. Wyntek shall bear the risk of loss until such time as a shipment has been accepted by BioStar at the BioStar facility. Any claims for damage or loss in transit shall be placed by Wyntek through the carrier. All shipments will be shipped by Wyntek freight paid. 5.2 ACCEPTANCE. BioStar shall inspect all goods and shall validate the quantity of goods promptly upon receipt thereof at the shipping destination. BioStar will notify Wyntek if any order quantities are incorrect. Product received at BioStar shall have a minimum of ten (10) months shelf life. BioStar may reject any goods which fail to meet BioStar's acceptance 5. 6 specifications prevailing on the date of delivery. The acceptance specifications will be mutually determined by BioStar and Wyntek and set forth in Exhibit A. Goods not rejected by written notification to Wyntek within twenty-one (21) days of receipt shall be deemed to have been accepted. Rejected goods shall be returned freight collect to Wyntek within ten (10) days of rejection. As promptly as possible but not later than thirty (30) days after receipt by Wyntek of properly rejected goods, Wyntek shall, at its option and expense, either repair or replace rejected goods. Wyntek shall bear the entire risk of loss for goods during shipment. Any insurance proceeds payable in respect of any loss incurred shall be received by Wyntek. ARTICLE VI TERM; TERMINATION 6.1 TERM. Except as otherwise expressly provided in this Agreement: (A) INITIAL TERM. The initial term of this Agreement shall extend from the Effective Date for a period of three (3) years with options to renew for one (1) year periods as set forth in subsection (b) below (collectively, the "Term"). (B) RENEWAL OPTION. BioStar shall have the right and option to renew the term of this Agreement for additional successive periods of one (1) Contract Year by giving Wyntek written notice thereof at least ninety (90) days prior to the end of the preceding Contract Year. If no such written notice is given within such time period, the term of the agreement will expire. 6.2 TERMINATION BY BIOSTAR. In addition and without prejudice to any other rights or remedies, this Agreement may be terminated by BioStar as follows: (A) TERMINATION FOR BREACH BY WYNTEK. This Agreement may be terminated by BioStar in the event of the breach or default by Wyntek of the terms and conditions hereof; provided, however, that with respect to a breach or default other than Wyntek's inability to supply the Products otherwise than for a cause reasonably beyond its control, as provided in Section 11.1 hereof, BioStar shall first give Wyntek written notice of the proposed termination or cancellation of this Agreement, specifying the grounds therefore, and Wyntek shall have sixty (60) days after such notice is given to cure such default. If not so cured, this Agreement shall terminate or be deemed canceled at the expiration of such sixty (60) days. (B) EXCHANGE OF MANUFACTURING RIGHTS. BioStar and Wyntek will discuss appropriate royalties for the perpetual right to manufacture the Products for sale in the territory upon (i) (A) all or a substantial portion of the assets of Wyntek are transferred to an assignee for the benefit of creditors, to a receiver or to a trustee in bankruptcy, (B) a proceeding is commenced by or against Wyntek for relief in bankruptcy or similar laws and such proceeding is not dismissed within sixty (60) days, or (C) Wyntek is adjudged bankrupt, or (ii) Wyntek announces that it is discontinuing or has discontinued its business that is directed to the manufacture of the Products, any of which shall be deemed to substantially impair the value of this Agreement to BioStar. In any such event, Wyntek agrees to immediately deliver to BioStar the manufacturing processes, materials supplier, any necessary rights, licenses, and know-how, 6. 7 and any other information that would provide BioStar the ability to assume the manufacturing of products listed in Appendix A. 6.3 TERMINATION BY WYNTEK. In addition and without prejudice to any other rights or remedies, this Agreement may be terminated by Wyntek in the event of the breach or default by BioStar of the terms and conditions hereof; Wyntek shall first give BioStar written notice of the proposed termination or cancellation of this Agreement, specifying the grounds therefor, and BioStar shall have sixty (60) days after such notice is given to cure such default. If not so cured, this Agreement shall terminate or be deemed canceled at the expiration of such sixty (60) days. 6.4 TERMINATION BY EITHER PARTY. Notwithstanding anything in this Agreement to the contrary, either party shall have the right, in addition and without prejudice to any other rights or remedies, to terminate this Agreement immediately upon written notice to the other party if: (A) (i) all or a substantial portion of the assets of the other patty are transferred to an assignee for the benefit of creditors, to a receiver or to a trustee in bankruptcy, (ii) a proceeding is commenced by or against the other party for relief under bankruptcy or similar laws and such proceeding is not dismissed within sixty (60) days, or (iii) the other party is adjudged bankrupt; (B) the other party shall cease to carry on business; or (C) an event described in Section 11.1 continues for a period of three (3) months, provided that the party seeking a termination gives the other party thirty (30) days prior written notice. 6.5 EFFECT OF A TERMINATION ON AGREEMENT AND OUTSTANDING ORDERS. Termination or cancellation of this Agreement is not a release and shall not relieve either party from any obligation under this Agreement which may have accrued prior thereto, including any confidentiality obligation of either party under Article XIII of this Agreement. In the event that Wyntek terminates, all orders or portions thereof remaining unshipped as of the effective date of termination shall automatically be canceled. If BioStar terminates, BioStar shall have the option to require that all orders be fulfilled. 6.6 GUARANTEE OF SUPPLY TO BIOSTAR CONTRACT ACCOUNTS. In the event that this Agreement is terminated by Wyntek for any reason, Wyntek agrees to continue to supply Products to contracted accounts which BioStar identifies to Wyntek for the term of and according to the terms and conditions of BioStar's agreement with such contracted accounts. 6.7 PRODUCT DEPLETION IN THE EVENT OF TERMINATION. In the event of termination of the Agreement by BioStar or by mutual agreement of the parties, BioStar has the right to sell its remaining inventory. ARTICLE VII WARRANTIES AND INSPECTIONS 7.1 WARRANTIES. Wyntek covenants and warrants as follows: 7. 8 (A) All Products supplied hereunder shall, at all times (i) be approved/cleared by the FDA for marketing in the Territory, (ii) meet the applicable Specifications and requirements set forth in Exhibit A hereto; (iii) have a minimum shelf life equal to ten (10) months, and (iv) be free from material faults and defects in workmanship. Notwithstanding the above, the shelf life of Products added to this Agreement by the parties after the Effective Date will be individually determined and mutually agreed to by the parties. (B) Wyntek guarantees that no Products supplied hereunder will, at any time, (i) be adulterated, misbranded, banned or restricted within the meaning of the Federal Food, Drug and Cosmetic Act, as amended, or (ii) be a product which may not under the provisions of Section 404 or 505 of such Act be introduced into interstate commerce. This guarantee shall be a continuing guarantee and shall be binding upon merchandise shipped or delivered by Wyntek to BioStar before the receipt by BioStar of written notice of revocation thereof. (C) All Products supplied hereunder will be manufactured and packaged in accordance with, and will materially meet, all other applicable federal, state and local laws, including but not limited to FDA regulations covering good manufacturing practices. (D) The required tests and quality control procedures shall have been carried out by Wyntek on Product prior to delivery to BioStar and the test results shall be available for inspection by BioStar. (E) Human-based materials incorporated into any Product shall have been tested and found free from HIV I+II and Hepatitis BsAg and HBC viruses and other contaminants as agreed in the tests and quality control procedures and any additional tests required for BioStar to sell the Products in the Territory shall be completed. (F) All animal derived materials incorporated into Product shall have been obtained from sources acceptable to all relevant US authorities for importation into and use in the US. (G) Product shall be generally safe when used by trained individuals in a clinical testing site in accordance with the procedures and specifications included in its instructions. (H) The Products shall not infringe any copyrights, trademarks, trade secrets or patents of any third party. 7.2 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS, REVENUE, DATA, OR USE, INCURRED BY EITHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT OR BASED ON A WARRANTY, EVEN IF THE OTHER PARTY OR ANY OTHER PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SOME STATES DO NOT ALLOW THE LIMITATION FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION MAY NOT APPLY. 8. 9 7.3 BIOSTAR RIGHT TO INSPECT. (A) BioStar shall have the right during regular business hours to inspect any facility on a biannual basis with appropriate advance notice where Products are manufactured. Wyntek further agrees to cooperate fully with, and to provide all data and records relating to the manufacture or assembly of the Products, including but not limited to analytical methodologies and quality assurance records reasonably requested by the authorized representatives of BioStar, but not including any Wyntek proprietary information. (B) Notwithstanding anything herein to the contrary, any failure on the part of BioStar to discover any non-conformance either during the production process or upon inspection of shipments shall not relieve Wyntek of its warranties hereunder. ARTICLE VIII WARRANTY CLAIMS 8.1 QUALITY ASSURANCE DOCUMENTATION. Each delivery of Products shall be accompanied by documentation in a form agreed between the Managers of Quality Assurance for both parties. 8.2 NOTICE OF PRODUCT FAILURE. Each party will immediately notify the other, by rapid means of communication, and, in any event, within three (3) business days, in the event of failure of the Products to meet the Specifications or of any Product's failure to meet, or difficulties disclosed by, the quality control tests carried out on the Product, or of any continued stability testing, customer complaints or otherwise, the details of such notification to be confirmed in writing. 8.3 REMEDY. Upon its verification of any claim or defect or nonconformity of a unit of the Products, Wyntek will use its reasonable best efforts to provide BioStar with a replacement unit or parts thereof to the extent necessary to honor Wyntek's warranties contained in Section 7.1 within ten (10) days of such determination. If Wyntek is unable to provide BioStar with a replacement Product, BioStar will be entitled to a refund of the purchase price paid for such Product. In the event that Wyntek decides to recall, replace or take other action with respect to any Products, BioStar will immediately cease sales of any units of Products in its possession or control that are subject to the action until Wyntek determines the course of action to be taken. BioStar will return to Wyntek, if so requested, by a reasonable method, non-complying Product in accordance with the directions of and at the cost of Wyntek. If the Product is found to be complying pursuant to Section 8.5, then all costs associated with having returned the Product to Wyntek shall be borne by BioStar. 8.4 EFFECT OF ACCEPTANCE ON WARRANTY CLAIMS. BioStar's acceptance of products pursuant to Section 5.2 above shall in no way prejudice BioStar's right to a replacement in the event that Product does not conform to the warranties given in Section 7.1. 8.5 RESOLUTION OF WARRANTY CLAIMS. In the event of any dispute arising between the parties which they are unable to settle amicably as to the quality and/or conformity of a Product to its Specifications when used in accordance with the procedures included in the Product's instructions, taking account of the terms of this Agreement and in particular the warranties of 9. 10 Wyntek under Section 7.1, the matter shall be referred to a suitable, independent, mutually agreed upon laboratory of repute in the United States, which shall be requested to make a determination with respect to the quality and/or conformity of the Product. If quality and/or conformity of the disputed Product is found to be in accordance with the terms of this Agreement, the laboratory expense shall be borne by BioStar; otherwise the laboratory expense shall be borne by Wyntek. The parties agree that any such determination shall be final and binding on both parties and that the laboratory shall act as expert, not arbitrator. 8.6 BATCH SAMPLE RETENTION. Wyntek shall retain samples from each batch of a Product for at least three (3) months after the expiration date sufficient for the purpose of verification in the case of complaints from purchasers or other users of the Product. 8.7 QUALITY CONTROL/QUALITY ASSURANCE INVESTIGATION. (A) If BioStar reasonably considers it necessary in the light of customer complaints it receives in respect of a Product (or when an appropriate regulatory authority requires it), Wyntek shall at BioStar's request instigate a quality control/quality assurance investigation in respect of a Product and report its findings to BioStar as soon as such findings are available and in any event provide a preliminary report within two (2) weeks after the receipt of BioStar's request. (B) If Wyntek's findings are not in BioStar's reasonable opinion considered adequate to explain and resolve the problem or complaint giving rise to BioStar's request, Wyntek shall allow BioStar the right to raise specific questions about the complaint and the findings and any other matter pertinent thereto, to examine relevant documentation and to audit relevant manufacturing procedures at Wyntek's manufacturing premises and Wyntek shall ensure that its relevant personnel shall provide BioStar with such reasonable information and assistance as BioStar may require in this regard. ARTICLE IX PRODUCT WITHDRAWALS 9.1 PRODUCT WITHDRAWALS. Wyntek shall promptly notify BioStar of and shall provide BioStar with copies of any correspondence and other documentation received or prepared by Wyntek in connection with any of the following events: (A) receipt of a regulatory letter from the FDA in connection with Wyntek's manufacture, or a third party's manufacture, of any Product; (B) the recall of any Product; (C) the withdrawal of any Product from the market; (D) any regulatory comments or inquiry from a government entity requiring a response or action by Wyntek or a third party manufacturer with respect to any Product; or (E) receipt of repetitive complaints about a Product which relate to the clinical efficacy of such Product. 10. 11 9.2 PRODUCT CHANGES. Wyntek will notify BioStar thirty days in advance of making any significant change in the composition of, the manufacturing process for, or the labeling of any Product. Wyntek shall be responsible for obtaining all relevant FDA or other US government approvals prior to shipping such Product to BioStar for sale in the US. The following constitutes significant change or modifications: (A) A change or modification in the product that could significantly affect the safety or effectiveness of the device, e.g., a significant change or modification in design, material, chemical composition, or manufacturing process. (B) A major change or modification in the intended use of the device. 9.3 COSTS OF PRODUCT WITHDRAWAL, NOTIFICATION OR LABELING CHANGE. In the event of a recall, market withdrawal, notification, labeling change or correction of a Product, Wyntek shall reimburse BioStar for all documented costs and expenses associated with such action, including labeling and postage cost. Such costs and expenses shall be substantiated in a reasonably satisfactory manner. ARTICLE X INTELLECTUAL PROPERTY 10.1 OWNERSHIP OF WYNTEK INTELLECTUAL PROPERTY. Wyntek shall retain all of its rights, title and interest in and to and ownership of all copyrights, Wyntek trademarks, trade secrets, patents and all other industrial and intellectual property embodied in the Products other than any BioStar trademarks, packaging or marketing materials including any improvements or enhancements to the Products developed by Wyntek (the "Wyntek Intellectual Property"). Except as otherwise expressly provided in this Agreement, BioStar has no right, title or interest in the Products or any Wyntek Intellectual Property relating to the Products and shall not reproduce or otherwise use, in whole or in part, the Products or the Wyntek Intellectual Property. 10.2 OWNERSHIP OF BIOSTAR INTELLECTUAL PROPERTY. BioStar shall retain all of its rights, title and interest in and to and ownership of all copyrights, trademarks, trade secrets, patents and all other industrial and intellectual property embodied in the Products developed by BioStar including any improvements or enhancements to the Products (the "BioStar Intellectual Property"). Except as otherwise expressly provided in this Agreement, Wyntek has no right, title or interest in the Products or any BioStar Intellectual Property relating to the Products and shall not reproduce or otherwise use, in whole or in part the BioStar Intellectual Property. 10.3 USE OF TRADEMARKS. In connection with the manufacturing of the Products, Wyntek may use the Trademarks. The Trademarks shall bear the designation (TM) or the designation specified by BioStar. (A) Wyntek acknowledges the validity of the other party's right, title and interest in the Trademarks and shall not have, assert or acquire any right, title or interest in or to any of the Trademarks, except to the extent expressly provided herein. If Wyntek acquires any goodwill or reputation in any of the Trademarks, then at the expiration or termination of this Agreement, all such goodwill or reputation automatically shall vest in BioStar without any 11. 12 separate payment or other consideration of any kind to Wyntek and Wyntek agrees to take all such actions necessary to effect such vesting. (B) Wyntek shall use the Trademarks only in connection with the production of the products that will be shipped to BioStar for sale to BioStar customers. (C) Wyntek shall, at the request and expense of BioStar, do such acts or things as BioStar may reasonably require for the purpose of obtaining, maintaining, enforcing and preserving any of the Trademarks, trade names or other proprietary rights of BioStar in the Territory; provided, however, that Wyntek agrees that only BioStar has the right to enjoin any infringement or registration by a third party of such Trademarks, trade names or similar rights. Wyntek shall give BioStar notice of any infringement or threatened infringement of the Trademarks used in connection with the Products. Such notice shall include the full facts of the infringement or threatened infringement known to Wyntek, including the identity of the suspected infringer, the place of the asserted infringement and evidence thereof. Wyntek agrees to cooperate fully with BioStar at the expense of BioStar if BioStar sues to enjoin such infringement. (D) Each party shall not (nor shall it attempt to) adopt, use, or register any acronym, trademark, trade name or other marketing name of the other party or any confusingly similar work or symbol as part of such party's own name or the name of its affiliates or the names of the products which it markets. ARTICLE XI EXCUSES FOR NONPERFORMANCE 11.1 FORCE MAJEURE. No party shall be held liable or responsible for failure or delay in fulfilling or performing any obligation of this Agreement in case such failure or delay is due to Acts of God, strikes or other labor disputes, governmental regulations or actions, inability to obtain or provide material, labor, equipment or transportation, or any other condition beyond the reasonable control of the affected party. (A) Each party agrees to give the other party prompt written notice of the occurrence of any such condition, the nature thereof, and the extent to which the affected party will be unable to fully perform its obligations hereunder. Each party further agrees to use all reasonable efforts to correct the condition as quickly as possible, and to give the other party prompt written notice when it is again fully able to perform such obligations. (B) All quantities of Products not shipped by Wyntek hereunder due to any such condition shall be confirmed, in writing, by the parties immediately after such condition has been corrected. 11.2 PRODUCT ALLOCATION. If, as a result of conditions as set forth in Section 11.1 above, Wyntek at any time is unable fully to supply the orders of BioStar and Wyntek's other customers, Wyntek shall equitably allocate (by percentage of total sales for the three months prior to the occurrence) its available resources and production capacity among BioStar and Wyntek' s other customers. 12. 13 ARTICLE XII INSURANCE; INDEMNIFICATION 12.1 PRODUCT LIABILITY INSURANCE. (A) Wyntek shall take out and maintain, at its own expense, from the signing of this Agreement until November of 1997 product liability insurance for one million dollars ($1,000,000) and after November of 1997 and for a minimum of two (2) years following the expiration, termination or cancellation of this Agreement, at least two million dollars ($2,000,000) of product liability coverage from an insurance company or companies reasonably satisfactory to BioStar. The insurance policy relating to such coverage shall name BioStar as an additional insured by endorsement. BioStar will notify Wyntek prior to contacting Wyntek's insurance company for any reason. (B) Promptly upon execution of this Agreement, Wyntek shall cause to be delivered to BioStar an insurance certificate evidencing the insurance coverage required by Section 12.1(A). Such insurance certificate shall name BioStar as an additional insured and shall include a certification that such insurance coverage includes contractual coverage for Wyntek's liability under this Agreement. In the event of cancellation or modification of Wyntek's policy thirty (30) days prior notification will be sent to BioStar. 12.2 INDEMNIFICATION BY WYNTEK. Wyntek shall indemnify, defend and hold harmless BioStar and BioStar's directors, officers, employees and agents from and against any and all losses, costs, liabilities or expenses (including costs and reasonable fees of attorneys and other professionals) arising out of or in connection with Wyntek's performance under or breach of this Agreement to the extent caused by, in whole or in part, any negligent act or omission or willful misconduct of Wyntek or Wyntek's employees or agents, including but not limited to any act or omission that contributes to (i) any personal injury, sickness, disease or death; (ii) any damage to or destruction of any property of BioStar or BioStar's customers; or (iii) any violation of any statute, ordinance or regulation. Wyntek shall indemnify, defend and hold harmless BioStar and BioStar's directors, officers, employees and agents from and against any and all losses, costs, liabilities or expenses (including costs and reasonable fees of attorneys and other professionals) arising out of or in connection with the infringement by the Products of copyrights, trade secrets or patents of third parties. 12.3 INDEMNIFICATION BY BIOSTAR. (A) BioStar shall indemnify, defend and hold harmless Wyntek or Wyntek's directors, officers, employees and agents from and against any and all losses, costs, liabilities or expenses (including costs and reasonable fees of attorneys and other professionals) arising out of or in connection with BioStar's performance under or breach of this Agreement to the extent caused by, in whole or in part, any negligent act or omission or willful misconduct of BioStar or BioStar's employees or agents, including but not limited to any act or omission that contributes to (i) any personal injury, sickness, disease or death; (ii) any damage to or destruction of any property of Wyntek; or, (iii) any violation of any statute, ordinance or regulation. 13. 14 (B) BioStar, at its own expense, will defend and hold Wyntek harmless against a claim that any copy, bar codes or artwork supplied to Wyntek by BioStar infringes the trademarks and/or copyrights of the claimant. BioStar will pay all costs, damages and attorney's fees that a court finally awards as a result of such claim. To qualify for such defense and payment, Wyntek must give BioStar prompt written notice of any such claim and allow BioStar to completely control, and fully cooperate with BioStar, in the defense thereof and all related settlement negotiations. Wyntek agrees that if the ownership or use of any of the BioStar supplied copy, bar codes or artwork becomes or is likely to become the subject of such a claim, Wyntek will permit BioStar, at BioStar's option and expense, to either secure the right to continue to fully utilize all such copy, bar codes or artwork or to modify such BioStar supplied copy, bar codes or artwork so that it is no longer subject to such claim. (C) Wyntek may retain counsel of its own choice, at its own expense and option, with respect to its involvement in the disposition of any claim made under Section 12 (B), but BioStar's right to completely control and settle any claim indemnifiable under Section 12 (B) shall not be diminished or altered in any fashion thereby. (D) Not withstanding the foregoing, BioStar shall have no indemnity obligation to Wyntek where the claim of infringement would not have been made or sustained except for the copy, bar codes or artwork submitted by BioStar to Wyntek. (E) Not withstanding the foregoing, BioStar shall have no indemnity obligation to Wyntek where the claim of infringement is covered by insurance carried by Wyntek to the extent that Wyntek seeks to collect reimbursement or indemnification from its insurance carrier therefore. ARTICLE XIII CONFIDENTIALITY During the term of this Agreement and for a period of two (2) years thereafter, any Confidential Information which is disclosed by one party (either BioStar or Wyntek) (the "disclosing party") to the other party (either BioStar or Wyntek), (the "recipient") shall be maintained in confidence by the recipient and shall be used by the recipient only in carrying out the purposes of this Agreement. For the purposes of this Agreement, the term "Confidential Information" shall mean and include any and all proprietary information relating to the design, development, manufacture, operation and marketing of the Products, as well as other information relating to know-how, technologies, process, assets, business plans, and financial information relating to the Products and to each of the parties and all information which a party should reasonably expect to be considered Confidential Information. Confidential Information may be communicated orally, in writing or in any other recorded or tangible form. The foregoing obligations regarding confidentiality and use of Confidential Information shall not apply to Confidential Information (i) which at the time of disclosure is in the public domain; (ii) which after disclosure is published or otherwise becomes part of the public domain through no fault of the recipient, but only after it is published or comes into the public domain; (iii) which the recipient can document by written records as having been its possession at the time of disclosure hereunder; (iv) which the recipient can document by written records as having been received by it after the time of disclosure from a third party who did not acquire it directly or indirectly under 14. 15 an obligation of confidence from the disclosing party; and (v) is required to be disclosed in a judicial or administrative proceeding after all reasonable legal remedies for maintaining such information in confidence have been exhausted; or (vi) which the recipient can document by written records to have been independently developed by the recipient. Each party acknowledges that irreparable injury will result to the other in the event of a breach or threatened breach of any of the provisions of this Article and agrees that in the event of a breach or threatened breach, the complaining party shall be entitled, in addition to any other available remedy, to seek injunctive and other equitable relief from a court of competent jurisdiction. The obligations contained in this Article shall survive the termination of this Agreement. BioStar may disclose Confidential Information to third parties to the extent necessary to perform its obligations under this Agreement. ARTICLE XIV MISCELLANEOUS PROVISIONS 14.1 RELATIONSHIP OF THE PARTIES. Nothing herein contained shall be deemed to constitute the relationship of partners, joint venturers nor of principal and agent between Wyntek and BioStar. 14.2 ASSIGNMENT. Neither Wyntek nor BioStar shall assign this Agreement without the prior written consent of the other, provided, however, that either party, without such consent, may assign or sell this Agreement in connection with the transfer or sale of all or substantially all of the assets of its diagnostics business or a change in control of BioStar. Any permitted assignee shall assume all assigned obligations of its assignor under this Agreement. No assignment shall relieve either Wyntek or BioStar of responsibility for the performance of any accrued obligation which it then has hereunder. If either party is acquired by a competitor than the acquired party must agree to the terms of the contract for twelve (12) months from the date of the acquisition. Any consent required hereunder shall not be unreasonably withheld. 14.3 WAIVER. Either party's waiver of any breach or failure to enforce any of the terms and conditions of this Agreement, at any time, shall in no way affect, limit or waive such party's right thereafter to enforce and compel strict compliance with every term and condition of this Agreement. 14.4 SEVERABILITY. If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall apply only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. 14.5 CAPTION. The captions at the beginning of the several Articles of this Agreement have been inserted for convenience only and shall not be used in any way to construe or interpret this Agreement. 14.6 NOTICE. All notices required or permitted to be given under this Agreement shall be in writing and shall be sent by registered or certified mail (return receipt requested), postage prepaid, by commercial overnight courier, or by telex or facsimile (confirmed), and shall be 15. 16 deemed to have been given upon mailing, deposit with the courier, or receipt of facsimile confirmation, as the case may be. Any such notices shall be addressed to the receiving party at such party's address set forth below or at such other address as may from time to time be furnished by a similar notice by either party. If to Wyntek: If to BioStar: Wyntek Diagnostics, Inc. BioStar, Inc. 6146 Nancy Ridge Drive 6655 Lookout Road San Diego, CA 92121 Boulder, Colorado 80301-3838 Fax: (619) 452-3258 Fax: (303) 530-6641 14.7 SALES REPRESENTATION. Wyntek agrees not to hire any BioStar sales representatives that have left the company within a prior three month period of the proposed hiring date. 14.8 GOVERNING LAW AND VENUE. This Agreement shall be governed by and construed under the laws of the State of Colorado (excluding the conflicts of law thereof). Any matter subject to judicial review or enforcement shall be heard in the state or federal court in the city of San Diego, CA. 14.9 COUNTERPARTS. Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original, but all of which together shall constitute the same instrument. 14.10 ENTIRE AGREEMENT. This Agreement represents the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior agreement or understanding among them with respect to the subject matter hereof. No provision hereof may be amended, modified, terminated or revoked except by a writing signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their respective, duly authorized representatives as of this day and year first above written. Agreed to for and on behalf of: Agreed to for and on behalf of: BIOSTAR, INC. WYNTEK DIAGNOSTICS, INC. 6655 Lookout Rd. 6146 Nancy Ridge Drive Boulder, CO 80301 San Diego, CA 92121 By: /s/ Teresa W. Ayers By: /s/ Chris Fan --------------------------------- --------------------------------- Teresa W. Ayers Chris Fan President/Chief Executive Officer President/Chief Executive Officer Date: 6-29-97 Date: 6/30/97 --------------------------------- --------------------------------- 16. 17 APPENDIX A PRODUCTS, COST TO BIOSTAR
PRODUCTS COST/TEST - -------- --------- Wyntek OSOM Brand Strep A test-50 tests per kit-completely [ * ] delivered to packaged with BioStar labels BioStar Wyntek OSOM Brand Strep A-50 test strips in a BioStar-labeled [ * ] delivered to tube container, BioStar-labeled reagents (reagents to include; BioStar Reagents 1 and 2, and Positive and Negative Control), test tubes and holder Wyntek Perfecta Brand Pregnancy Test-20 tests per kit-completely [ * ] delivered to packaged with Biostar labels BioStar
17. 18 EXHIBIT A CONTENTS Acceava Strep A Purchase Specification and Inspection Report Acceava hCG Purchase Specification and Inspection Report 19 PURCHASE SPECIFICATION AND INSPECTION REPORT ================================================================================ ACCEEVA HCG 20 TEST KIT DOC. NO. RMACCHCG (PART # ACCHCG) REVISION NO. 00 SUPERSEDES NEW PAGE 1 OF 3 ================================================================================ Q.A. Approval By:______________________ Date:_______________ Effective Date:______________ ================================================================================ 1. DESCRIPTION: Acceava hCG 20 test kit. BioStar labeling throughout. Components as listed on Certificate of Analysis. 2. UNITS OF MEASURE: Each. 3. VENDOR LIST: Wyntek Diagnostics Cat. # ACCHCG 4. STORAGE CONDITIONS: Ambient 5. SHELF LIFE/EXPIRATION DATE: Based on Manufacturer's Dating and labeling; Certificate of Analysis required. 6. SAMPLING: Mil Std 105E, 2.5% AQL, GEN, Level I1, Single/Normal sampling for visual characteristics. One kit for performance, 2 kits for retention. 7. TESTING METHOD: METHOD EXPECTED RESULT ------ --------------- 7.1 Visual Material check Conforms to Certificate of Analysis (COA) description. Label text check Matches current approved text (See Master Label Log). Kit check Kit is clean and free of debris, spilled reagents, etc. Expiration date Conforms to Manufacturer's expiration date from (COA). Lot Number Conforms to Manufacturer's Lot Number from (COA). 7.2 Performance Testing (vs. QC Reference Chart) (See page 2 for procedure) Negate Control Negative is clean 500mlp/mL LH < + - - 25mlp/mL hCG > - 1.5 + - 500mlp/mL hCG > 2 + - Control line Clearly visible red line Test and Control Lines a. Should be inside result window. b. Lines should have no major breaks in line form. 8. PURCHASE SPECIFICATION: N/A
20 ACCEAVA HCG 20 TEST KIT DOC. NO. RMACCHCG.00 (PART # ACCHCG) PAGE 2 OF 3 ================================================================================ 2. PERFORMANCE TESTING PROCEDURE (7.2) TEST MATERIALS LOT # Test Sticks ------------------------------ Negative Control ------------------------------ 500mlp/mL LH ------------------------------ 25mlp/mL hCG ------------------------------ 500mlp/mL hCG ------------------------------ TEST PROCEDURE Test 3 sticks for each of the control samples. Remove sufficient solution into a tube to dip the entire tip of the entire absorbent tip of the stick into the test solution for 3 seconds. Place the stick on a clean, fiat, dry disposable surface. Other Inspections: Inspect Control Line intensity during QC testing. The Control Line should be a visible red line. Inspect Test and Control Line location during QC testing. The Test and Control Lines should be inside the result window with no major break in the line form. Record the results on the QC Testing Data Sheet. The lot is deemed acceptable when all test results recorded on the sheets are within the specifications listed. If any non-conforming result occurred, the lot should be withheld for further review and disposition. 21 ACCEAVA HCG 20 TEST KIT DOC. NO. RMACCHCG.00 (PART # ACCHCG) PAGE 3 OF 3 ================================================================================ INSPECTION RECORD: Manufacturer: ______________________ Date Received _____________________ Manufacturer Lot #: ________________ BioStar Lot #: ____________________ Manufacturer Exp. Date: ____________ BioStar Exp. Date: ________________ P.O. #: ____________________________ Quantity Received: ________________ ================================================================================
TEST RESULTS: 1. VISUAL: YES NO Conforms to Certificate of Analysis Description [ ] [ ] Matches current approved test [ ] [ ] Kit is clean and free of debris, spilled reagent, etc. [ ] [ ] Lot and expiration conform to Certificate of Analysis [ ] [ ] 2. PERFORMANCE: Negative clean [ ] [ ] 500mlp/mL LH < + [ ] [ ] - - 25mlp/mL hCG > 1.5 + [ ] [ ] - 500mlp/mL hCG > 2 + [ ] [ ] - Control line red and visible [ ] [ ] Test and control lines in result window [ ] [ ] Test and control lines have no major break in line form [ ] [ ]
================================================================================ MATERIAL DOES/DOES NOT MEET PURCHASE SPECIFICATION IDENTIFICATION REQUIREMENTS. ================================================================================ Comments: ______________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ [ ] ACCEPTED [ ] REJECT Inspected By: _________________________ Reviewed By: ______________________ Date: _________________________________ Date: _____________________________ 22 PURCHASE SPECIFICATION AND INSPECTION REPORT ================================================================================ DOC. NO. RMACCGAS ACCEAVA STREP A 50 TEST KIT REVISION NO. 00 (PART # ACCGAS) SUPERSEDES NEW PAGE 1 OF 3 ================================================================================ Q.A. Approval By:___________________________ Date ______________ Effective __________________ ================================================================================ 1. DESCRIPTION: Acceava Strep A 50 test kit. BioStar labeling throughout. Components as listed on Certificate of Analysis. 2. UNIT OF MEASURE: Each. 3. VENDOR LIST: Wyntek Diagnostics Cat. # ACCGAS 4. STORAGE CONDITIONS: Ambient 5. SHELF LIFE/EXPIRATION DATE: Based on Manufacturer's Dating and labeling; Certificate of Analysis required. 6. SAMPLING: Mil Std 105E, 2.5% AQL, GEN, Level II, Single/Normal sampling for visual characteristics. One kit for performance, 2 kits for retention. 7. TESTING METHOD: METHOD EXPECTED RESULT ------ --------------- 7.1 Visual Material check Conforms to Certificate of Analysis (COA) description. Label text check Matches current approved text (See Master Label Log). Kit check Kit is clean and free of debris, spilled reagents, etc. Expiration date Conforms to Manufacturer's expiration date from (COA). Lot Number Conforms to Manufacturer's Lot Number from (COA). 7.2 Performance Testing (vs. QC Reference Chart) (See page 2 for procedure) Negate Control Negative is clean Positive Control ) 2.5 + - QC Control, Level II ) 2 + - QC Control, Level I ) + - - Control Line Clearly visible red line Test and Control Lines a. Should be inside result window. b. Lines should not touch either edge of window. c. There should be a minimum of 1mm spacing between lines. 8. SPECIFICATIONS: N/A
23 ACCEAVA STREP A 50 TEST KIT DOC. NO. RMACCGAS.00 (PART # ACCGAS) PAGE 2 OF 3 ================================================================================ 2. PERFORMANCE TESTING PROCEDURE (7.2) TEST MATERIALS LOT # Test Sticks _____________________________ Reagent 1 _____________________________ Reagent 2 _____________________________ Negative Control _____________________________ Positive Control _____________________________ Quality Control, PN283, Level II _____________________________ Quality Control, Level I _____________________________ TEST PROCEDURE Test 3 sticks for each of the control samples. Use the same lots of Reagent 1, Reagent 2, Positive and Negative Controls found in the kit. For testing Positive Control and Negative Control, place 3 drops each of Reagent 1 and Reagent 2 into a tube followed by one drop of the Control. Mix well with a clean swab and incubate for one minute. Remove the swab after extraction and place a stick into the tube. Determine the results at 5 minutes. For testing Strep A QC Control, Level II, place 20 mL of the control in a test tube followed by 0.15 mL each of Reagent 1 and Reagent 2. Mix and incubate the mixture for one minute. Place a stick into the mixture and leave in for 5 minutes. Determine the results at 5 minutes. For testing Strap A QC Control, Level I, place 20 mL of the control in a test tube followed by 0.60 mL each of Reagent 1 and Reagent 2. Mix and incubate the mixture for one minute. Remove 0.3 mL to a clean tube. Place a stick into sample and leave in for 5 minutes. Determine the results at 5 minutes. Other Inspections Inspect Control Line intensity during QC testing. The Control Line should be a visible red line. Inspect Test and Control Line location during QC testing. The Test and Control Lines should be inside the result window and not touched to either edge of the window. There should be a minimum of 1 mm space between the Test Line and the Control Line. Record the results on the QC Testing Data Sheet. The lot is deemed acceptable when all test results recorded on the sheets are within the specifications listed. If any non-conforming result occurred, the lot should be withheld for further review and disposition. 24 ACCEAVA STREP A 50 TEST KIT DOC. NO. RMACCGAS.00 (PART # ACCGAS) PAGE 3 OF 3 ================================================================================ INSPECTION RECORD: Manufacturer: ______________________ Date Received _____________________ Manufacturer Lot #: ________________ BioStar Lot #: ____________________ Manufacturer Exp. Date: ____________ BioStar Exp. Date: ________________ P.O. #: ____________________________ Quantity Received: ________________ ================================================================================
TEST RESULTS: 1. VISUAL: YES NO Conforms to Certificate of Analysis Description [ ] [ ] Matches current approved test [ ] [ ] Kit is clean and free of debris, spilled reagent, etc. [ ] [ ] Lot and expiration conform to Certificate of Analysis [ ] [ ] 2. PERFORMANCE: Negative clean [ ] [ ] Positive Control > = 2.5 + [ ] [ ] QC Control, Level II > = 2 [ ] [ ] QC Control, Level I > = + [ ] [ ] Control line red and visible [ ] [ ] Test and control lines in result window [ ] [ ] Test and control lines do not touch edge of window [ ] [ ] Test and control lines are minimum of 1mm apart [ ] [ ]
================================================================================ MATERIAL DOES/DOES NOT MEET PURCHASE SPECIFICATION IDENTIFICATION REQUIREMENTS. ================================================================================ Comments: ______________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ [ ] ACCEPTED [ ] REJECT Inspected By: _________________________ Reviewed By: ______________________ Date: _________________________________ Date: ____________________________ 25 [WYNTEK LETTERHEAD] June 30, 1997 Ms. Teresa Ayers President And Chief Executive Officer BioStar, Inc. 6655 Lookout Road Boulder, CO 80301 Ms Ayers: This letter is intended to clarify several issues on the Distribution Agreement between our two companies (as referenced in section 14.10). 1. 3.2.C: The repurchase of packaging material by BioStar will cover all products stated in the Distribution Agreement and up to six months inventory of BioStar labeled and labeling material. 2. 9.3: BioStar will bear all costs of any product recall, market withdrawal, notification or correction product that is BioStar's fault. 3. 14.8: The entire Distribution agreement shall be governed by and construed under the laws of the State of California. Sincerely: /s/ BRUCE S. GARDNER Bruce S. Gardner Vice President Sales and Marketing Agreed to for and on the behalf of: BioStar, Inc. Wyntek Diagnostics, Inc. 6655 Lookout Road 6146 Nancy Ridge Drive Boulder, CO 80301 San Diego, CA 92121 By: /s/ Teresa W. Ayers By: /s/ Chris Fan -------------------------------- ------------------------------- Teresa W. Ayers Chris Fan President and Chief Executive Officer President and Chief Executive Officer 26 FIRST AMENDMENT TO DISTRIBUTION AGREEMENT The First Amendment to Distribution Agreement (the "Agreement") is entered into this 17th day of November, 1997, by and between BioStar, Inc., a Delaware corporation (the "COMPANY") and Wyntek Diagnostics, Inc., a California corporation ("WYNTEK"). WHEREAS, the company and Wyntek entered into a Distribution Agreement dated July 1, 1997 (the "DISTRIBUTION AGREEMENT") pursuant to which Wyntek granted the Company a license to distribute certain Wyntek products to certain customers in the United States (as further defined in the Distribution Agreement, the "TERRITORY"); and WHEREAS, the Company and Wyntek desire to amend the Distribution Agreement to expand the definition of the Territory to include certain customers worldwide. NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows: 1. THE TERRITORY Section 2.2 of the Distribution Agreement shall be amended to read in full as follows: "2.2 TERRITORY. The license granted to BioStar set forth in Section 2.1 above shall be for the right and license to distribute the Products in the Territory. "Territory" shall mean the world, including without limitation managed care outpatient facilities, physician offices, urgent care facilities, clinics, student health centers, public school facilities, public health facilities, hospitals, and reference laboratories located anywhere in the world. The rights to sell the Products in additional markets may be discussed and agreed to separate from this contract." 2. REGULATORY APPROVAL BioStar shall be responsible for obtaining regulatory clearance to sell all Products in the Territory outside of the United States in which they intend to sell Product. Wyntek shall inform BioStar of any countries in the Territory in which Wyntek or any of Wyntek's licensees, successors of assigns has obtained regulatory approval. In addition, BioStar will inform Wyntek if BioStar obtains any regulatory approvals. 3. OTHER TERMS The Distribution Agreement shall remain in full force and effect except as modified by this Amendment. 1. 27 In Witness Whereof, Wyntek and the Company, intending to be legally bound by the terms of this Amendment, have caused this Amendment to be executed by their duly authorized representatives. WYNTEK DIAGNOSTICS, INC. By: /s/ Chris Fan -------------------------------------- Name: Chris Fan Title: President BIOSTAR, INC. By: /s/ Teresa W. Ayers --------------------------------------- Name: Teresa W. Ayers Title: President/CEO EX-10.63 9 NOTICE OF GRANT AWARD 1 1. DATE ISSUED |2. CFDA No. | | | 09/29/95 | 93.856 | DEPARTMENT OF HEALTH AND HUMAN SERVICES - -----------------------------------------------------------| PUBLIC HEALTH SERVICE | 3. SUPERSEDES AWARD NOTICE dated ______________________ | NATIONAL INSTITUTES OF HEALTH except that any additions or restrictions previously | imposed remain in effect unless specifically rescinded.| NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES EXTRAMURAL - -----------------------------------------------------------| 4. GRANT NO. | 5. ADMINISTRATIVE CODES| NOTICE OF GRANT AWARD | | 1 U01 AI39223-01 | 37X750B | AUTHORIZATION (Legislation/Regulation) | | - -----------------------------------------------------------| 42 USC 241 31 USC 6305 & 6306 6. GRANT PERIOD Mo./Day/Yr. | Mo./Day/Yr. | RESEARCH PROJECT COOPERATIVE AGREEMENT From 09/30/95 | Through 08/31/98 | - -----------------------------------------------------------| 7. BUDGET PERIOD Mo./Day/Yr. | Mo./Day/Yr. | From 09/30/95 | Through 08/31/96 | - ------------------------------------------------------------------------------------------------------------------------------------ 8. TITLE OF PROJECT (OR PROGRAM) (Limit to 56 spaces) CHLAMYDIA OIA FOR TESTING NON-INVASIVE GENITAL S SRC (48) - ------------------------------------------------------------------------------------------------------------------------------------ 9. GRANTEE NAME AND ADDRESS |10. DIRECTOR OF PROJECT (PROGRAM DIRECTOR/PRINCIPAL | INVESTIGATOR) (LAST NAME FIRST AND ADDRESS) | a. BIOSTAR INC | CROSBY, MARK A BS b. 6655 LOOKOUT ROAD | BIOSTAR INC c. | RESEARCH AND DEVELOPMENT d. BOULDER e. CO f. 80301 | 6655 LOOKOUT ROAD | BOULDER, CO 80301 | - ------------------------------------------------------------------------------------------------------------------------------------ 11. GRANTEE NAME AND ADDRESS |12. AWARD COMPUTATION FOR FINANCIAL ASSISTANCE - -----------------------------------------------------------|------------------------------------------------------------------------ I PHS Grant Funds Only [ I ] | a. Amount of PHS Financial Assistance (from Item 11.0)...$ 553,544 | II Total project costs including grant funds and | b. Less Unobligated Balance From Prior Budget Periods....$ 0 all other financial participation | | c. Less Cumulative Prior Award(s) This Budget Period.....$ 0 (Select one and place NUMERAL in box.) | ------------- - -----------------------------------------------------------| d. AMOUNT OF FINANCIAL ASSISTANCE THIS ACTION..........| $ 553,544 a. Salaries and Wages...........$ 137,000 |------------------------------------------------------------------------ |13. RECOMMENDED FUTURE SUPPORT (SUBJECT TO THE AVAILABILITY OF FUNDS AND b. Fringe Benefits.............. 24,210 | SATISFACTORY PROGRESS OF THE PROJECT.) |------------------------------------------------------------------------ c. Total Personnel Costs....$ 161,210 | YEAR | TOTAL DIRECT COSTS/STIPENDS | YEAR | TOTAL DIRECT COSTS/STIPENDS |------|-----------------------------|------|---------------------------- d. Consultant Costs.............$ 0 |a. 02 | 434,979 |d. | | | | | e. Equipment....................$ 102,500 |b. 03 | 428,513 |e. | | | | | f. Supplies.....................$ 22,500 |c. | |f. | |------------------------------------------------------------------------ g. Travel.......................$ 31,500 |14. APPROVED DIRECT ASSISTANCE BUDGET (IN LIEU OF CASH) | h. Patient Care - Inpatient.....$ 0 | a. Amount of PHS Direct Assistance.......................$ | i. Patient Care - Outpatient....$ 0 | b. Less Unobligated Balance From Prior Budget Periods....$ | j. Alterations and Renovations..$ 20,000 | c. Less Cumulative Prior Award(s) This Budget Period.....$ | ------------- k. Other........................$ 31,200 | d. AMOUNT OF DIRECT ASSISTANCE THIS ACTION.............| $ |------------------------------------------------------------------------ l. Consortium/Contractual Costs.$ 81,339 |15. PROGRAM INCOME SUBJECT TO 45 CFR PART 74, SUBPART F, OR 45 CFR | 92.25, SHALL BE USED IN ACCORD WITH ONE OF THE FOLLOWING m. Trainee Related Expenses.....$ | ALTERNATIVES (Select One and Place LETTER in box.) | n. Trainee Supplies.............$ 0 | a. DEDUCTION | o. Trainee Tuition and Fees.....$ 0 | b. ADDITIONAL COSTS | p. Trainee Travel...............$ 0 | c. MATCHING [ D ] | -----------------------| d. OTHER RESEARCH (Add/Deduct Option) | | q. TOTAL DIRECT COSTS.....| $ 450,249 | e. OTHER (See REMARKS) - ------------------------------------|----------------------------------------------------------------------------------------------- r. INDIRECT COSTS | |16. THIS AWARD IS BASED ON AN APPLICATION SUBMITTED TO, AND AS APPROVED (Rate * % of S&W/TADC)...| $ 103,295 | BY, THE PHS ON THE ABOVE TITLED PROJECT AND IS SUBJECT TO THE TERMS - ------------------------------------|----------------------| AND CONDITIONS INCORPORATED EITHER DIRECTLY OR BY REFERENCE IN THE | | FOLLOWING: s. TOTAL APPROVED BUDGET......| $ 553,544 | a. The grant program legislation cited above. - ------------------------------------|----------------------| b. The grant program regulation cited above. | | c. This award notice including terms and conditions, if any, noted t. SBIR Fee...................| $ 0 | below under REMARKS. - -----------------------------------------------------------| d. PHS Grants Policy Statement including addenda in effect as of the | beginning date of the budget period. u. Federal Share................$ 553,544 | e. 45 CFR Part 74 or 45 CFR Part 92 as applicable. | IN THE EVENT THERE ARE CONFLICTING OR OTHERWISE INCONSISTENT v. Non-Federal Share............$ | POLICIES APPLICABLE TO THE GRANT, THE ABOVE ORDER OF PRECEDENCE | SHALL PREVAIL. ACCEPTANCE OF THE GRANT TERMS AND CONDITIONS IS | ACKNOWLEDGED BY THE GRANTEE WHEN FUNDS ARE DRAWN OR OTHERWISE | OBTAINED FROM THE GRANT PAYMENT SYSTEM. - ------------------------------------------------------------------------------------------------------------------------------------ REMARKS: (Other Terms and Conditions Attached - [X] Yes [ ] No) BASE X RATE ($413,179 X 25.00) TS GRANT IS EXCLUDED FROM EXPANDED AUTHORITIES. - ------------------------------------------------------------------------------------------------------------------------------------ TS GRANTS MANAGEMENT OFFICER: (Signature) (Name-Typed/Print) (Title) /s/ Victoria C. Putprush TODD C. BALL, MICROBIOLOGY GMO, GMB, DEA, NIAID - ------------------------------------------------------------------------------------------------------------------------------------ 17. CBJ CLASS |18. CRS - EIN |19. LIST NO: 41.4I | 184200265A1 | - ------------------------------------------------------------------------------------------------------------------------------------ FY-CAN | DOCUMENT NO. | ADMINISTRATIVE CODE | AMT. ACTION FIN. ASST. | AMT. ACTION DIR. ASST. | | | | 20. a. 95 8425921 | b. U1AI39223A | c. | d. | e. | | | | 21. a. | b. | c. | d. | e. | | | | 22. a. | b. | c. | d. | e. - ------------------------------------------------------------------------------------------------------------------------------------ PHS-5152-5 (Rev. 7/92) 950926 1356 (Note: See reverse for payment information.) LAB
2 ATTACHMENT GRANT #: 1 U01 AI 39223-01 TERMS OF AWARD General program income that may be generated from this grant is subject to the deductive alternative as defined in CFR Title 45, Part 74, Subpart F. Pursuant to the NIH Revitalization Act (P.L. 103-43, June 10, 1993), section 2004, when purchasing equipment or products under this assistance award, the recipient should, whenever possible, purchase only American-made items. "NOTICE: Under governing policy, Federal funds administered by the Public Health Service (PHS) shall not be expended for research involving live vertebrate animals without prior approval by the Office for Protection from Research Risks of an assurance to comply with the PHS policy on humane care and use of laboratory animals. This restriction applies to all performance sites without OPRR-approved assurances, whether domestic or foreign. "NOTICE: Under governing regulations, Federal funds administered by the Department of Health and Human Services shall not be expended for and individuals shall not be enrolled in research involving human subjects, without prior approval by the Office for Protection from Research Risks of an assurance to comply with the requirements of 45 CFR 46 to protect human research subjects. This restriction applies to all performance sites without OPRR-Approved assurances, whether domestic or foreign. All funds awarded for indirect costs ($103,295) are restricted pending the negotiation of an approved indirect cost rate agreement with the NIH Financial Advisory Services Branch. Approved travel funds must include travel for the Principal Investigator and two other scientists to two Steering Committee meetings in Bethesda, MD for two meetings per year. Budgets for projects at University of California, Irvine are shown on attached spreadsheet. Use of funds for the subcontract are restricted pending acceptance of a properly endorsed consortium agreement between the University of California, Irvine and BioStar, Inc. Indirect Costs for the subcontract for future years are calculated at the currently effective rate. Adjustments will be made due to fluctuations at time of award. Estimated indirect costs for future years for the subcontract are not available for direct cost purposes. Consortia are to be established and administered in accordance with the NIH Consortium Policy (NIH Guide for Grants and Contracts Vol. 14 No. 7, June 21, 1985) No funds may be used for consortium activity at University of Alabama, Birmingham. All evaluation activity will be handled by the evaluation site funded under this RFA. 1. 3 No funds may be used for Alterations and Renovations until additional justification is provided to and approved by the NIAID. Future year escalation has been calculated at 4%. Additional justification must be provided for consultant costs budgeted for future years. Grants Management Contact: Sharie Bernard (301) 402-5540 (301) 480-3780 (Fax) Program Official Contact Penelope J. Hitchcock, D.V.M. (301) 402-0443 Please see attached for Terms and Conditions and spreadsheets specific to this cooperative agreement. 2. 4 SPECIAL TERMS AND CONDITIONS OF AWARD - RFA 95-001 These special Terms of Award are in addition to, and not in lieu of, otherwise applicable OMB administrative guidelines, HHS Grant Administration Regulations at 45 CFR part 74 and 92, and other HHS, PHS, and NIH Grant Administration policy statements. The administrative and funding instrument used for this program is the Cooperative Agreement (U01), an "assistance" mechanism (rather than an "acquisition" mechanism), in which substantial NIH scientific and/or programmatic involvement with the awardee is anticipated during the performance of the activity. Under the Cooperative Agreement, the NIH purpose is to support and/or stimulate the recipient's activity by involvement in and otherwise working jointly with the award recipient in a partner role, but it is not to assume direction, prime responsibility, or a dominant role in the activity. Consistent with this concept, the dominant role and prime responsibility for the activity resides with the awardee(s) for the project as a whole, although specific tasks and activities in carrying out the study will be shared among the awardees and the NIAID Scientific Coordinator. Under the cooperative agreement, a relationship will exist between the award recipient(s) and the NIAID in which the performers of the activities (1) are responsible for the requirements and conditions described below and (2) agree to accept program assistance from the named NIAID Scientific Coordinator in achieving project objectives. Failure of an awardee to meet the performance requirements, including these special terms and conditions of award, or significant changes in the level of performance, may result in a reduction in budget, withholding of support, or suspension and/or termination of the award. 1. AWARDEE RIGHTS AND RESPONSIBILITIES The awardee is responsible for: a. Research design and development, including definition of objectives and approaches, planning, implementation, data collection, quality control, interim data and safety monitoring, final data analysis and interpretation, and publication of results. b. Establishing a mandatory Steering Committee to coordinate and manage the test development and test evaluation studies. c. Implementing the data collection strategy and methods collectively decided upon by the Steering Committee. For each study involving multiple institutions, it is the responsibility of each awardee/site to ensure that data will be collected and submitted in a timely way following such procedures as agreed to by the Steering Committee. d. Establishing mechanisms for quality control and monitoring. Awardees are responsible for ensuring the accurate and timely assessment of the progress of the study, including development of procedures to ensure that data collection and management are adequate for quality control and analysis. 3. 5 e. Preparing and submitting interim progress reports, when requested (not more than quarterly), to the NIAID Scientific Coordinator including, as a minimum, summary data on diagnostic test performance results. Such reports are in addition to the annual awardee noncompeting continuation progress reports. f. Establishing procedures, where applicable, for all participating institutions in coordinated awards to comply with FDA regulations for studies involving investigational agents or devices and to comply with the requirements of 45 CFR Part 46 for the protection of human subjects. g. Cooperating in the reporting of the study findings. The NIAID will have access to and may periodically review all data generated under an award. Where warranted by appropriate participation, plans for joint publication with NIAID of pooled data and conclusions, are to be developed by the Principal Investigator or Steering Committee, as applicable. NIH policies governing possible co-authorship of publications with NIAID staff will apply in all cases. In general, to warrant co-authorship, NIAID staff must have contributed to each of following areas: (a) design of the experiments or concepts being tested; (b) performance of significant portions of the activity; and (c) preparation and authorship of pertinent manuscripts. The awardee will retain custody of and have primary rights to the data developed under these awards, subject to Government right of access consistent with current HHS, PHS, and NIH policies. Contents of reports of study results are solely the responsibility of the authors and do not necessarily represent the views of NIAID. 2. NIAID STAFF RESPONSIBILITIES It is expected that the dominant role and prime responsibility for the activity will reside with the awardee(s) for the project as a whole. However, specific tasks and activities will be shared among the awardee(s) and the NIAID Scientific Coordinator. As required for the coordination of activities and to expedite progress, the NIAID Scientific Coordinator may designate additional NIAID staff to provide advice or assistance to the awardee(s) on specific scientific, technical, or management issues. The NIAID Scientific Coordinator shall retain overall programmatic responsibility for the award(s) and will clearly specify to the awardee(s) the name(s) and role(s) of any such additional individuals and the lines of reporting authority. a. Interacting with the principal investigator(s) on a regular basis to monitor study progress. Monitoring may include: (a) regular communications with the principal investigator and staff, (b) periodic site visits for discussions with awardee research teams, (c) observation of laboratory, manufacturing, data collection and management techniques, quality control, fiscal review, and other relevant matters, as well as (d) attendance at and participation in Scientific Steering Committee. b. Convening the first meeting of and subsequent participation in the Scientific Steering Committee that oversees study conduct. The NIAID Scientific Coordinator will be a full participant and voting member of the Scientific Steering Committee. c. Serving as a resource with respect to ongoing NIAID activities that may be relevant to the research to facilitate compatibility and avoid unnecessary duplication. 4. 6 [FN] d. Substantial assistance in the design and coordination of research activities for awardees including: 1. Assisting by providing advice on the management and technical performance of the investigations. 2. Providing access to and use of, when appropriate, reagents and assays, and other resources available through NIAID contractors and awardees. 3. Technical advice and assistance with meeting FDA requirements. 4. Reviewing and approving study designs to insure that they are within the scope of peer review and for adequacy of safety, human subjects, and representation of women and minorities, as required by Federal regulations. 5. Reviewing and providing advice regarding the establishment of mechanisms for quality control and study monitoring. e. Making recommendations for continued funding based on: (1) overall study progress, including study subject and/or data accrual; (2) cooperation in carrying out the research (e.g., attendance at Steering Committee meetings, implementation of group decisions, compliance with terms of award and reporting requirements); and/or (3) maintenance of a high quality of research which will allow pooling of data and comparisons across multiple cooperative agreement awards for common data elements. 3. JOINT RESPONSIBILITIES In addition to the interactions defined above, awardees and NIAID staff shall share responsibility for the organization of and participation on a Scientific Steering Committee. A Scientific Steering Committee for each SDDG organized by the Principal Investigators of a test development awardee and the test evaluation awardee and the NIAID Scientific Coordinator will be the main oversight body of the study. The steering committee will be comprised of the Principal Investigators from a development and the evaluation cooperative agreements, the NIAID Scientific Coordinator, and two to three peers from the scientific community. The peers from the scientific community shall be selected jointly by the Principal Investigators and the NIAID Scientific Coordinator. The Steering Committee has primary responsibility to design joint research activities, establish priorities, develop common methods and procedures including data recording forms, establish and maintain quality control among awardees, review progress, coordinate and standardize data management, and cooperate on the publication of results. Major scientific decisions regarding data will be determined by the Steering Committee. The Steering Committee will document progress in written reports to the NIAID Scientific Coordinator and will provide periodic supplementary reports upon NIAID request. An initial meeting of the Steering Committee will be convened early after award by the NIAID Scientific Coordinator. The final structure of the Steering Committee will be established at the 5. 7 first meeting. The NIAID Program Officer will have voting membership on the Steering Committee. After the initial meeting, the Steering Committee will meet 1-2 times per year. A Chairperson, other than the NIAID Program Officer, will be selected by vote of the members. The Chairperson is responsible for coordinating the Committee activities, for preparing meeting agendas, for scheduling and chairing meetings, and for preparing and disseminating a concise summary of each meeting to members of the Committee. 4. PATENT COVERAGE Because the discovery of innovative, non-invasive, rapid, sensitive, specific and reliable diagnostic tests to identify active infection due to N. gonorrhoeae or C. trachomatis is the goal of this effort, and since active involvement by the private sector is facilitated by the existence of adequate patent coverage, it is essential that applicants provide plans to ensure such coverage. With the potential for involvement of several institutions, the patent situation could be complicated. Each applicant for a test development award must, therefore, provide a detailed description of the approach to be used for obtaining patent coverage and for licensing where appropriate, in particular where the invention may involve investigators from more than one institution. Each applicant must provide a detailed description of the procedures to be followed for the resolution of legal problems that may develop. Attention is drawn to the reporting requirements of 35 U.S.C. Parts 200-212 and 37 CFR Part 401 or FAR 52.227-11. Instructions were also published in the NIH Guide for Grants and Contracts, Vol. 19, No. 23, June 22, 1990. Note that non-profit organizations (including universities) and small business firms retain the rights to any patent resulting from Government contracts, grants, or cooperative agreements. It is also noted that a Presidential memorandum of February 18, 1983 extended to all business concerns, regardless of size, the first option to the ownership of rights to inventions as provided in P.L. 96-517. As a result of this memorandum, the relationships among industrial organizations and other participants are simplified, since all Group members can now be full partners in the research and in any inventions resulting therefrom. The specific patenting arrangements among institutions may vary and could include joint patent ownership, exclusive licensing arrangements, etc. Applicants are encouraged to develop an arrangement that is most suitable for their own particular circumstances. Federal regulation clause 37 CFR 401 and HHS Inventions regulations at 45 CFR Parts 6 and 8 require that NIH be informed of inventions and licensing occurring under NIH funded research. Invention and licensing reports must be submitted to Extramural Invention Reports Office, Office of Extramural Research, Building 31, Room 5B41, NIH, 9000 Rockville Pike, Bethesda, MD 20892. 5. ARBITRATION PROCESS Any disagreement that may arise on scientific/programmatic matters (within the scope of the award), between award recipients and the NIAID may be brought to arbitration. An arbitration panel will be composed of three members -- one awardee designee, one NIAID designee, and a third designee with expertise in the relevant area and chosen by the other two. This special arbitration procedure in no way affects the awardee's right to appeal an adverse action that is 6. 8 otherwise appealable in accordance with PHS regulations 42 CFR Part 50, Subpart D and HHS regulation at 45 CFR Part 16. 7. 9 NIAID GRANTS MANAGEMENT 10/16/95 DETAILED BUDGET RECOMMENDATIONS Prepared by: SHARIE BERNARD GRANT NUMBER: I U01 AI 39223-01 P.I.: CROSBY, MARK A INSTITUTION: BIOSTAR, INC.
MAIN BUDGET YEAR 1 YEAR 2 YEAR 3 ======================================================================================== Salaries 137,000 167,480 174,179 Fringe Benefits 24,210 30,146 31,352 ======================================================================================== PERSONNEL 161,210 197,626 205,531 CONSULTANTS 0 20,000 10,000 EQUIPMENT 102,500 75,000 65,000 SUPPLIES 22,500 23,400 24,336 TRAVEL, D. 31,500 32,760 34,070 TRAVEL, F. 0 0 0 INPATIENT 0 0 0 OUTPATIENT 0 0 0 ALTERATIONS 20,000 0 0 3RD PARTY DIRECT 54,262 56,433 58,690 3RD PARTY INDIRECT 27,077 28,160 29,286 OTHER 31,200 1,600 1,600 ======================================================================================== TOTAL DIRECT COSTS 450,249 434,979 428,513 FUNDING PLAN 100% 450,249 434,979 428,513
Annual increases for personnel, consultants, supplies, travel, and other expenses have been calculated at 4%. REVIEWERS' RECOMMENDATIONS 8. 10 1 UO1 AI 39223-01
CONSORTIUM YEAR 1 YEAR 2 YEAR 3 ===================================================================================== Salaries 37,415 38,912 40,468 Fringe Benefits 9,154 9,520 9,901 ===================================================================================== PERSONNEL 46,569 48,432 50,369 CONSULTANTS 0 0 0 EQUIPMENT 0 0 0 SUPPLIES 7,325 7,618 7,923 TRAVEL, D. 0 0 0 TRAVEL, F. 0 0 0 INPATIENT 0 0 0 OUTPATIENT 0 0 0 ALTERATIONS 0 0 0 THIRD PARTY 0 0 0 OTHER 368 383 398 ===================================================================================== TOTAL DIRECT COSTS 54,262 56,433 58,690 TOTAL INDIRECT COST 27,077 28,160 29,286 ===================================================================================== TOTAL COSTS 81,339 84,593 87,976
9. EX-10.64 10 NOTICE OF GRANT AWARD 1 1. DATE ISSUED |2. CFDA No. | | | 09/30/97 | 93.856 | DEPARTMENT OF HEALTH AND HUMAN SERVICES - -----------------------------------------------------------| PUBLIC HEALTH SERVICE | 3. SUPERSEDES AWARD NOTICE dated ______________________ | NATIONAL INSTITUTES OF HEALTH except that any additions or restrictions previously | imposed remain in effect unless specifically rescinded.| NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES EXTRAMURAL - -----------------------------------------------------------| 4. GRANT NO. | 5. ADMINISTRATIVE CODES| NOTICE OF GRANT AWARD | | 1 R44 AI41939-01 | M37 | AUTHORIZATION (Legislation/Regulation) | | - -----------------------------------------------------------| 42 USC 241 42 CFR PART 52 15 USC 638 6. GRANT PERIOD Mo./Day/Yr. | Mo./Day/Yr. | SMALL BUSINESS INNOVATION RESEARCH PROG From 09/30/97 | Through 03/31/98 | - -----------------------------------------------------------| 7. BUDGET PERIOD Mo./Day/Yr. | Mo./Day/Yr. | From 09/30/97 | Through 03/31/98 | - ------------------------------------------------------------------------------------------------------------------------------------ 8. TITLE OF PROJECT (OR PROGRAM) (Limit to 56 spaces) RAPID OIA FOR DETECTION OF CHLAMYDIA AND GONORRHEA ZRG5 VR (1) - ------------------------------------------------------------------------------------------------------------------------------------ 9. GRANTEE NAME AND ADDRESS |10. DIRECTOR OF PROJECT (PROGRAM DIRECTOR/PRINCIPAL | INVESTIGATOR) (LAST NAME FIRST AND ADDRESS) | a. BIOSTAR INC | MAYNARD, JAMES E BS b. 6655 LOOKOUT ROAD | BIOSTAR INC c. | 6655 LOOKOUT ROAD d. BOULDER e. CO f. 80301 | BOULDER, CO 80301 | | - ------------------------------------------------------------------------------------------------------------------------------------ 11. APPROVED BUDGET (Excludes PHS Direct Assistance) |12. AWARD COMPUTATION FOR FINANCIAL ASSISTANCE - -----------------------------------------------------------|------------------------------------------------------------------------ I PHS Grant Funds Only [ I ] | a. Amount of PHS Financial Assistance (from Item 11.u.)..$ 100,000 | II Total project costs including grant funds and | b. Less Unobligated Balance From Prior Budget Periods....$ 0 all other financial participation | | c. Less Cumulative Prior Award(s) This Budget Period.....$ 0 (Select one and place NUMERAL in box.) | ------------- - -----------------------------------------------------------| d. AMOUNT OF FINANCIAL ASSISTANCE THIS ACTION..........| $ 100,000 a. Salaries and Wages...........$ 32,999 |------------------------------------------------------------------------ |13. RECOMMENDED FUTURE SUPPORT (SUBJECT TO THE AVAILABILITY OF FUNDS AND b. Fringe Benefits.............. 5,940 | SATISFACTORY PROGRESS OF THE PROJECT.) |------------------------------------------------------------------------ c. Total Personnel Costs....$ 38,939 | YEAR | TOTAL DIRECT COSTS/STIPENDS | YEAR | TOTAL DIRECT COSTS/STIPENDS |------|-----------------------------|------|---------------------------- d. Consultant Costs.............$ |a. | |d. | | | | | e. Equipment....................$ |b. | |e. | | | | | f. Supplies.....................$ 6,000 |c. | |f. | |------------------------------------------------------------------------ g. Travel.......................$ 2,000 |14. APPROVED DIRECT ASSISTANCE BUDGET (IN LIEU OF CASH) | h. Patient Care - Inpatient.....$ | a. Amount of PHS Direct Assistance.......................$ | i. Patient Care - Outpatient....$ | b. Less Unobligated Balance From Prior Budget Periods....$ | j. Alterations and Renovations..$ | c. Less Cumulative Prior Award(s) This Budget Period.....$ | ------------- k. Other........................$ 11,700 | d. AMOUNT OF DIRECT ASSISTANCE THIS ACTION.............| $ |------------------------------------------------------------------------ l. Consortium/Contractual Costs.$ |15. PROGRAM INCOME SUBJECT TO 45 CFR PART 74.24 OR 45 CFR | 92.25, SHALL BE USED IN ACCORD WITH ONE OF THE FOLLOWING m. Trainee Related Expenses.....$ | ALTERNATIVES (Select One and Place LETTER in box.) | n. Trainee Supplies.............$ | a. DEDUCTION | o. Trainee Tuition and Fees.....$ | b. ADDITIONAL COSTS | p. Trainee Travel...............$ | c. MATCHING [ B ] | -----------------------| d. OTHER RESEARCH (Add/Deduct Option) | | q. TOTAL DIRECT COSTS.....| $ 58,639 | e. OTHER (See REMARKS) - ------------------------------------|----------------------------------------------------------------------------------------------- r. INDIRECT COSTS | |16. THIS AWARD IS BASED ON AN APPLICATION SUBMITTED TO, AND AS APPROVED (Rate % of S&W/TADC)...| $ 41,361 | BY, THE PHS ON THE ABOVE TITLED PROJECT AND IS SUBJECT TO THE TERMS - ------------------------------------|----------------------| AND CONDITIONS INCORPORATED EITHER DIRECTLY OR BY REFERENCE IN THE | | FOLLOWING: s. TOTAL APPROVED BUDGET......| $ 100,000 | a. The grant program legislation cited above. - ------------------------------------|----------------------| b. The grant program regulation cited above. | | c. This award notice including terms and conditions, if any, noted t. SBIR Fee...................| $ 0 | below under REMARKS. - -----------------------------------------------------------| d. PHS Grants Policy Statement including addenda in effect as of the | beginning date of the budget period. u. Federal Share................$ 100,000 | e. 45 CFR Part 74 or 45 CFR Part 92 as applicable. | IN THE EVENT THERE ARE CONFLICTING OR OTHERWISE INCONSISTENT v. Non-Federal Share............$ | POLICIES APPLICABLE TO THE GRANT, THE ABOVE ORDER OF PRECEDENCE | SHALL PREVAIL. ACCEPTANCE OF THE GRANT TERMS AND CONDITIONS IS | ACKNOWLEDGED BY THE GRANTEE WHEN FUNDS ARE DRAWN OR OTHERWISE | OBTAINED FROM THE GRANT PAYMENT SYSTEM. - ------------------------------------------------------------------------------------------------------------------------------------ REMARKS: (Other Terms and Conditions Attached - [X] Yes [ ] No) TS GRANT IS EXCLUDED FROM EXPANDED AUTHORITIES. - ------------------------------------------------------------------------------------------------------------------------------------ TS GRANTS MANAGEMENT OFFICER: (Signature) (Name-Typed/Print) (Title) /s/ Victoria C. Putprush VICTORIA PUTPRUSH, GMO, GMB, DEA, NIAID - ------------------------------------------------------------------------------------------------------------------------------------ 17. CBJ CLASS |18. CRS - EIN |19. LIST NO: 41.4A | 1841200265A1 | - ------------------------------------------------------------------------------------------------------------------------------------ FY-CAN | DOCUMENT NO. | ADMINISTRATIVE CODE | AMT. ACTION FIN. ASST. | AMT. ACTION DIR. ASST. | | | | 20. a. 97 8425744 | b. R4AI41939A | c. | d. | e. | | | | 21. a. | b. | c. | d. | e. | | | | 22. a. | b. | c. | d. | e. - ------------------------------------------------------------------------------------------------------------------------------------ PHS-5152-5 (Rev. 3/96) 970925 1417 (Note: See reverse for payment information.) PMF
2 1 R44 AI 41939-01 TERMS OF AWARD The terms and conditions include the requirements of the Omnibus Consolidated FY 1997 Appropriations Act (P.L. 104-208) as explained in the NIH Guide for Grants and Contracts, Volume 26, Number 4, February 7, 1997. "NOTICE: Under governing regulations, Federal funds administered by the Department of Health and Human Services shall not be expended for and individuals shall not be enrolled in research involving human subjects, without prior approval by the Office for Protection from Research Risks of an assurance to comply with the requirements of 45 CFR 46 to protect human research subjects. This restriction applies to all performance sites without OPRR-Approved assurances, whether domestic or foreign." Funding of the SBIR Phase II is subject to determination that the Phase I goals were achieved: an updated and verification of the commitment and Product Development Plan appendices to the Phase II application: the project's potential for meeting the mission of the awarding component and for commercial success; and the availability of Federal Funds. Therefore, to help NIAID make a determination on Phase II funding for this project, we need you to submit by February 15, 1998, the Phase I progress report and an update of the Commitment and Product Development Plans to: Sharie Bernard Grants Management Specialist NIH/NIAID/DEA/GMB Solar Building, Room 4C40 6003 Executive Boulevard - MSC 7610 Bethesda, MD 20892-7610 General program income that may be generated from this grant is to be treated under the additional cost alternative. The total costs (direct, indirect, and fixed fee) for Phase I of this SBIR may not exceed $100,000. PAYMENT INFORMATION: The awardee organization will receive information and forms from the Payment Management System of the Department of Health and Human Services regarding requests for cash, manners of payment, and associated reporting requirements. Payment may be made on a cost-reimbursement or advance basis. Cost reimbursements may be requested monthly, quarterly, or at other periodic intervals. Advance payments may be requested on a monthly basis only. The telephone number for the Payment Management System Office is (301) 443-1660. 1. 3 TERMS OF AWARD continued Normally, the awardee organization retains the principal worldwide patent rights to any invention developed with United States government support. Under Title 37 Code of Federal Regulations Part 401, the Government receives a royalty-free license for its use, reserves the right to require the patent holder to license others in certain circumstances, and requires that anyone exclusively licensed to sell the invention in the United States must normally manufacture it substantially in the United States. To the extent authorized by Title 35 United States Code Section 205, the Government will not make public any information disclosing a Government-supported invention for a 4-year period to allow the awardee organization a reasonable time to file a patent application, nor will the Government release any information that is part of that application. When purchasing equipment or products under this SBIR award, the grantee shall use only American-made items whenever possible. If you have a question on the award calculation or the terms and conditions of the award, your grants management contact should be Pat Felner at (301) 496-7075. Grants Management Contact: Program Official Contact: Sharie Bernard Penelope J. Hitchcock, D.V.M. (301) 402-5540 (301) 402-0443 4 ================================================================================ NIAID GRANTS MANAGEMENT FUNDING PLAN Prepared by: GRANT NUMBER: I R44 AI 41939-01 PAT FELNER P.I.: MAYNARD, JAMES E INSTITUTION: BIOSTAR INC
YEAR 1 ======================================================== Salaries 32,999 Fringe Benefits 5,940 - -------------------------------------------------------- PERSONNEL 38,939 CONSULTANTS 0 EQUIPMENT 0 SUPPLIES 6,000 TRAVEL, D. 2,000 TRAVEL, F. 0 INPATIENT 0 OUTPATIENT 0 ALTERATIONS 0 THIRD PARTY 0 OTHER 11,700 - -------------------------------------------------------- TOTAL DIRECT COSTS 58,639 TOTAL INDIRECT COSTS 0 - -------------------------------------------------------- TOTAL COSTS 58,639 INDIRECT COST CALCULATION TOTAL BASE 58,639 - -------------------------------------------------------- BASE 1 0 RATE 1 0.00% SUBTOTAL 0 - -------------------------------------------------------
1. 5 The Small Business Innovative Research (SBIR) and Small Business Technology Transfer (STTR) programs have successfully achieved many of the goals of the Bayh-Dole Act by promoting the utilization of inventions arising from Federally supported research, bringing these products to market and encouraging maximum participation of small business firms. Recently, however, concern has been expressed that many of the inventions made with SBIR/STTR funding have not been reported to National Institutes of Health (NIH) in compliance with the Bayh-Dole Act. This attachment is a reminder to award recipients of their invention reporting responsibilities to NIH. The Bayh-Dole Act is implemented by the patent rights clause. This clause is a part of the SBIR and STTR funding agreement and its full text can be found in Appendix 9 of the PHS Grants Policy Statement. Under the Act principal worldwide patent rights to an invention supported in whole or in part with Federal funds (called a "subject invention") may be retained by the grantee. However, the grantee must promptly report to the Government all subject inventions made under the grant. Subject inventions made under NIH grants should be reported to: Sue Ohata, Director Division of Extramural Inventions and Technology Resources Office of Policy for Extramural Research Administration (OPERA) National Institutes of Health 6701 Rockledge Drive, MSC 7750 Bethesda, MD 20892-7750 These subject inventions include not only new inventions made during the SBIR or STTR grant, but also inventions on which a patent application may have been previously filed, but which have been first actually reduced to practice under the SBIR or STTR grant. When the grantee retains title to a subject invention, the Federal Government has a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the subject invention throughout the world. A model confirmatory license is enclosed that should be submitted to the NIH. Once received, the NIH sends the license to the U.S. Office of Public Record for recording. There are several other actions that the patent rights clause requires grantees to take in order to protect the Government's interests. Grant recipients are required to send to OPERA, at the address listed above, an invention disclosure sufficiently complete in technical detail two months after an invention is made. In addition, at the time of filing a patent application, the grantee agrees to include within the specification of any U.S. patent application or patent issued, the following statement, "This invention was made with government support under (grant/contract number) awarded by (institute, agency). The Government has certain rights in the invention." NIH requires that a copy of the page of the patent application containing this Federal support clause be sent to OPERA. Finally, if the grantee or contractor does not elect to retain title to the invention or decides not to continue the prosecution of the patent application, pay maintenance fees, or defend a reexamination or opposition proceeding on the patent, the Government must be notified within the time limits specified in the patent rights clause in the event that it may decide to take title. The enclosed summary of grantee invention responsibilities provides information on the time limits placed by law and identifies specific invention reporting actions that must be taken. 1. 6 For additional information, please contact Sue Ohata, Director, Division of Extramural Inventions and Technology Resources, at (301) 435-1986. 7 LICENSE TO THE UNITED STATES GOVERNMENT Invention Title: Inventor(s): Patent or Application Serial No. U.S. Filing/Issue Date: Grant/Contract Identification Number(s): Foreign Applications filed/intended in (countries): The invention identified above is a Subject Invention under 35 U.S.C. 200, et seq., and the Standard Patent Rights clause at 37 CFR 401.14 or FAR 52.227-11, which are included among the terms of the above-identified grant/contract award from the Public Health Service/National Institutes of Health. This document is confirmatory of: I. The nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the invention described in any patent application and in any and all divisions, continuations, and continuations in part, and in any and all patents and re-issues granted thereon throughout the world; and II. All other rights acquired by the Government by reason of the above identified grant/contract award and the laws and regulations which are applicable to the award. The Government is hereby granted an irrevocable power to inspect and make copies of the above-identified patent application. Signed this __________ day of _______________ 199___. By: ------------------------------------------------ (Grantee/Contractor Official and Title) For: ----------------------------------------------- (Organization) At: ------------------------------------------------ (Business Address) 8 GRANTEE RESPONSIBILITIES FOR INVENTION REPORTING - -------------------------------------------------------------------------------- ACTION WHEN - -------------------------------------------------------------------------------- EMPLOYEE AGREEMENT TO DISCLOSE ALL INVENTIONS: Upon acceptance of NIH funding. Require written agreement with all employees, except clerical and nontechnical, to promptly disclose inventions. Institution must identify grantee institution personnel to whom disclosures must be made. - -------------------------------------------------------------------------------- INVENTION DISCLOSURE: A hard copy of the Within 2 MONTHS of inventor's invention disclosure that is complete in initial report to the technical detail must be sent to NIH. It organization should identify inventor(s), NIH grant or contract number(s), any date of public disclosure. - -------------------------------------------------------------------------------- ELECTION OF TITLE TO INVENTION: Must be Within 2 YEARS of disclosure to given in writing to NIH or sent NIH. For inventions disclosed electronically to Edison. to the public, notify NIH 60 days prior to the statutory bar date which is usually one year after the date of publication, on sale, or public use. Publications include abstracts and posters. - -------------------------------------------------------------------------------- NONELECTION OF TITLE TO INVENTION: Must be For inventions not disclosed to given to NIH in writing or sent electronically the public, notify NIH 60 DAYS to Edison. In the event that the inventor(s) prior to the end of the 2 year would like to obtain title, justification disclosure period. should be provided on their ability to commercialize the invention. - -------------------------------------------------------------------------------- PATENT APPLICATION: Provide NIH with a hard Within ONE YEAR of election of copy of the 1) confirmatory license to the title or publication, whichever government and 2) page of the patent is earlier. application that contains the Federal support clause, "This invention was made with government support under (grant/contract number) awarded by (agency). The government has certain rights in the invention." Upon request, provide the entire patent application. The confirmatory license must include the patent application number. - -------------------------------------------------------------------------------- 9 - -------------------------------------------------------------------------------- ACTION WHEN - -------------------------------------------------------------------------------- ISSUED PATENT: Provide NIH with patent At time of issuance of patent. number and issue date in writing or electronically. Upon request, provide NIH with the issued patent. - -------------------------------------------------------------------------------- REQUEST FOR EXTENSION OF TIME: Make Prior to deadline for election request in writing or electronically of title or patent for extension of time to report filing. election or filing. - -------------------------------------------------------------------------------- DISCONTINUATION OF PATENT APPLICATION, No less than 30 DAYS of the PAYMENT OF MAINTENANCE FEES, OR DEFENSE response period required by IN A REEXAMINATION OR OPPOSITION PROCEEDING the relevant patent office. ON A PATENT: Must notify NIH in writing or electronically. - -------------------------------------------------------------------------------- ANNUAL UTILIZATION REPORT: Required for all Every year subsequent to inventions where patent applications have filing a patent application or been filed or where it has been licensed as licensing invention as a a biological material, but not patented. biological material. Includes status of development, date of first commercial sale or use and gross royalties. Must be reported electronically. - -------------------------------------------------------------------------------- FINAL INVENTION STATEMENT AND CERTIFICATION Within 90 days after (FORM HHS 568): List all inventions made under termination of the grant. the grant or indicate that there were none. - -------------------------------------------------------------------------------- 10 NIAID GRANT AWARD INFORMATION SHEET Dear Award Recipient: You have been awarded support for your research project by the National Institute of Allergy and Infectious Diseases (NIAID). Your notification of award is attached. The notification consists of two parts: 1) the Notice of Grant Award which provides the fiscal award by direct and indirect costs and 2) the Terms of Award which provides detailed information (including restrictions) to facilitate the proper execution of the award. If you need any assistance from the NIAID, please contact either your grants management specialist or the individual listed as the responsible program official on the Terms of Award. Their areas of expertise are as follows: GRANTS MANAGEMENT SPECIALIST: The NIAID representative responsible for all business management matters associated with the negotiation, award, and administration of the project and the interpretation of grant policy provisions. PROGRAM OFFICIAL: The NIAID official who is responsible for the technical, scientific or programmatic aspects of a grant. This individual deals with grantee staff to assure programmatic progress and works closely with grants management staff in the overall administration of this award. AWARD INFORMATION: The funding level for this award is based on an NIAID assessment of the amount required to achieve the goals and objectives of the project, within the total funds available for research project grants allocated to the NIAID. Particular weight is given to those applications requesting support in programmatic areas of special interest to the NIAID, the Congress, and other interested organizations. In addition, an analysis of the specific costs requested in the budget was performed to ensure that the costs are reasonable and allowable. PRIOR APPROVAL REQUESTS: Please note that PHS policy requires that all requests needing the prior approval of the NIAID, must be submitted in writing to the grants management specialist. A copy of the letter should also be provided to the program official. To expedite the review of the request, the grant number should be referenced (e.g., 1 R01 AI 12345-01), and must be signed by both the principal investigator and the authorized grantee business official. 11 FUTURE CONTINUATION AWARDS: Prior to making an award in response to any future non-competing or competing application all required documentation and certifications must be received and accepted by the Grants Management Branch. If the required information is not received prior to the requested budget start date, that date will be changed to reflect the time period necessary to implement the award after receipt of the documentation. If the documentation is significantly overdue, not only will the budget period be adjusted, but the level of support may be prorated /s/ Mary C. Kirker Mary C. Kirker Grants Management Officer EX-10.65 11 SUBORDINATED SECURITY AGREEMENT 1 SUBORDINATED SECURITY AGREEMENT THIS SUBORDINATED SECURITY AGREEMENT dated as of May 3, 1995, is made by BIOSTAR, INC., a Delaware corporation, with its principal place of business located at 6655 Lookout Road, Boulder, Colorado 80301 (the "Grantor"), in favor of COMDISCO, INC., a Delaware corporation, with its principal place of business located at 6111 North River Road, Rosemont, Illinois 60018 (the "Secured Party"). RECITALS A. Concurrently herewith, Grantor is issuing to Secured Party that certain Subordinated Promissory Note in the principal amount of TWO MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($2,500,000.00) (the "Note") substantially in the form of Exhibit A hereto, pursuant to which Secured Party will make available to Grantor certain sums of money (the "Loan") upon satisfaction or waiver of all of the conditions specified in Section 3 hereof and upon the terms and subject to the conditions set forth herein and in the Note on the Closing Date (as hereinafter defined). B. Secured Party is willing to enter into the Note with Grantor, but only upon the condition, among others, that Grantor shall have executed and delivered to Secured Party this Security Agreement. AGREEMENT NOW, THEREFORE, in order to induce Secured Party to make the Loan, and for other good and valuable consideration, and intending to be legally bound, Grantor hereby represents, warrants, covenants and agrees as follows: SECTION 1. DEFINED TERMS. Unless otherwise defined herein, (a) the capitalized terms defined in the Subordinated Note are used herein as therein defined and (b) the following capitalized terms shall have the following meanings (such meanings being equally applicable to both the singular and plural forms of the terms defined): "Account Debtor" means any "account debtor," as such term is defined in Section 9105(1)(a) of the UCC. "Account" means any "account," as such term is defined in Section 9106 of the UCC, now owned or hereafter acquired by Grantor or in which Grantor now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to Grantor (including, without limitation, under any trade name, style or division thereof) whether arising out of goods sold or services rendered by Grantor or from any other transaction, whether or not the same involves the sale of goods or services by Grantor (including, without 2 limitation, any such obligation which may be characterized as an account or contract right under the UCC) and all of Grantor's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of Grantor's rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller's rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become due to Grantor under all purchase orders and contracts for the sale of goods or the performance of services or both by Grantor (whether or not yet earned by performance on the part of Grantor or in connection with any other transaction), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing. "Chattel Paper" means any "chattel paper," as such term is defined in Section 9105(1)(b) of the UCC, now owned or hereafter acquired by Grantor or in which Grantor now holds or hereafter acquires any interest. "Closing Date" means the date of funding of the Loan. "Collateral" shall have the meaning assigned to such term in Section 3 of this Security Agreement. "Contracts" means all contracts, undertakings, franchise agreements or other agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which Grantor may now or hereafter have any right, title or interest, including, without limitation, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof. "Copyrights" means all of the following now owned or hereafter acquired by Grantor or in which Grantor now holds or hereafter acquires any interest: (i) all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof or of any other country; (ii) registrations, applications and recordings in the United States Copyright Office or in any similar office or agency of the United States, any state thereof or any other country; (iii) any continuations, renewals or extensions thereof; and (iv) any registrations to be issued in any pending applications. "Copyright License" means any written agreement granting any right to use any Copyright or Copyright registration now owned or hereafter acquired by Grantor or in which Grantor now holds or hereafter acquires any interest. "Documents" means any "documents," as such term is defined in Section 9105(1)(f) of the UCC, now owned or hereafter acquired by Grantor or in which Grantor now holds or hereafter acquires any interest. "Equipment" means any "equipment," as such term is defined in Section 9109(2) of the UCC, now or hereafter owned or acquired by Grantor or in which Grantor now holds or hereafter acquires any interest and any and all additions, substitutions and replacements of any of the 2. 3 foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Event of Default" shall mean: (i) a failure of Grantor to promptly pay any of the Secured Obligations when due and such failure shall continue for a period of five (5) calendar days; or (ii) Grantor's failure to comply with the covenants in this Security Agreement, or any other written agreement between Grantor and Secured Party, and such failure shall continue for a period of ten (10) calendar days after receipt of notice thereof from Secured Party; or (iii) any representation made by Grantor in writing herein or in connection herewith shall be untrue and shall remain so for ten (10) calendar days after written notice thereof to the Grantor; or (iv) the Grantor shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a voluntary petition in bankruptcy, or shall be adjudicated as bankrupt or insolvent, or shall file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation pertinent to such circumstances, or shall file any answer admitting or not contesting the material allegations of a petition filed against any answer admitting or not contesting the material allegations of a petition filed against the Grantor in any such proceedings, provided such proceedings are not dismissed within ninety (90) days of their institution, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of the Grantor or of all or any substantial part (20 % or more) of the properties of the Grantor; or the Grantor or its directors or majority shareholders shall take any action initiating the dissolution or liquidation of the Grantor; or (v) sixty (60) days shall have expired after the commencement of an action against the Grantor seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation without such action being dismissed or all orders or proceedings thereunder affecting the operations or the business of the Grantor being stayed; or a stay of any such order or proceedings shall thereafter be set aside and the action setting it aside shall not be timely appealed; or (vi) sixty (60) days shall have expired after the appointment, without the consent of acquiescence of the Grantor, of any Trustee, receiver or liquidator of the Grantor or of all or any substantial part of the properties of the Grantor without such appointment being vacated; or 3. 4 (vii) declaration of any default (after expiration of any applicable notice and/or grace periods) under any Senior Debt Agreement or under any material lease or other material agreement or obligation of the Grantor or the entry of any final material judgment against the Grantor; provided, however for the purposes of this Security Agreement, a default shall have occurred under the Senior Debt Agreement only in the event that (a) there exists a payment default on the Senior Debt, (b) there exists a breach of one or more of the financial covenants set forth in the Senior Debt Agreement, or (c) there has been a default under the Senior Debt Agreement, the result of which has been an acceleration of the Senior Debt by the Senior Creditor. "Fixtures" means "fixtures," as such term is defined in Section 9313(1)(a) of the UCC, now or hereafter owned or acquired by Grantor or in which Grantor now holds or hereafter acquires any interest and, now or hereafter attached or affixed to or constituting a part of, or located in or upon, real property wherever located, together with all right, title and interest of Grantor in and to all extensions, improvements, betterments, renewals, substitutes, and replacements of, and all additions and appurtenances to any of the foregoing property, and all conversions of the security constituted thereby, immediately upon any acquisition or release thereof or any such conversion, as the case may be. "General Intangibles" means any "general intangibles," as such term is defined in Section 9106 of the UCC, now owned or hereafter acquired by Grantor or in which Grantor now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all right, title and interest which Grantor may now or hereafter have in or under any Contract, all customer lists, Copyrights, Trademarks, Patents, rights to intellectual property, interests in partnerships, joint ventures and other business associations, Licenses, permits, copyrights, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, recipes, experience, processes, models, drawings, materials and records, goodwill (including, without limitation, the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License), claims in or under insurance policies, including unearned premiums, uncertificated securities, cash and other forms of money or currency, deposit accounts (including as defined in Section 9105(e) of the UCC), rights to sue for past, present and future infringement of Copyrights, Trademarks and Patents, rights to receive tax refunds and other payments and rights of indemnification. "Instruments" means any "instrument," as such term is defined in Section 9105(1)(i) of the UCC now owned or hereafter acquired by Grantor or in which Grantor now holds or hereafter acquires any interest. "Intellectual Property" means all Copyrights, Trademarks, Patents, trade secrets, source codes, customer lists, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, skill, expertise, experience, processes, models, drawings, materials and records. 4. 5 "Inventory" means any "inventory," as such term is defined in Section 9109(4) of the UCC, wherever located, now or hereafter owned or acquired by Grantor or in which Grantor now holds or hereafter acquires any interest, and, in any event, shall include, without limitation, all inventory, goods and other personal property which are held by or on behalf of Grantor for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Grantor's business, or the processing, packaging, promotion, delivery or shipping of the same, and all furnished goods whether or not such inventory is listed on any schedules, assignments or reports furnished to Secured Party from time to time and whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of Grantor or is held by Grantor or by others for Grantor's account, including, without limitation, all goods covered by purchase orders and contracts with suppliers and all goods billed and held by suppliers and all inventory which may be located on premises of Grantor or of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other persons. "License" means any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by Grantor or in which Grantor now holds or hereafter acquires any interest and any renewals or extensions thereof. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the filing of any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction. "Loan Documents" means this Security Agreement and the Note executed as of the date hereof in connection with the transactions completed hereby. "Material Adverse Effect" means a material adverse effect upon: (i) the business, operations, properties, assets or conditions (financial or otherwise) of Grantor; or (ii) the ability of Grantor to perform, or of Secured Party to enforce the Secured Obligations. "Patent License" means any written agreement granting any right with respect to any invention on which a Patent is in existence now owned or hereafter acquired by Grantor or in which Grantor now holds or hereafter acquires any interest. "Patents" means all of the following now owned or hereafter acquired by Grantor or in which Grantor now holds or hereafter acquires any interest: (a) letters patent of, or rights corresponding thereto in, the United States or any other county, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto in, the United States or any other country, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country; (b) all reissues, continuations, continuations-in-part or extensions thereof; (c) all petty patents, divisionals, and patents of addition; and (d) all patents to issue in any such applications. 5. 6 "Permitted Liens" means any and all of the following: (a) Liens in favor of Secured Party, (b) Liens existing as of the date hereof (as set forth on Exhibit B), or (c) Liens related to, or arising in connection with, Senior Debt. "Person" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental authority. "Proceeds" means "proceeds," as such term is defined in Section 9306(1) of the UCC and, in any event, shall include, without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of money or currency or other proceeds payable to Grantor from time to time in respect of the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Grantor from time to time with respect to any of the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority), (d) any claim of Grantor against third parties (i) for past, present or future infringement of any Copyright, Patent or Patent License or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Secured Obligations" means all liabilities and other obligations for monetary amounts owed by Grantor to Secured Party, whether due or to become due, matured or unmatured, liquidated or unliquidated, contingent or non- contingent, and all covenants and duties regarding such amounts, of any kind or nature, present or future, arising under the Security Agreement, whether or not evidenced by any note, agreement or other instrument. "Security Agreement" means this Security Agreement as the same may from time to time be amended, modified, supplemented or restated. "Senior Debt" means (i) all indebtedness and other obligations of Grantor now existing or hereafter arising in favor of any bank, financial institution or other Person engaged in the business of lending money (each, a "Senior Creditor"); (ii) all amounts due or to become due relating to any of the foregoing, including, without limitation, all interest, all loan and other fees, expenses and costs (including attorneys' fees), including costs of enforcement, amounts reimbursable and other liabilities (including interest, fees, professional fees and costs which would become due but for the operation of Title 11 of the United States Code, the Bankruptcy Rules promulgated pursuant thereto, or any subsequent bankruptcy law of the United States (the "Bankruptcy Code"); and (iii) any and all obligations pursuant to any amendment of any of the foregoing in favor of the Senior Creditor. "Senior Debt Agreement" means the agreement that evidences the Senior Debt as defined herein. 6. 7 "Trademark License" means any written agreement granting any right to use any Trademark registration now owned or hereafter acquired by Grantor or in which Grantor now holds or hereafter acquires any interest. "Trademarks" means any of the following now owned or hereafter acquired by Grantor or in which Grantor now holds or hereafter acquires any interest: (a) any and all trademarks, tradenames, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof and (b) any reissues, extensions or renewals thereof. "UCC" means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Illinois. "Warrant Agreement" means the agreement dated of even date herewith pursuant to which Grantor granted Secured Party the right to purchase 214,285 shares of Series E Preferred Stock of Grantor as more particularly set forth therein. "Warrants" shall have the meaning set forth in the Warrant Agreement. SECTION 2. CONDITIONS TO CLOSING. The obligation of Secured Party to fund the Loan shall be subject to satisfaction by Grantor or waiver by Secured Party, in Secured Party's sole discretion, of the following conditions: (a) DOCUMENT DELIVERY. Grantor, on or prior to the Closing Date shall have delivered the following: (1) certified copy of resolutions of Grantor's board of directors evidencing approval of the borrowing and other transactions evidenced by the Loan Documents and the Warrant Agreement; (2) certified copies of the Charter and Bylaws of Grantor; (3) certificate of good standing for Grantor from its state of incorporation and similar certificates from all other jurisdictions in which it does business and where the failure to be qualified would have a Material Adverse Effect; (4) an opinion of counsel in the form attached as Exhibit B hereto; (5) incumbency certificate regarding Grantor's officers; (6) executed originals of all Loan Documents; 7. 8 (7) a facility fee in an amount equal to Fifty Thousand Dollars ($50,000) (the "Facility Fee"). Secured Party acknowledges that prior to the date hereof Grantor has paid a commitment fee in the amount of Ten Thousand Dollars ($10,000), which amount shall be applied on the Closing Date towards payment of the Facility Fee; and (8) such other documents as Lender may reasonably request. (b) PERFECTION OF SECURITY INTERESTS. Grantor shall have taken or caused to be taken such actions in such a manner so that Secured Party has a valid and perfected security interest in all of the Collateral, subject only to Permitted Liens. Such actions shall include, without limitation the delivery to Secured Party of all appropriate financing statements, executed by Grantor, as to the Collateral granted by Grantor for all jurisdictions as may be necessary or desirable to perfect security interest of Secured Party in such Collateral SECTION 3. GRANT OF SECURITY INTEREST. As security for the prompt, complete and indefeasible payment when due (whether at stated payment dates or otherwise) of all the Secured Obligations and in order to induce Secured Party to make the Loan upon the terms and subject to the conditions of the Note, Grantor hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to Secured Party for security purposes only, and hereby grants to Secured Party, a security interest in and to all of Grantor's right, title and interest in, to and under each of the following (all of which being hereinafter collectively called the "Collateral"): (a) All Accounts; (b) All Chattel Paper; (c) All Contracts; (d) All Documents; (e) All Equipment; (f) All Fixtures; (g) All General Intangibles; (h) All Instruments; (i) All Inventory; (j) All other goods and personal property of Grantor whether tangible or intangible and whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Grantor and wherever located; and 8. 9 (k) To the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing. SECTION 4. RIGHTS OF SECURED PARTY; COLLECTION OF ACCOUNTS. (a) Notwithstanding anything contained in this Security Agreement to the contrary, Grantor expressly agrees that it shall remain liable under each of its Contracts and each of its Licenses to observe and perform all the conditions and obligations to be observed and performed by it thereunder and that it shall perform all of its duties and obligations thereunder, all in accordance with and pursuant to the terms and provisions of each such Contract or License, unless contested in good faith. Secured Party shall not have any obligation or liability under any Contract or License by reason of or arising out of this Security Agreement or the granting to Secured Party of a security interest therein or the receipt by Secured Party of any payment relating to any Contract or License pursuant hereto, nor shall Secured Party be required or obligated in any manner to perform or fulfill any of the obligations of Grantor under or pursuant to any Contract or License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contract or License, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (b) Secured Party authorizes Grantor to collect its Accounts, provided that Secured Party may, upon the occurrence and during the continuation of any Event of Default, limit or terminate said authority at any time. If required by Secured Party at any time during the continuation of any Event of Default, any Proceeds, when first collected by Grantor, received in payment of any such Account or in payment for any of its Inventory or on account of any of its Contracts or Licenses shall be promptly deposited by Grantor in precisely the form received (with all necessary endorsements) in an account designated by Secured Party, subject to withdrawal by Secured Party only, as hereinafter provided, and until so turned over shall be deemed to be held in trust by Grantor for and as Secured Party's property, on behalf and for the benefit of Secured Party, and shall not be commingled with Grantor's other funds or properties. Such Proceeds, when deposited, shall continue to be collateral security for all of the Secured Obligations and shall not constitute payment thereof until applied as hereinafter provided. Upon the occurrence and during the continuation of any Event of Default, Secured Party may, in its sole discretion, apply all or a part of the funds on deposit in said special account to the payment of any of the Secured Obligations in accordance with the provisions of Subsection 7(d), below, and any part of such funds which Secured Party elects not so to apply and deems not required as collateral security for the Secured Obligations shall be paid over by Secured Party to Grantor. (C) Secured Party may at any time, upon the occurrence and during the continuation of any Event of Default, after first notifying Grantor of its intention to do so, notify Account Debtors of Grantor that the Accounts have been assigned to Secured Party, and that payments shall be made directly to Secured Party. Upon the request of Secured Party, Grantor shall so notify such Account Debtors. Upon the occurrence and during the continuation of an 9. 10 Event of Default, Secured Party may, in its name, or in the name of others communicate with such Account Debtors to verify with such parties, to Secured Party's satisfaction, the existence, amount and terms of any such Accounts. SECTION 5. REPRESENTATIONS AND WARRANTIES. Grantor hereby represents and warrants to Secured Party that: (a) Grantor is the sole legal and equitable owner or, as to Intellectual Property licensed from other Persons, licensee, of each item of the Collateral in which it purports to grant a security interest hereunder, having good and marketable title or rights thereto free and clear of any and all Liens, except for the Permitted Liens. (b) No effective security agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any part of the Collateral exists, except such as may have been filed by Grantor in favor of Secured Party pursuant to this Security Agreement or such as relate to other Permitted Liens. (c) Grantor is duly incorporated, validly existing and in good standing under the laws of the state of Delaware having a Certificate of Incorporation, as amended, and Bylaws (all terms of which are in full force and effect), copies of which have been delivered to Secured Party pursuant to Section 2(a) and Grantor is duly qualified to conduct business its business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its business or location of its properties require such qualifications and where the failure to be qualified would have a Material Adverse Effect. (d) Grantor has full power and authority to enter into this Security Agreement, to borrow money as contemplated hereby and to carry out the provisions hereof, to enter into the other Loan Documents, to issue the Warrant Agreement, upon exercise thereof to issue the Series E Preferred Stock pursuant thereto, otherwise comply with the provisions of the Warrant Agreement, and it has taken all corporate action necessary for the execution and performance of each of the foregoing (including the issuance and sale of the Warrants, the reservation of shares of stock and the issuance thereof upon the exercise of the Warrants), as evidenced by the resolution of other authentication delivered to Secured Party, pursuant to Section 2(a); and each document above-named will constitute a valid and binding obligation of the Grantor enforceable in accordance with its respective terms when executed and delivered. (e) As of the Closing Date, there shall not be pending or, to the knowledge of Grantor, threatened, any action, suit, proceeding, governmental investigation or arbitration against or affecting Grantor or any property of Grantor that has not been disclosed by Grantor on Exhibit 5(e) hereto, and there shall have occurred no development not so disclosed in any such action, suit, proceeding, governmental investigation or arbitration so disclosed, that, in either event, would reasonably be expected to have a Material Adverse Effect; and no injunction or other retraining order shall have been issued and no hearing to cause an injunction or other restraining order to be issued shall be pending or noticed with respect to any action, suit or proceeding seeking to enjoin or otherwise prevent the consummation of, or to recover any 10. 11 damages or obtain relief as a result of the transactions contemplated by this Security Agreement or the making of the Loan hereunder. (f) Grantor has filed all tax returns, federal, state and local, which it is required to file and has duly paid or fully reserved for all taxes or installments thereof (including any interest or penalties) as and when due, which have or may become due pursuant to such returns or pursuant to any assessment received by Grantor for the three (3) years preceding the Closing Date, if any. (g) The audited financial statements for Grantor for the year ended December 31, 1994, were audited by Ernst and Young, whose opinion states they were prepared in accordance with generally accepted accounting principals consistently applied, are true and correct in all material respects, and fairly present the operating income and financial condition of Grantor, at such date and for the period then ended; none of the financial statements understates the true costs and expenses of conducting the business, fails to disclose all material contingent liabilities, or inflates the revenue of Grantor because of the provision of services of the bearing of costs or expenses or the payment of fees or for any other reasons. (h) As of the date hereof, and giving effect to the transactions contemplated by this Security Agreement, the present fair market value of Grantor's assets (including the business) is greater than the amount required to pay Grantor's total indebtedness, and is greater than the amount that will be required to pay such indebtedness as it matures and as it becomes absolute and matured; the transactions contemplated hereby were effectuated without actual intent to hinder, delay or defraud present or future creditors of Grantor; it is Grantor's intention that it will maintain such solvent financial condition, giving effect to the debt incurred hereunder, as long as the Note remains outstanding; the Grantor has sufficient capital to carry on its business and transactions as now conducted and as planned to be conducted in the future. (i) The execution, delivery and performance by Grantor of the Warrant Agreement, and the execution, delivery and performance of the Loan Documents and the consummation of the transactions contemplated hereby and thereby, do not and will not require any registration with, consent of approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body, except for any of the foregoing which will be made or obtained by Grantor on or before the Closing Date. (j) Exhibit 5(j), hereto sets forth a complete and accurate list of all policies of insurance in effect as of the Closing Date for Grantor. No notice of cancellation had been received with respect to such policies, Grantor is in compliance with all conditions contained in such policies and Grantor has sufficient insurance as dictated by sound business practices for similar businesses with similar assets, activities and liabilities. (k) To Borrower's knowledge there have been no reportable events as set forth in Section 4043(b) of the Employee Retirement Income Security Act of 1974 ("ERISA") in respect of any plan, as described in 4021(a), and no termination of any such plan since the effective date of ERISA, which could result in any tax, penalty or liability being imposed upon Grantor; neither Grantor nor any of its predecessors in interest has participated in, and the 11. 12 issuance of the Note and the Warrants by Grantor will not involve any "prohibited transaction" (as defined in Section 4975 of the Internal Revenue Code of 1986, as amended) that could subject Grantor or Lender to any tax or penalty imposed by said Section 4975; since the effective date of ERISA, neither Grantor nor any of its predecessors in interest has incurred any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA, to which Grantor could be subject or for which it might be liable; Grantor is not, and immediately after the Closing Date will not be, a party to, and none of the operations of Grantor is or after Closing Date will be covered by, a multi-employer plan, as defined in Section 3(37) of ERISA. (l) This Security Agreement creates a legal and valid security interest on and in all of the Collateral in which Grantor now has rights. This Security Agreement will create a legal and valid security interest in the Collateral in which Grantor later acquires rights, when Grantor acquires those rights, subject only to the Permitted Liens. (m) Grantor's chief executive office, principal place of business, and the place where Grantor maintains its records concerning the Collateral are presently located at 6655 Lookout Road, Boulder, Colorado 80301. Grantor shall not change such chief executive office or principal place of business without prior written notice to Secured Party. SECTION 6. COVENANTS. Grantor covenants and agrees with Secured Party that from and after the date of this Security Agreement and until the Secured Obligations have been paid and performed in full: 6.1 FURTHER ASSURANCES; PLEDGE OF INSTRUMENTS. At any time and from time to time, upon the written request of Secured Party, and at the sole expense of Grantor, Grantor shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as Secured Party may reasonably deem desirable to obtain the full benefits of this Security Agreement and of the rights and powers herein granted, including, without limitation, filing any financing or continuation statements under the UCC with respect to the security interests granted hereby, and transferring Collateral to Secured Party's possession (if a security interest in such Collateral must be perfected by possession). Grantor also hereby authorizes Secured Party to file any such financing or continuation statement without the signature of Grantor. If any amount payable under or in connection with any of the Collateral is or shall become evidenced by any Instrument, such Instrument, other than checks and notes received in the ordinary course of business, shall be duly endorsed in a manner satisfactory to Secured Party and delivered to Secured Party promptly upon Grantor's receipt thereof, if so requested by Secured Party. 6.2 MAINTENANCE OF RECORDS. Grantor shall keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including, without limitation, a record of all payments received and all credits granted with respect to the Collateral and all other dealings with the Collateral. Grantor shall mark its books and records pertaining to the Collateral to evidence this Security Agreement and the security interests granted hereby. 6.3 LIMITATION ON LIENS ON COLLATERAL. Grantor shall further defend the right, title and interest of Secured Party in and to any of Grantor's rights under the Chattel Paper, Contracts, 12. 13 Documents, General Intangibles and Instruments and to the Equipment, Fixtures and Inventory and in and to the Proceeds thereof against the claims and demands of all Persons whomsoever. 6.4 LIMITATIONS ON MODIFICATIONS OF ACCOUNTS. Upon the occurrence and during the continuation of any Event of Default, Grantor shall not, without Secured Party's prior written consent, grant any extension of the time of payment of any of the Accounts, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any Person liable for the payment thereof, or allow any credit or discount whatsoever thereon other than trade discounts granted in the ordinary course of business of Grantor. 6.5 MAINTENANCE OF INSURANCE. Grantor shall maintain, with financially sound and reputable companies, the insurance policies with limits and coverage provisions as reasonably requested by Secured Party. 6.6 TAXES, ASSESSMENTS, ETC. Grantor shall pay promptly when due all property and other taxes, assessments and government charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Equipment, Fixtures or Inventory, except to the extent the validity thereof is being contested in good faith and adequate reserves are being maintained in connection therewith. 6.7 NOTICES. Grantor shall advise Secured Party promptly, in reasonable detail, of (a) any material Lien, other than Permitted Liens, attaching to or asserted against any of the Collateral, and (b) the occurrence of any other event which is reasonably likely to have or result in a material adverse change with respect to the Collateral or the security interest created hereunder. 6.8 MAINTENANCE OF FACILITIES. Grantor shall maintain and protect its properties, assets and facilities, including without limitation, its Equipment and Fixtures in good order and working repair and condition (taking into consideration ordinary wear and tear) and from time to time make or cause to be made all needful and proper repairs, renewals and replacements thereto and shall competently manage and care for its property in accordance with prudent industry practices. 6.9 CONTINUOUS PERFECTION. Grantor shall not change its name, identity or corporate structure in any manner which might make any financing or continuation statement filed in connection herewith seriously misleading within the meaning of Section 9402(7) of the UCC (or any other then applicable provision of the UCC) unless Grantor shall have given Secured Party at least the (30) days' prior written notice thereof and shall have taken all action (or made arrangements to take such action substantially simultaneously with such change if it is impossible to take such action in advance) necessary or reasonably requested by Secured Party to amend such financing statement or continuation statement so that it is not seriously misleading. 6.10 ANNUAL AUDIT. Grantor shall forward, or cause to be forwarded, to Secured Party the Grantor's audited year-end consolidated financial statements (including a year-end balance sheet, profit and loss statement and cash flow statements), without qualification thereof, as soon as practicable (and in any event within one hundred twenty (120) days) after the end of such 13. 14 year, which shall be prepared at the Grantor's expense by an independent outside accounting firm according to generally accepted accounting principles consistently applied. 6.11 NOTICE OF LITIGATION. Grantor shall notify Secured Party of any material litigation to which the Grantor is a party by mailing to Secured Party, by registered mail, within thirty (30) days of receipt thereof, a copy of the Complaint, Motion for Judgment or other such pleadings served on or by the Company; and any litigation to which the Grantor is not a party but which is reasonably likely to have a Material Adverse Effect on the Grantor's business or the Collateral pledged under this Security Agreement, including collateral securing any guarantees, by mailing to Secured Party by registered mail, a copy of all pleadings obtained by the Grantor in regard to such litigation, or if no pleadings are obtained, a letter setting out the facts known about the litigation within thirty (30) days of receipt thereof, provided that the Grantor shall not be obliged by this paragraph to give notice of (i) any litigation that does not entail damages or other monetary relief totaling less than One Hundred Thousand Dollars ($100,000), or (ii) injunctive relief, the granting or denial of which would not reasonably be expected to have a Material Adverse Effect on the Grantor or its business. 6.12 NOTICE OF DEFAULTS OR JUDGMENTS. Grantor shall give Secured Party notice of material default declared in regard to any loan or lease of the Grantor or any material judgment entered against the Grantor by mailing a copy to Secured Party within ten (10) days of receipt thereof. 6.13 BOARD OF DIRECTORS/INTERIM FINANCIALS. Upon acceptance by the directors of the minutes of the Board of Directors, Grantor shall provide to Secured Party the executive summary and minutes of the Board of Directors meetings, including all attachments so distributed. In addition, the following statements will be provided to Secured Party on a monthly basis: Profit and Loss Statement, Balance Sheet, Cash Flow Statement and Pro Forma Operating Plan (as developed). 6.14 ACCESS TO RECORDS. Grantor shall permit any authorized representative of Secured Party and their attorneys and accountants on five (5) business days written notice to inspect, examine and make copies and abstracts of the books of account and records of the Grantor at reasonable times during normal business hours. In addition, such representative of Secured Party and their attorneys and accountants shall have the right to meet with management and officers of the Company to discuss such books of account and records. 6.15 PROTECTION OF COLLATERAL. Grantor shall take all necessary steps to administer, supervise, preserve and protect the Collateral herein and to perfect and maintain the Secured Party's security interest in the Collateral; regardless of any action taken by Secured Party there shall be no duty upon Secured Party in this respect. 6.16 DIVIDENDS; DISTRIBUTION OF ASSETS. Grantor shall not, without the prior written consent of the Secured Party, such consent not to be unreasonably withheld, declare or pay any cash, stock or other dividend or make a distribution on any class of stock, other than pursuant to employee repurchase plans, or transfer, sell, lease, lend or in any other manner convey any equitable, beneficial or legal interest in any of the assets of the Grantor (except inventory sold in 14. 15 the normal course of business); provided that if no default exists hereunder or under the Note, the Grantor may make sales of equipment in the ordinary course of business which do not exceed Fifty Thousand Dollars ($50,000) in the aggregate in any fiscal year if the proceeds of such sales (i) are used to replace such equipment; or (ii) are paid to the Senior Creditor and applied to the Senior Debt. 6.17 JUDGMENTS. Grantor shall not permit any material judgment obtained against the Grantor to remain unpaid for over thirty (30) days without obtaining a stay of execution or bond. SECTION 7. SECURED PARTY'S APPOINTMENT AS ATTORNEY-IN-FACT. (a) Subject to Section 7(b) below, Grantor hereby irrevocably constitutes and appoints Secured Party, and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Grantor and in the name of Grantor or in its own name, from time to time at Secured Party's discretion, for the purpose of carrying out the terms of this Security Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Security Agreement and, without limiting the generality of the foregoing, hereby gives Secured Party the power and right, on behalf of Grantor, without notice to or assent by Grantor to do the following: (i) to ask, demand, collect, receive and give acquittances and receipts for any and all monies due or to become due under any Collateral and, in the name of Grantor, in its own name or otherwise, to take possession of, endorse and collect any checks, drafts, note, acceptances or other Instruments for the payment of monies due under any Collateral and to file any claim or to take or commence any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Secured party for the purpose of collecting any and all such monies due under any Collateral whenever payable; (ii) to pay or discharge any Liens, including, without limitation, any tax lien, levied or placed on or threatened against the Collateral, to effect any repairs or any insurance called for by the terms of this Security Agreement and to pay all or any part of the premiums therefor and the costs thereof, which actions shall be for the benefit of Secured Party and not Grantor; and (iii) to (1) direct any person liable for any payment under or in respect of any of the Collateral to make payment of any and all monies due or to become due thereunder directly to Secured Party or as Secured Party shall direct, (2) receive payment of any and all monies, claims and other amounts due or to become due at any time arising out of or in respect of any Collateral, (3) sign and endorse any invoices, freight or express bills, bills of lading, 15. 16 storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts and other Instruments and Documents constituting or relating to the Collateral, (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral, (5) defend any suit, action or proceeding brought against Grantor with respect to any Collateral, (6) settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, give such discharges or releases as Secured Party may deem appropriate, (7) license or, to the extent permitted by an applicable license, sublicense, whether general, special or otherwise, and whether on an exclusive or non- exclusive basis, any Patent or Trademark throughout the world for such term or terms, on such conditions and in such manner as Secured Party shall in its discretion determine and (8) sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Grantor's expense, at any time, or from time to time, all acts and things which Secured Party may reasonably deem necessary to protect, preserve or realize upon the Collateral and Secured Party's security interest therein in order to effect the intent of this Security Agreement, all as fully and effectively as Grantor might do. (b) Secured Party agrees that, except upon the occurrence and during the continuation of an Event of Default, it shall not exercise the power of attorney or any rights granted to Secured Party pursuant to this Section 7. The power of attorney granted pursuant to this Section 7 is a power coupled with an interest and shall be irrevocable until the Secured Obligations are completely and indefeasibly paid and performed in full. (c) The powers conferred on Secured Party hereunder are solely to protect Secured Party's interests in the Collateral and shall not impose any duty upon Secured Party to exercise any such powers. Secured Party shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and neither it nor any of its officers, directors, employees, agents or representatives shall be responsible to Grantor for any act or failure to act, except for its own gross negligence or willful misconduct. (d) If Grantor fails to perform or comply with any of its agreements contained herein and Secured Party, as provided for by the terms of this Security Agreement, shall perform or comply, or otherwise cause performance or compliance, with such agreement, the reasonable expenses, including attorney fees and costs, of Secured Party incurred in connection with such performance or compliance, together with interest thereon at the maximum rate of interest 16. 17 permissible by law, shall be payable by Grantor to Secured Party within (3) three business days of demand and shall constitute Secured Obligations secured hereby. SECTION 8. RIGHTS AND REMEDIES UPON DEFAULT. (a) If any Event of Default shall occur and be continuing, Secured Party may exercise in addition to all other rights and remedies granted to it under this Security Agreement, the Agreement and under any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, Grantor expressly agrees that in any such event Secured Party, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon Grantor or any other person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the UCC and other applicable law), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker's board or at any of Secured Party's offices or elsewhere at such prices as it, in its reasonable discretion, may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption Grantor hereby releases. Grantor further agrees, at Secured Party's request, to assemble the Collateral and make it available to Secured Party at places which Secured Party shall reasonably select, whether at Grantor's premises or elsewhere. Secured Party shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale as provided in Subsection 8(d), below, Grantor remaining liable for any deficiency remaining unpaid after such application, and only after so paying over such net proceeds and after the payment by Secured Party of any other amount required by any provision of law, including Section 9504(1)(c) of the UCC, need Secured Party account for the surplus, if any, to Grantor. To the maximum extent permitted by applicable law, Grantor waives all claims, damages, and demands against Secured Party arising out of the repossession, retention or sale of the Collateral except such as arise out of the gross negligence or willful misconduct of Secured Party. Grantor agrees that Secured Party need not give more than ten (10) days' notice of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. Grantor shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which Secured Party is entitled, Grantor also being liable for the fees and expenses of any attorneys employed by Secured Party to collect such deficiency. (b) Grantor also agrees to pay all fees, costs and expenses of Secured Party, including, without limitation, fees and expenses of attorneys, incurred in connection with the enforcement of any of its rights and remedies hereunder. 17. 18 (c) Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral. (d) The Proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be distributed by Secured Party in the following order of priorities: FIRST, to Secured Party in an amount sufficient to pay in full the reasonable costs of Secured Party in connection with such sale, custody, preservation, disposition or other realization, including all fees, costs, expenses, liabilities and advances incurred or made by Secured Party in connection therewith, including, without limitation, attorney fees; SECOND, to Secured Party in an amount equal to the then unpaid amount of the Secured Obligations; and FINALLY, upon payment in full of all of the Secured Obligations, to Grantor or its representatives or as a court of competent jurisdiction may direct. SECTION 9. LIMITATION ON SECURED PARTY'S DUTY IN RESPECT OF COLLATERAL. Secured Party shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under Section 9207 of the UCC. SECTION 10. REINSTATEMENT. This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Grantor for liquidation or reorganization, should Grantor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Grantor's property and assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. SECTION 11. MISCELLANEOUS. 11.1 NOTICES. Any notice or other communication hereunder to any party shall be in writing and mailed, faxed or delivered to the address or facsimile number specified on the signature pages hereto; or to such other address as shall be designated by such party in a written notice to the other party. Except as otherwise provided herein, all notices and service of process required, contemplated, or permitted hereunder with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given or delivered upon the earlier 18. 19 of: (a) the first business day after transmission by facsimile or hand delivery or deposit with an overnight express service or overnight mail delivery service; or (b) the third calendar day after deposit in the United States mails, with proper first class postage prepaid. 11.2 SEVERABILITY. Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11.3 HEADINGS. The various headings in this Security Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this agreement or any provisions hereof. 11.4 NO WAIVER; CUMULATIVE REMEDIES. (a) Secured Party shall not by any act, delay, omission or otherwise be deemed to have waived any of its respective rights or remedies hereunder, nor shall any single or partial exercise of any right or remedy hereunder on any one occasion preclude the further exercise thereof or the exercise of any other right or remedy. (b) The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. (c) None of the terms or provisions of this Security Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by Grantor and Secured Party. 11.5 TIME IS OF THE ESSENCE. Time is of the essence for the performance of each of the terms and provisions of this Security Agreement. 11.6 TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section 9, above, this Security Agreement shall terminate upon and the complete and indefeasible payment and performance in full of the Secured Obligations. 11.7 SUCCESSOR AND ASSIGNS. This Security Agreement and all obligations of Grantor hereunder shall be binding upon the successors and assigns of Grantor, and shall, together with the rights and remedies of Secured Party hereunder, inure to the benefit of Secured Party and its successors and assigns. 11.8 FURTHER INDEMNIFICATION. Grantor agrees to pay, and to save Secured Party harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Security Agreement. 19. 20 11.9 GOVERNING LAW. THIS SECURITY AGREEMENT HAS BEEN DELIVERED TO AND ACCEPTED BY SECURED PARTY IN THE STATE OF ILLINOIS. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS PRINCIPLE OR RULE THAT MIGHT REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. 11.10 ALL JUDICIAL PROCEEDINGS ARISING IN OR UNDER OR RELATED TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN COOK COUNTY OF ILLINOIS. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO GENERALLY AND UNCONDITIONALLY (A) CONSENTS TO PERSONAL JURISDICTION IN COOK COUNTY, ILLINOIS; (B) WAIVES ANY OBJECTION AS TO JURISDICTION OR VENUE IN THE COUNTY OF ILLINOIS; (C) AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE IN THE AFORESAID COURTS, AND (D) IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREMENT. SERVICE OF PROCESS ON ANY PARTY HERETO IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE EFFECTIVE IF GIVEN IN ACCORDANCE WITH THE REQUIREMENTS FOR NOTICE SET FORTH IN SUBSECTION 11.1 HEREOF AND SHALL BE DEEMED EFFECTIVE AND RECEIVED AS SET FORTH IN SUBSECTION 11.1. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF HOLDER TO BRING PROCEEDINGS IN THE COURTS OF ANY OTHER JURISDICTION. 11.11 COUNTERPARTS. This Security Agreement may be executed in any number of counterparts, each of which when so delivered shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. Each such agreement shall become effective upon the execution of a counterpart hereof or thereof by each of the parties hereto. 11.12 ENTIRE AGREEMENT. This Security Agreement, the Warrant Agreement, the Warrants, the Note, the Exhibits hereto and the related agreements contemplated hereby set forth the entire agreements and understandings of the parties hereto in respect of this transaction. Any prior agreements are hereby terminated. The terms herein may not be changed verbally but only by an instrument in writing signed by the party against which enforcement of the change is sought. 20. 21 IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer on the date first set forth above. GRANTOR BIOSTAR, INC. By: /s/ Teresa W. Ayers ---------------------------------- Printed Name: Teresa W. Ayers ------------------------ Title: Vice President Finance ------------------------------- Address for notices: BioStar, Inc. 6655 Lookout Road Boulder, CO 80301-3371 Attn: Vice President Finance Fax: (303) 530-6601 Accepted and acknowledged by: COMDISCO, INC., as Secured Party By: /s/ James P. Labe ---------------------------------------------- Printed Name: James P. Labe ------------------------------------- Title: President/Comdisco Venture Lease Division -------------------------------------------- Address for notices: Comdisco, Inc. 6111 North River Road Rosemont, IL 60018 Attn: General Counsel Fax: (708) 518-5088 21. 22 EXHIBIT A SUBORDINATED PROMISSORY NOTE $2,500,000.00 May 3, 1995 Chicago, Illinois FOR VALUE RECEIVED, BIOSTAR, INC., a Delaware corporation, with its principal place obligate financial statement located at 6655 Lookout Road, Boulder, Colorado 80301 ("Borrower"), hereby promises to pay to the order of COMDISCO, INC., a Delaware corporation, with its principal place of business at 6111 North River Road, Rosemont, Illinois 60018 ("Lender"), in lawful money of the United States of America and in immediately available funds, the principal sum of Two Million Five Hundred Thousand Dollars ($2,500,000.00) (the "Loan") together with accrued and unpaid interest thereon, payable on the dates and in the manner set forth below. This Subordinated Promissory Note is the Note referred to in and is executed and delivered in connection with that certain Security Agreement dated as of even date herewith, by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the "Security Agreement"). All terms defined in the Security Agreement shall have the same definitions when used herein, unless otherwise defined herein. 1. LOAN REPAYMENT. The outstanding principal amount of the Loan, together with interest thereon, shall be due and payable in thirty-six (36) equal monthly installments of $85,450.00, payable in advance on the first day of each month, commencing June 1, 1995, and on the first day of each successive month thereafter, to and including May 1, 1998 (each, a "Payment Date"). If any payment under this Note shall be payable on a day other than a business day, then such payment shall be due and payable on the next succeeding business day. 2. INTEREST RATE. Interest on the outstanding principal amount hereof from the date hereof until maturity, whether by acceleration or otherwise, or a default (as hereinafter defined), shall be payable at the rate of fourteen percent (14.00%) per annum or the maximum rate permissible by law (which under the laws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less (the "Applicable Rate"). In the event that the amount of interest contracted for, charged or received from Borrower or otherwise in connection with the Loan evidenced hereby exceeds the Applicable Rate, then at Lender's option, such amount shall either be applied as a credit against any then unpaid amounts hereof or refunded to Borrower and the effective rate of interest will be automatically reduced to the Applicable Rate. Upon the occurrence of an event of default, this Note shall thereafter bear interest at the rate of nineteen percent (19%) per annum or the maximum rate permissible by law (which under the laws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less. IN ANY EVENT, INTEREST PAYABLE HEREUNDER SHALL BE COMPUTED ON THE BASIS OF A 360- DAY YEAR AND TWELVE 30-DAY MONTHS. 1. 23 3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable at the office of Lender, P.O. Box 91744, Chicago, IL 60693, unless another place of payment shall be specified in writing by Lender. 4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied first to costs of Lender incurred in collection of this Note, if any, then to pay accrued interest, and thereafter to the outstanding principal balance hereof. 5. PREPAYMENT. Borrower may prepay the entire balance of principal owed under this Note in whole or in part without paying any prepayment penalty and without paying a premium or interest charge on the amount of prepaid principal. 6. SECURED NOTE. This Note is secured by the Collateral identified and described as security therefor in the Security Agreement executed by and delivered by Borrower. Borrower shall not, directly or indirectly, suffer or permit to be created or to remain, and shall promptly discharge, any lien on or in the Collateral, or in any portion thereof, except as permitted pursuant to the Security Agreement. In addition, Borrower shall not suffer any other matter whereby an interest of Lender under the Security Agreement in the Collateral or in any lien pursuant to the Security Agreement or any part of the foregoing might be impaired, except as permitted pursuant to such Security Agreement. 7. SUBORDINATED NOTE. THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT BY AND BETWEEN LENDER AND BORROWER DATED AS OF EVEN DATE HEREWITH. IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL. 8. DEFAULT. Any of the following events shall constitute a default under this Note: (a) Borrower's failure to pay timely any of the principal amount due under this Note or any accrued interest or other amounts due under this Note on the date the same becomes due and payable, by maturity, acceleration or otherwise, or within five (5) calendar days thereafter, or (b) the occurrence of an Event of Default under the Security Agreement or the Master Lease Agreement or any other written agreement between Lender and Borrower. Upon the occurrence of a default hereunder, all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of Lender, be immediately collectible by Lender pursuant to applicable law. 9. WAIVER. Borrower waives, to the extent permitted by law, (a) presentment and demand for payment, notice of dishonor, protest and notice of protest any other notice as permitted under the UCC or any applicable law; (b) the right, if any, to the benefit of, or to direct application of, any of the Collateral until all indebtedness of the Borrower to Lender, however arising, has been paid; (c) all defenses and rights to discharge under the UCC and all other suretyship defenses or rights to discharge; (d) Borrower shall pay to Lender, when incurred, all costs of collection and enforcement or protection of Lender's security interest in the Collateral including, without limitation, reasonable attorneys' fees, costs and other expenses. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the full extent permitted b law; and (e) such other waivers as are set forth in the Security Agreement. 2. 24 10. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 11. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the benefit of and be binding on Borrower and any of its permitted assigns, and shall extend to any holder hereof. Lender may assign its rights hereunder without prior notice to Borrower. 12. AMENDMENT. The terms and conditions of this Note may not be amended, waived or modified except in a writing signed by an authorized agent of Lender which writing expressly states that the writing constitutes an amendment, waiver or modification of this Note. 13. WAIVER OF JURY TRIAL. BORROWER AND LENDER ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OF ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE. BORROWER BIOSTAR, INC. By ----------------------------------- Printed Name ------------------------- Title -------------------------------- 3. 25 [COOLEY GODWARD LLP LETTERHEAD] EXHIBIT B May 3, 1995 Comdisco, Inc. 6111 N. River Road Rosemont, IL 60018 RE: BIOSTAR, INC. Ladies and Gentlemen: We have acted as counsel to BioStar, Inc., a Delaware corporation (the "Company"), in connection with (i) that certain Master Lease Agreement (the "Lease") and (ii) that certain Subordinated Promissory Note in the original principal amount of $2,500,000 (the "Note"), each dated as of May 3, 1995 by and between the Company and you. This opinion is rendered to you in compliance with Section 14.14 of the Lease. Capitalized terms used herein without definition have the same meanings as in the Lease. As used herein, the term "Credit Documents" shall mean the Lease, the Note and each of the following agreements, each executed by Company and you and dated as of May 3, 1995, unless otherwise specified: 1. Equipment Schedule No. VL-1; 2. Warrant Agreement issued in connection with Equipment Schedule VL- 1; 3. Warrant Agreement issued in connection with the Note (Items 2 and 3 being collectively referred to as the "Warrants"); 4. Subordinated Security Agreement (the "Security Agreement"); and 5. Subordination Agreement. 26 [COOLEY GODWARD LLP LOGO] Comdisco, Inc. May 3, 1995 Page 2 With your consent, in connection with this opinion, we have examined and relied upon the representations and warranties as to factual matters contained in and made pursuant to the Credit Documents by the parties thereto and upon originals or copies certified to our satisfaction of such records, documents, certificates, opinions, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinions expressed below. Where we render an opinion "to the best of our knowledge" or concerning an item "known to us" or our opinion otherwise refers to our knowledge, it is based solely upon (a) an inquiry of attorneys within this firm who perform legal services for the Company, (b) receipt of a certificate executed by an officer of the Company covering such matters, and (c) such other investigation, if any, that we specifically set forth herein. In rendering this opinion, we have assumed the genuineness and authenticity of all signatures on original documents (other than the signatures of the Company on the Credit Documents); the authenticity of all documents submitted to us as originals; the conformity to originals of all documents submitted to us as copies; the accuracy, completeness and authenticity of certificates of public officials; and the due authorization, execution and delivery of all documents (except the due authorization, execution and delivery by the Company of the Credit Documents) where authorization, execution and delivery are prerequisites to the effectiveness of such documents. We have also assumed that all individuals executing and delivering documents in their individual capacity had the legal capacity to so execute and deliver; that the Credit Documents are obligations binding upon you; that you have filed any required California franchise or income tax returns and have paid any required California franchise or income taxes; and that there are no extrinsic agreements or understandings among the parties to the Credit Documents that would modify or interpret the terms of the Credit Documents or the respective rights or obligations of the parties thereunder. We have assumed that on the date hereof, you will disburse to the Company the amount of the Note. We have assumed that the descriptions of the personal property in the Security Agreement are accurate and sufficient to enable a subsequent purchaser or mortgagee to identify them. We have assumed the due filing, at the time the Note is issued, of a financing statement in the appropriate form in the appropriate jurisdiction as required by law for perfection of the personal property security interest contemplated in the Security Agreement. We have assumed (but do not express any opinion with respect thereto) that the Lease is a true lease and that the Equipment constitutes personal property and has not and will not become affixed to the real property on which it is located in any manner (whether as a trade fixture or otherwise). We have further assumed that 27 [COOLEY GODWARD LLP LOGO] Comdisco, Inc. May 3, 1995 Page 3 you or any person asserting your rights (i) will act fairly, in good faith and in a commercially reasonable and prudent manner in exercising your rights and (ii) will not trespass or commit any breach of peace in any taking of possession of the Equipment or any of the Collateral (as defined in the Security Agreement). Our opinion is expressed with respect only to United States federal law, the General Corporation Law of the State of Delaware and the laws of the State of California. We express no opinion as to whether the laws of any particular jurisdiction apply; and no opinion to the extent that the laws of any jurisdiction other than those identified above are applicable to the subject matter hereof. Our opinion is expressed only as to the outcome that would pertain were federal law, the General Corporation Law of the State of Delaware and California law (excluding choice of law principles and excluding the effect of any law other than federal law, the General Corporation Law of the State of Delaware and California law) the sole law applicable to the subject matter hereof. With regard to our opinion in paragraphs 3 and 4, below, we express no opinion regarding any law or governmental rule or regulation regarding maximum allowable interest rates. Except as set forth in paragraph 9, we express no opinion relative to the applicability or effect of any law, rule or regulation relating to securities or to the sale or issuance thereof. We express no opinion with respect to (a) any statute, order, decree, rule or regulation applicable to the Company solely by reason of the nature of the business conducted by the Company or any sublessee of the Equipment or by reason of the particular use that the Company or any such sublessee may make of the Equipment, or (b) the approval of, giving of notice to, registration with or the taking of any action in respect of or by any governmental authority having jurisdiction over the Company solely by reason of the nature of the business conducted by the Company or any sublessee of the Equipment or by reason of the particular use that the Company or any such sublessee may make of the Equipment. We express no opinion regarding compliance with any law, rule or regulation regarding the titling or registration of motor vehicles, aircraft, or watercraft of any kind. We assume for purposes of our opinion that the Company has rights to the Collateral. We express no opinion with respect to the existence or nature of such rights, or as to the relative priority of the liens created by the Security Agreement or any other Credit Document, or as to the effect on your security interests of any rights or interests, if any, entitled to seniority thereto. 28 [COOLEY GODWARD LLP LOGO] Comdisco, Inc. May 3, 1995 Page 4 On the basis of the foregoing, and in reliance thereon and subject to the foregoing qualifications, we are of the opinion that: 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 2. The Company has the requisite corporate power to own its property and assets and to conduct its business as it is currently being conducted and, to the best of our knowledge, is qualified as a foreign corporation to do business and is in good standing in each jurisdiction in the United States in which the ownership of its property or the conduct of its business requires such qualification and where any statutory fines or penalties or any corporate disability imposed for the failure to qualify would materially and adversely affect the Company. 3. The execution and delivery of, and performance by the Company of the terms of, the Credit Documents, including its obligation to repay the Note, do not violate any provision of the Company's Restated Certificate of Incorporation or Bylaws, and, to the best of our knowledge, do not violate or contravene (i) any governmental statue, rule or regulation applicable to the Company or (ii) any order, writ, judgement, injunction, decree, determination or award which has been entered against the Company and of which we are aware, the violation or contravention of which would have a Material Adverse Effect (as defined in the Security Agreement). 4. The execution, delivery and performance of the Credit Documents have been duly authorized by all necessary corporate action on the part of the Company, and the Credit Documents have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be subject to or limited by (a) general equity principles and to limitations on the availability of equitable relief including specific performance; (b) the effect of applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights of creditors generally, including but not limited to those affecting the rights of secured creditor; (c) compliance with the requirements, and the effect of the limitations, of California law relating to the exercise of remedies by a secured creditor (e.g., California Uniform Commercial Code Sections 9501 through 9508 regarding the exercise of rights with respect to the personal property); (d) limitations on a borrower's ability to waive rights or benefits given by statute or otherwise; (e) limitations on the ability of a secured creditor to enforce rights under a security agreement where a requisite to such enforcement is that 29 [COOLEY GODWARD LLP LOGO] Comdisco, Inc. May 3, 1995 Page 5 the security is or will be impaired, or where such enforcement would in the circumstances result in a penalty or forfeiture; (f) limitations on the right to impose added charges for late payments or defaults, where it is determined that such charges bear no reasonable relation to the damage suffered as a result of such late payments or defaults or where the requirements of California Civil Code Section 2954.5 are not met; (g) the effect of applicable law governing personal property leases generally; (h) applicable laws limiting rights to indemnity; (i) the effect of California Civil Code Section 1717 on the recovery of attorneys' fees in contract actions; (j) limitations on the ability of a lessor or secured creditor to enter, take possession of, or deal as owner with respect to the security without judicial authorization; (k) limitations imposed by California law on the appointment of receivers; (l) the effect of California Civil Code Section 3433; and (m) any other limitations which, in the event of a default by the Company in its obligations under the Credit Documents, while not preventing you from exercising your rights under California Uniform Commercial Code Sections 9501 through 9508 with respect to the Collateral, would act as a limitation on your rights, each in accordance with California law. 5. The Lessee has duly authorized and reserved for issuance 271,428 shares of its Series E Preferred Stock issuable upon the exercise of the Warrants (the "Exercise Shares") and the shares of its Common Stock issuable upon conversion of the Exercise Shares. The Exercise Shares shall be validly issued and fully paid and nonassessable when issued and paid for in accordance with the terms of the Warrants, and the shares of Common Stock issuable upon conversion of the Exercise Shares shall, upon conversion of the Exercise Shares according to the terms thereof, be validly issued, fully paid and nonassessable. 6. The Security Agreement creates in your favor a security interest in such of the Collateral (as defined in the Security Agreement) of the Company that is of a type in which a security interest can be created under Division 9 of the Uniform Commercial Code as in effect in the State of California. 7. To the best of our knowledge, there is no action, proceeding or investigation pending or overtly threatened against the Company before any court or administrative agency that questions the validity of the Credit Documents or that might result, either individually or in the aggregate, in any material adverse change in the assets, financial condition, or operations of the Company. 8. All consents, approvals, authorizations, or orders of, and filings, registrations, and qualifications with any regulatory authority or governmental body in the United States 30 [COOLEY GODWARD LLP LOGO] Comdisco, Inc. May 3, 1995 Page 6 required for the execution and delivery by the Company of the Credit Documents, have been made or obtained. 9. Subject to the accuracy of your representations in Section 10 of the Warrant, the issuance, sale and delivery of the Warrants are exempt from the registration requirements of the Securities Act of 1933, as amended. This opinion is intended solely for your benefit and is not to be made available to or be relied upon by any other person, firm, or entity without our prior written consent. Very truly yours, COOLEY GODWARD CASTRO HUDDLESON & TATUM By ___________________________ Alan C. Mendelson 31 EXHIBIT 1 EXISTING LIENS None. 32 EXHIBIT 5(E) ACTIONS, SUITS, PROCEEDINGS, ETC. BIOSTAR - Spain On June 23, 1994, the Company was advised that Laboratorios Novag, S.A. ("Novag") opposed the Company's applications to register "BIOSTAR" in Class 1 and Class 10 based on Novag's Class 5 BIOSTAR registration for "pharmaceutical and veterinary products; dietetic products for medicinal use for children and the sick; disinfectants; preparations for killing weeds and destroying vermin." BioStar, Inc.'s Spanish trademark counsel filed a response to the opposition on July 16, 1994. No decision has been rendered by the Spanish trademark office yet. BIOSTAR - Canada In or about 1994, the Company commenced negotiations with Biostar, Inc., a company located in Saskatchewan, Canada ("BI Saskatchewan") and owner of a Canadian Trademark Registration for the trademark BIOSTAR covering "operation of a business for the provision of research, development, testing, and manufacturing for others according to customer specifications with respect to pharmaceuticals, drugs and biological products, namely, vaccines, viral proteins for carrying drugs and vaccines to targeted cells or organs, biological response modifiers, immunoprognosticators, and gene expression system" and "biological products for animal use, namely, vaccines, viral proteins for carrying drugs and vaccines to targeted cells or organs, and biological products for human use comprising reagents for medical laboratories and products sold to physicians and hospitals requiring administration by professionals, namely, viral proteins for carrying drugs and vaccines to target cells of organs" The negotiations concerned use by the Company in Canada of its name and mark "BIOSTAR." The negotiations have not to date resulted in acquisition of BI Saskatchewan's rights in the BIOSTAR mark or otherwise resolved the issue of the Company's use of its name and mark in Canada. DDx Incorporated In recent correspondence to its shareholders, DDx Incorporated ("DDx") stated that, in connection with a license agreement between DDx and the Company, which agreement terminated as of January 1, 1994, DDx and its President have allegedly suffered damage. DDx stated that it was seeking legal counsel in connection with this matter, however, neither DDx nor its President have asserted any claim against the Company. 33 EXHIBIT 5(J) INSURANCE POLICIES Prudential Employee Group Medical, Dental and LTD Insurance Fortis Insurance Employee Group Life Insurance in amount of 2x annual salary up to $50,000 per employee Standard Insurance Voluntary life insurance St. Paul Insurance Co. Workers Compensation and Employers Liability Insurance Policy Lockton Silversmith, Inc. and St. Paul Insurance Co. Broad form Business insurance including property, crime, commercial, general liability, and automobile 34 AMENDMENT TO SUBORDINATED SECURITY AGREEMENT This Amendment to Subordinated Security Agreement ("Amendment") is dated as of March 20, 1996 by and between BioStar, Inc., a Delaware corporation, with its principal place of business located at 6655 Lookout Road, Boulder, Colorado 80301 ("Grantor") and Comdisco, Inc., a Delaware corporation, with its principal place of business located 6111 North River Road, Rosemont, Illinois 60018 ("Secured Party") and it supplements and amends that certain Subordinated Security Agreement dated as of May 3, 1995 between the Grantor and Secured party (the "Security Agreement"). RECITALS WHEREAS, the Grantor and the Secured Party have entered into the Security Agreement in connection with a loan by the Secured Party to the Grantor, which loan is evidenced by the Grantor's Subordinated Promissory Note in the original principal amount of $2,500,000, a copy of which is attached as Exhibit A (the "Old Note"); and WHEREAS, the Grantor has granted to the Secured Party a security interest in and to the Collateral (as defined in Section 3 of the Security Agreement) securing payment of the Old Note and the other Secured Obligations under the Security Agreement; and WHEREAS, Grantor and Secured Party have agreed (i) to convert Five Hundred Thousand and 00/100 ($500,000.00) of the total principal owed by Grantor to Secured Party under the Old Note into a convertible subordinated promissory note in favor of Secured Party in the form attached hereto as Exhibit B and (ii) to restructure payments of the remaining principal balance of the Old Note effective with the payment due April 1, 1996; and WHEREAS, the parties desire to amend the Security Agreement to modify the terms and conditions as set forth herein: AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Unless otherwise defined herein, all capitalized terms appearing in the Amendment shall have the definition and meaning ascribed thereto in the Security Agreement. 2. On March 20, 1996, (a) the Grantor shall issue and deliver to the Secured Party an amended and restated Subordinated Promissory Note in the form of Exhibit C attached hereto ("New Note") in substitution for the Old Note, and (b) the Secured Party shall deliver the Old Note marked "Canceled" to the Grantor; provided, however, that notwithstanding anything to the 35 contrary contained herein, it is the agreement of Grantor and Secured Party that cancellation of the Old Note to the extent of the reduction in principal outstanding of $500,000.00 is conditioned upon the receipt by Secured Party of (i) payment on or by April 1, 1996 of the payment by Grantor of $85,450.00 as principal and interest and (ii) Grantor delivering or causing to be delivered: (A)(1) the New Note; (2) a Note and Warrant Purchase Agreement; (3) a convertible subordinated promissory note in favor of Secured Party in the original principal amount of $500,000; and (4) a Warrant Agreement to purchase shares of Common Stock of Grantor, all in form and substance satisfactory to Secured Party; and (B) any consents required by Silicon Valley Bank as Senior Creditor pursuant to the terms of the Subordination Agreement dated as of May 3, 1995 between Grantor as "Borrower" and Secured Party as "Subordinated Creditor" for the benefit of the Senior Creditor (as defined therein). Each of the foregoing actions shall be deemed to occur simultaneously, and no one such action shall be deemed to have occurred unless all such actions shall have occurred. 3. Effective March 20, 1996, (a) Exhibit A to the Security Agreement is hereby amended by substituting therefor Exhibit C hereto, and (b) all references in the Security Agreement to the Note shall be deemed to refer to the New Note. 4. The Grantor represents and warrants that its representations and warranties contained in the Security Agreement are true and correct as of the date of this Amendment as if made on the date hereof. 5. The Grantor covenants and agrees to take such other actions as the Secured Party may reasonably require in order to effectuate the intention of the parties hereunder and under the Security Agreement, including without limitation the execution of Uniform Commercial Code financing statements in order to maintain the perfection of the Secured Party's security interest in and to the Collateral. 6. This Amendment may be executed in any number of counterparts, each of which when so delivered shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. Each such agreement shall become effective upon the execution of a counterpart hereof or thereof by each of the parties hereto. 7. Except as amended hereby, the terms and provisions of the Security Agreement as originally executed are hereby reaffirmed and remain in full force and effect, and from and after the date hereof the term "Security Agreement" shall mean the Security Agreement as amended by this Amendment. 36 IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be executed and delivered by its duly authorized officer on the date first above written. GRANTOR: BIOSTAR, INC. By: /s/ Teresa W. Ayers ----------------------------------- Printed Name: Teresa W. Ayers ------------------------- Title: President/COO -------------------------------- Accepted and Acknowledged by: COMDISCO, INC., As Secured Party By: /s/ James P. Labe ----------------------------------------- Printed Name: James P. Labe ------------------------------- Title: President Venture Lease Division ------------------------------------- 37 EXHIBIT A SUBORDINATED PROMISSORY NOTE $2,500,000.00 May 3, 1995 Chicago, Illinois FOR VALUE RECEIVED, BioStar, Inc., a Delaware corporation, with its principal place of business located at 6655 Lookout Road, Boulder, Colorado 80301 ("Borrower"), hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation, with its principal place of business at 6111 North River Road, Rosemont, Illinois 60018 ("Lender"), in lawful money of the United States of America and in immediately available funds, the principal sum of Two Million Five Hundred Thousand Dollars ($2,500,000.00) (the "Loan") together with accrued and unpaid interest thereon, payable on the dates and in the manner set forth below. This Subordinated Promissory Note is the Note referred to in and is executed and delivered in connection with that certain Security Agreement dated as of even date herewith, by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the "Security Agreement"). All terms defined in the Security Agreement shall have the same definitions when used herein, unless otherwise defined herein. 8. LOAN REPAYMENT. The outstanding principal amount of the Loan, together with interest thereon, shall be due and payable in thirty-six (36) equal monthly installments of $85,450.00, payable in advance on the first day of each month, commencing June 1, 1995, and on the first day of each successive month thereafter, to and including May 1, 1998 (each, a "Payment Date"). If any payment under this Note shall be payable on a day other than a business day, then such payment shall be due and payable on the next succeeding business day. 9. INTEREST RATE. Interest on the outstanding principal amount hereof from the date hereof until maturity, whether by acceleration or otherwise, or a default (as hereinafter defined), shall be payable at the rate of fourteen percent (14.00%) per annum or the maximum rate permissible by law (which under the laws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less (the "Applicable Rate"). In the event that the amount of interest contracted for, charged or received from Borrower or otherwise in connection with the Loan evidenced hereby exceeds the Applicable Rate, then at Lender's option, such amount shall either be applied as a credit against any then unpaid amounts hereof or refunded to Borrower and the effective rate of interest will be automatically reduced to the Applicable Rate. Upon the occurrence of an event of default, this Note shall thereafter bear interest at the rate of nineteen percent (19%) per annum or the maximum rate permissible by law (which under the laws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less. IN ANY EVENT, INTEREST PAYABLE HEREUNDER SHALL BE COMPUTED ON THE BASIS OF A 360-DAY YEAR AND TWELVE 30-DAY MONTHS. 1. 38 10. PLACE OF PAYMENT. All amounts payable hereunder shall be payable at the office of Lender, P.O. Box 91744, Chicago, Illinois 60693, unless another place of payment shall be specified in writing by Lender. 11. APPLICATION OF PAYMENTS. Payment on this Note shall be applied first to costs of Lender incurred in collection of this Note, if any, then to pay accrued interest, and thereafter to the outstanding principal balance hereof. 12. PREPAYMENT. Borrower may prepay the entire balance of principal owed under this Note in whole or in part without paying any prepayment penalty and without paying a premium or interest charge on the amount of prepaid principal. 13. SECURED NOTE. This Note is secured by the Collateral identified and described as security therefor in the Security Agreement executed by and delivered by Borrower. Borrower shall not, directly or indirectly, suffer or permit to be created or to remain, and shall promptly discharge, any lien on or in the Collateral, or in any portion thereof, except as permitted pursuant to the Security Agreement. In addition, Borrower shall not suffer any other matter whereby an interest of Lender under the Security Agreement in the Collateral or in any lien pursuant to the Security Agreement or any part of the foregoing might be impaired, except as permitted pursuant to such Security Agreement. 14. SUBORDINATED NOTE. THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT BY AND BETWEEN LENDER AND BORROWER DATED AS OF EVEN DATE HEREWITH. IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL. 15. DEFAULT. Any of the following events shall constitute a default under this Note: (a) Borrower's failure to pay timely any of the principal amount due under this Note or any accrued interest or other amounts due under this Note on the date the same becomes due and payable, by maturity, acceleration or otherwise, or within five (5) calendar days thereafter, or (b) the occurrence of an Event of Default under the Security Agreement or the Master Lease Agreement or any other written agreement between Lender and Borrower. Upon the occurrence of a default hereunder, all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of Lender, be immediately collectible by Lender pursuant to applicable law. 16. WAIVER. Borrower waives, to the extent permitted by law, (a) presentment and demand for payment, notice of dishonor, protest and notice of protest and any other notice as permitted under the UCC or any applicable law; (b) the right, if any, to the benefit of, or to direct the application of, any of the Collateral until all indebtedness of the Borrower to Lender, however arising, has been paid; (c) all defenses and rights to discharge under the UCC and all other suretyship defenses or rights to discharge; (d) Borrower shall pay to Lender, when incurred, all costs of collection and enforcement or protection of Lender's security interest in the Collateral including, without limitation, reasonable attorneys' fees, costs and other expenses. 2. 39 The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the full extent permitted by law; and (e) such other waivers as are set forth in the Security Agreement. 17. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 18. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the benefit of and be binding on Borrower and any of its permitted assigns, and shall extend to any holder hereof. Lender may assign its rights hereunder without prior notice to Borrower. 19. AMENDMENT. The terms and conditions of this Note may not be amended, waived or modified except in a writing signed by an authorized agent of Lender which writing expressly states that the writing constitutes an amendment, waiver or modification of this Note. 20. WAIVER OF JURY TRIAL. Borrower and Lender acknowledge that the right to trial by jury is a constitutional one, but that it may be waived. Each party, after consulting (or having had the opportunity to consult) with counsel of their choice, knowingly and voluntarily, and for their mutual benefit, waives any right to trial by jury in the event of litigation regarding the performance or enforcement of, or in any way related to, this Note. BORROWER: BIOSTAR, INC. By: ---------------------------------- Printed Name: ----------------------- Title: ----------------------------- 3. 40 EXHIBIT B THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE BORROWER THAT SUCH REGISTRATION IS NOT REQUIRED. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $_______________ March ___, 1996 Boulder, Colorado FOR VALUE RECEIVED, BioStar, Inc., a Delaware corporation ("Borrower"), hereby unconditionally promises to pay to the order of ____________________, a ____________ ("Lender"), in lawful money of the United States of America and in immediately available funds, the principal sum of $__________ (the "Loan") together with accrued and unpaid interest thereon, payable on the dates and in the manner set forth below. This convertible note (the "Note") is non-negotiable and is executed and delivered in connection with that certain Note and Warrant Purchase Agreement dated as of March ___, 1996, by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented, the "Purchase Agreement"). This Note is delivered to Borrower in full satisfaction of all amounts due and owing to the Lender under the Purchase Agreement. All terms defined in the Purchase Agreement shall have the same definitions when used herein, unless otherwise defined herein. In the event of any conflict between the terms of this Note and the terms of the Purchase Agreement, the terms of the Purchase Agreement shall control. 1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan shall be payable as follows: on the earlier of (a) March ___, 1999, or (b) on the closing of a Corporate Event (as defined below), subject to the conversion of the Note into Borrower's capital stock as further described in Section 7 below. A "Corporate Event" shall mean either (i) the Company's initial public offering or (ii) the closing of a consolidation or merger of the Borrower with or into any other corporation or corporations, or a sale, conveyance or disposition of all or substantially all of the assets of the Borrower. The Borrower may prepay this Note at any time without penalty upon the prior written consent of Silicon Valley Bank. 2. INTEREST RATE. Borrower further promises to pay interest on the sum of the unpaid principal balance of the Loan outstanding on each day, from the date of this Note until all such principal amounts shall have been repaid in full, which interest shall be payable at the prime rate as announced by the Bank of America for commercial loans plus two percent 2% or the maximum rate permissible by law (which under the laws of the State of Colorado shall be 1. 41 deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less. Interest shall be payable at maturity and shall be calculated on the basis of a 365-day year for the actual number of days elapsed. 3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable to Lender at the address it specifies to Borrower in writing. 4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied first to accrued interest, and thereafter to the outstanding principal balance HEREOF. 5. DEFAULT. Borrower's failure to pay timely any of the principal amount due under this Note on the date the same becomes due and payable or any accrued interest or other amounts due under this Note on the date the same becomes due and payable or within ten (10) calendar days after written receipt of notice of failure to pay shall constitute a default under this Note. If a default is not cured within thirty (30) days of the receipt of notice of failure to pay, all unpaid principal, accrued interest and other amounts owing thereunder shall, at the option of Lender, be immediately collectible by Lender pursuant to applicable law. 6. NOTE. (a) AGREEMENT TO SUBORDINATE. The Borrower, for itself, its successors and assigns, covenants and agrees, and the Lender, by acceptance hereof, likewise covenants and agrees that the payment of the principal of and interest on this Note is hereby expressly subordinated to the extent and in the manner hereinafter set forth in right of payment to the prior payment in full of certain other obligations of Borrower owed at any time to commercial banks or other financial institutions (including but not limited to the Borrower's current obligations to Silicon Valley Bank and Comdisco, Inc.) (the "Senior Indebtedness"), and that such subordination is for the benefit of the holders of Senior Indebtedness. All persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness, shall be entitled to rely hereon, and such provisions are made for the benefit of the holders of Senior Indebtedness, and they or any of them may proceed to enforce such provisions directly against the Lender. (b) SUBORDINATION IN THE EVENT OF DEFAULT ON SENIOR INDEBTEDNESS. No payment shall be made on this Note at such time as any default exists (or would exist after giving effect to such payment) with respect to the Senior Indebtedness. If any such payment is made, Lender (or its assignee) shall remit to the holder of the Senior Indebtedness all such money so received, which shall be applied to amounts due under the Senior Indebtedness. (c) DISTRIBUTION ON DISSOLUTION, LIQUIDATION AND REORGANIZATION SUBROGATION OF NOTE. Upon any distribution of assets of Borrower (or Borrower's assignee), upon any dissolution, winding up, liquidation or reorganization of Borrower (or Borrower's assignee), whether in bankruptcy, insolvency, reorganization or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of Borrower (or Borrower's assignee) or otherwise: 2. 42 1. The holder of all Senior Indebtedness shall first be entitled to receive payment in full thereof before Lender is entitled to receive any payment upon the principal of and premium, if any, or interest on indebtedness evidenced by this Note; 2. Any payment or distribution of assets of Borrower (or Borrower's assignee) of any kind or character, whether in cash, property or securities, to which Lender would be entitled except for the provisions of this Section 6 shall be paid or delivered by Borrower (or Borrower's assignee) or any liquidating trustee, trustee in bankruptcy, receiver, agent or other person making such payment or distribution directly to the holder of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, as their interests appear, to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and 3. In the event that, notwithstanding the foregoing, any payment or distribution of assets of Borrower (or Borrower's assignee) of any kind or character, whether in cash, property or securities, shall be received by Lender before all Senior Indebtedness is paid in full, such payment or distribution shall be paid over or delivered to the holder of such Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, as their interests appear, for application to the payment of all Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall have been paid in full, after giving effect to any concurrent payment or distribution to the holder of such Senior Indebtedness. Subject to the prior payment in full of all Senior Indebtedness, Lender shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of Borrower (or Borrower's assignee) applicable to the Senior Indebtedness until the principal of, premium, if any, and interest on this Note shall be paid in full and no such payments or distributions to Lender of cash, property or securities otherwise distributable to the Senior Indebtedness shall, as between Borrower (or Borrower's assignee), its creditors other than the holder of Senior Indebtedness, and Lender, be deemed to be a payment by Borrower (or Borrower's assignee) to or on account of this Note. It is understood that the provisions of this Section 6 are and are intended solely for the purpose of defining the relative rights of the Lender, on the one hand, and the holder of Senior Indebtedness, on the other hand. Nothing contained in this Section 6 or elsewhere in this Note is intended to or shall impair, as between Borrower (or Borrower's assignee), its creditors other than the holder of Senior Indebtedness, and Lender, the obligation of Borrowers (or Borrower's assignee), which is unconditional and absolute, to pay to Lender the principal of, premium, if any, and interest on this Note as and when the same shall become due and payable in accordance with its terms or to affect the relative rights of Lender and creditors of Borrower (of Borrower's assignee) other than the holder of Senior Indebtedness, nor shall anything herein or in this Note prevent Lender from exercising all remedies otherwise permitted by applicable law upon default hereunder, subject to the rights, if any, under this Section 6 of the holder of Senior Indebtedness in respect of cash, property or securities of Borrower (or Borrower's assignee) received upon the exercise of any such remedy. Upon any 3. 43 payment or distribution of assets of Borrower (or Borrower's assignee) referred to in this Section 6, Lender shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in this Section are pending or upon a certificate of the liquidating trustee, trustee in bankruptcy, receiver, agent or other person making any distribution to Lender, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holder of Senior Indebtedness and other indebtedness of Borrower (or Borrower's assignee), the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 6. (d) AGREEMENT TO EFFECT SUBORDINATION. Lender by acceptance of this Note agrees to take such action and execute such documents as may be necessary or appropriate to effectuate the subordination as provided in this Section 6. 7. ADDITIONAL TERMS. (a) OPTIONAL CONVERSION. This Note may be converted at the option of the Lender (or Lender's assignee), in whole or in part, at any time or upon the closing of a Corporate Event, into fully paid and nonassessable shares of either the next series of Preferred Stock sold by Borrower at a price per share of less than $1.75 (the "Next Round Preferred") or the Borrower's Series E Preferred Stock (the "Series E") (the Next Round Preferred and the Series E are referred to collectively herein as the "Applicable Preferred"). (b) MANDATORY CONVERSION. The Notes will automatically convert at any time upon the election by a majority in interest of the Lenders into shares of Applicable Preferred. (c) CONVERSION PRICE. The number of shares issuable to the holder upon conversion shall be equal to the principal balance and accrued but unpaid interest that is being converted, divided by the lesser of the price per share of the Series E or the price per share at which Borrower sells the Next Round Preferred (the "Conversion Price"). (d) MECHANICS OF CONVERSION. In the event that Lender shall give written notice to Borrower that it elects to convert the Note pursuant to Section 7(a) above, Lender shall surrender the Note, duly endorsed at the office of Borrower, and shall give written notice to Borrower at such office of the series of Applicable Preferred (i.e., Series E or Next Round Preferred), into which the holder is electing to convert this Note and the name or names in which he wishes the certificate or certificates for shares of Applicable Preferred to be issued. In the event this Note is automatically converted pursuant to Section 7(b) above, the holder shall give written notice to Borrower of the series of Applicable Preferred (i.e., Series E or Next Round Preferred) into which the holder is electing to convert this Note and such conversion shall be deemed to have been made and the person or persons entitled to receive the shares of Applicable Preferred issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Applicable Preferred on such date. 4. 44 (e) ADJUSTMENTS TO CONVERSION PRICE FOR CERTAIN EVENTS. The Conversion Price shall be subject to adjustment from time to time as follows: 1. If the number of outstanding shares of the Preferred Stock of Borrower is increased by a stock dividend, stock split-up or by a subdivision of shares, then, following the record date fixed for the determination of holders of Preferred Stock entitled to receive such stock dividend, split-up or subdivision, the Conversion Price shall be appropriately decreased so that the number of shares of Applicable Preferred issuable on conversion of this Note shall be increased in proportion to such increase of outstanding shares of Preferred Stock. 2. If the number of shares of Preferred Stock outstanding is decreased by a combination of the outstanding shares of Preferred Stock, then, following the record date of such combination, the Conversion Price shall be appropriately increased so that the number of shares of Applicable Preferred issuable on conversion of this Note shall be decreased in proportion to such decrease in outstanding shares of Preferred Stock. (f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 7, Borrower at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Lender a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. Borrower shall, upon the written request at any time of Lender, furnish or cause to be furnished to Lender a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price, at the time in effect, and (iii) the number of shares of Applicable Preferred, the amount, if any, of other property which at the time would be received upon the conversion of this Note. (g) NOTICES OF RECORD DATE. In the event of any taking by Borrower of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any security or right convertible into or entitling the holder thereof to receive Preferred Stock or other securities of Borrower, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, Borrower shall mail to Lender at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution, security or right, and the amount and character of such dividend, distribution, security or right. (h) ISSUE TAXES. Borrower shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Applicable Preferred on conversion of this Note pursuant hereto; provided, however, that Borrower shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. Borrower shall at all times reserve and keep available out of its authorized but unissued shares of Preferred Stock or other securities, solely for the purpose of effecting the conversion of this Note, such number of its shares of Preferred Stock or other securities from time to time issuable upon such conversion; 5. 45 and if at any time the number of authorized but unissued shares of Preferred Stock or other securities shall not be sufficient to effect the conversion of this Note, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Preferred Stock or other securities to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. (j) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion of this Note. All shares of Applicable Preferred (including fractions thereof) issuable upon conversion of this Note shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Applicable Preferred, Borrower shall, in lieu of issuing any fractional share, pay Lender who is otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors of the Company). 8. WAIVER. Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred, including, without limitation, reasonable attorneys' fees, costs and other expenses. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the fullest extent permitted by law. 9. ATTORNEY'S FEES. In the event of default by the Borrower (or its assignee) in the payment of principal or interest due on this Note, Lender shall be entitled to receive and Borrower (or its assignee) agrees to pay all costs of collection incurred by Lender, including, without limitation, reasonable attorneys' fees for consultation and suit. 10. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Colorado, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 11. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the benefit of and be binding on any successor to Borrower and shall extend to any holder hereof. BORROWER BIOSTAR, INC. By: Teresa W. Ayers ---------------------------------------- Title: President/Chief Operating Officer ------------------------------------- 6. 46 EXHIBIT C SUBORDINATED PROMISSORY NOTE $1,406,679.59 March ___, 1996 Chicago, Illinois This Subordinated Promissory Note amends and restates that Subordinated Promissory Note dated May 3, 1995 between the parties hereto. FOR VALUE RECEIVED, BIOSTAR, INC., a Delaware corporation, with its principal place of business located at 6655 Lookout Road, Boulder, Colorado 80301 ("Borrower"), hereby promises to pay to the order of COMDISCO, INC., a Delaware corporation, having its principal place of business at 6111 North River Road, Rosemont, Illinois 60018 ("Lender"), in lawful money of the United States of America and in immediately available funds, the principal sum of One Million Four Hundred Six Thousand Six Hundred Seventy-Nine and 59/100 Dollars ($1,406,679.59) (the "Loan"), together with accrued and unpaid interest thereon payable on the dates and in the manner set forth below. This Subordinated Promissory Note is the Note referred to in, and is executed and delivered in connection with, that certain Subordinated Security Agreement dated as of May 3, 1995 and the Amendment to Subordinated Security Agreement dated as of March ___, 1996, by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the "Security Agreement"). All terms defined in the Security Agreement shall have the same definitions when used herein, unless otherwise defined herein. 1. LOAN REPAYMENT. The outstanding principal amount of the Loan, together with interest thereon, shall be due and payable in advance on the first day of each month in accordance with the payment schedule set forth below. Payments shall consist of one (1) monthly installment of principal and interest in the amount of $85,450.00 on April 1, 1996; followed by eight (8) equal monthly installments of interest only in the amount of $15,673.87 each, commencing May 1, 1996 and on the first day of each successive month thereafter, to and including December 1, 1996; followed by sixteen (16) equal monthly installments of principal and interest in the amount of $62,267.00 each, commencing January 1, 1997 and on the first day of each successive month thereafter, to and including April 1, 1998; followed by one (1) final installment of deferred principal and interest thereon in the amount of $535,236.00 on May 1, 1998. 2. INTEREST RATE. Interest on the outstanding principal hereof from the date hereof until maturity, whether by acceleration or otherwise, or a default (as hereinafter defined), shall be payable at the rate of fourteen percent (14.00%) per annum or the maximum rate permissible by law (which under the laws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less (the "Applicable Rate"). In 47 the event that the amount of interest contracted for, charged or received from Borrower or otherwise in connection with the Loan evidenced hereby exceeds the Applicable Rate, then at Lender's option, such amount shall either be applied as a credit against any then unpaid amounts hereof or refunded to Borrower and the effective rate of interest will be automatically reduced to the Applicable Rate. Upon the occurrence of an event of default, this Note shall thereafter bear interest at the rate of nineteen percent (19.00%) per annum or the maximum rate permissible by law (which under the laws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less. In any event, interest payable hereunder shall be computed on the basis of a 360-day year and twelve 30-day months. 3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable at the office of Lender, P.O. Box 91744, Chicago, Illinois 60693, unless another place of payment shall be specified in writing by Lender. 4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied first to costs of Lender incurred in collection of this Note, if any, then to pay accrued interest, and thereafter to the outstanding principal balance hereof. 5. PREPAYMENT. Borrower may prepay the entire balance of principal owed under this Note in whole or in part without paying any prepayment penalty and without paying a premium or interest charge on the amount of prepaid principal. 6. SECURED NOTE. This Note is secured by the Collateral identified and described as security therefor in the Security Agreement executed by and delivered by Borrower. Borrower shall not, directly or indirectly, suffer or permit to be created or to remain, and shall promptly discharge, any lien on or in the Collateral, or in any portion thereof, except as permitted pursuant to the Security Agreement. In addition, Borrower shall not suffer any other matter whereby an interest of Lender under the Security Agreement in the Collateral or in any lien pursuant to the Security Agreement or any part of the foregoing might be impaired, except as permitted pursuant to such Security Agreement. 7. SUBORDINATED NOTE. THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT BY AND BETWEEN LENDER AND BORROWER DATED MAY 3, 1995. IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL. 8. DEFAULT. Any of the following events shall constitute a default under this Note: (a) Borrower's failure to pay timely any of the principal amount due under this Note or any accrued interest or other amounts due under this Note on the date the same becomes due and payable, by maturity, acceleration or otherwise, or within five (5) calendar days thereafter, or (b) the occurrence of an Event of Default under the Security Agreement or the Master Lease Agreement or any other written agreement between Lender and Borrower. Upon the occurrence of a default hereunder, all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of Lender, be immediately collectible by Lender pursuant to applicable law. 2 48 9. WAIVER. Borrower waives, to the extent permitted by law, (a) presentment and demand for payment, notice of dishonor, protest and notice of protest and any other notice as permitted under the UCC or any applicable law; (b) the right, if any, to the benefit of, or to direct the application of, any of the Collateral until all indebtedness of the Borrower to Lender, however arising, has been paid; (c) all defenses and rights to discharge under the UCC and all other suretyship defenses or rights to discharge; (d) Borrower shall pay to Lender, when incurred, all costs of collection and enforcement or protection of Lender's security interest in the Collateral including, without limitation, reasonable attorneys' fees, costs and other expenses. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the full extent permitted by law; and (e) such other waivers as are set forth in the Security Agreement. 10. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 11. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the benefit of and be binding on Borrower and any of its permitted assigns, and shall extend to any holder hereof. Lender may assign its rights hereunder without prior notice to Borrower. 12. AMENDMENT. The terms and conditions of this Note may not be amended, waived or modified except in a writing signed by an authorized agent of Lender which writing expressly states that the writing constitutes an amendment, waiver or modification of this Note. 13. WAIVER OF JURY TRIAL. Borrower and Lender acknowledge that the right to trial by jury is a constitutional one, but that it may be waived. Each party, after consulting (or having had the opportunity to consult) with counsel of their choice, knowingly and voluntarily, and for their mutual benefit, waives any right to trial by jury in the event of litigation regarding the performance or enforcement of, or in any way related to, this Note. BORROWER: BIOSTAR, INC. By: ------------------------------------------ Printed Name: -------------------------------- Title: --------------------------------------- 3 EX-10.66 12 SUBORDINATION AGREEMENT 1 SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT ("AGREEMENT") dated as of May 3, 1995, is entered into by and between COMDISCO, INC., a Delaware corporation ("SUBORDINATED CREDITOR"), and BIOSTAR, INC., a Delaware corporation (the "BORROWER"), for the express benefit of the SENIOR CREDITOR (as defined below). RECITALS A. Concurrently herewith, the Subordinated Creditor is advancing to the Borrower a secured loan of money in the original principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000) evidenced by a Subordinated Promissory Note dated the same date as this Agreement (as the same may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced, the "SUBORDINATED NOTE") made by the Borrower in favor of the Subordinated Creditor. The Borrower's obligations to the Subordinated Creditor evidenced by the Subordinated Note are secured by the personal property collateral granted by the Borrower to the Subordinated Creditor pursuant to a Subordinated Security Agreement dated as of the same date as this Agreement (as the same may from time to time be amended, modified, supplemented or restated, the "SUBORDINATED SECURITY AGREEMENT"). B. The Borrower has advised the Subordinated Creditor that it contemplates entering into a loan agreement (as the same may from time to time be amended, modified, supplemented or restated, the "LOAN AGREEMENT") with a financial institution or a syndicate of financial institutions to be determined (such financial institution or syndicate of financial institutions, including, without limitation, any agent or other representative for such syndicate being hereinafter referred to individually and collectively as the "SENIOR CREDITOR"), pursuant to which the Senior Creditor shall make available to the Borrower, on a senior secured basis, certain extensions of credit as described in the Loan Agreement. C. In contemplation of the Borrower obtaining such senior secured financing and the conditions expected to be imposed by such Senior Creditor as conditions precedent to making available to the Borrower the proceeds of such financing, and in order to assist the Borrower to obtain such senior secured financing, the Subordinated Creditor is willing to enter into this Agreement with the Borrower for the express benefit of the Senior Creditor, on the terms and subject to the conditions set forth below. AGREEMENT NOW, THEREFORE, in order to induce the Senior Creditor to enter into a Loan Agreement and to make extensions of credit available to the Borrower thereunder, and to grant such renewals or extensions thereof constituting Senior Debt (as defined in Section 1, below), and intending to be legally bound, the Subordinated Creditor and the Borrower hereby severally agree for the benefit of the Senior Creditor as set forth below. 1. DEFINITIONS. As used herein, the following terms shall have the following meanings: 2 "SENIOR DEBT" means (i) the principal amount of all indebtedness of the Borrower to the Senior Creditor under the Loan Agreement and any promissory note or other evidence of indebtedness executed by the Borrower pursuant to the Loan Agreement in favor of the Senior Creditor; (ii) all other indebtedness and obligations of the Borrower to the Senior Creditor under or relating to any of the Loan Agreement or any agreement, document or instrument executed by the Borrower pursuant to or in connection with the Loan Agreement (collectively, the "SENIOR LOAN DOCUMENTS"); (iii) all amounts due or to become due relating to any of the foregoing, including, without limitation, all interest, all loan and other fees, expenses and costs (including attorneys' fees), including costs of enforcement, amounts reimbursable and other liabilities (including interest, fees, professional fees and costs which would become due but for the operation of Title 11 of the United States Code, the Bankruptcy Rules promulgated pursuant thereto, or any subsequent bankruptcy law of the United States (the "BANKRUPTCY CODE"); and (iv) any and all obligations pursuant to any amendment of any of the foregoing in favor of the Senior Creditor. "SUBORDINATED DEBT" means (i) the principal amount of all indebtedness of the Borrower which shall from time to time exist in favor of the Subordinated Creditor under the Subordinated Note; (ii) all other indebtedness and debt obligations of the Borrower to the Subordinated Creditor under or relating to any of the Subordinated Note or any agreement, document or instrument, including, without limitation, the Subordinated Security Agreement, executed by the Borrower pursuant to the Subordinated Note (collectively, the "SUBORDINATED LOAN DOCUMENTS"); (iii) all amounts due or to become due relating to any of the foregoing, including, without limitation, all interest and all fees, expenses and costs (including attorneys' fees), including costs of enforcement, amounts reimbursable and other liabilities (including interest, fees, professional fees and costs which would become due but for the operation of the Bankruptcy Code); and (iv) any and all obligations pursuant to any amendment, replacement, substitution, extension or renewal of any of the foregoing in favor of the Subordinated Creditor. Notwithstanding anything to the contrary contained in this definition of "SUBORDINATED DEBT", there shall be expressly excluded from such definition (1) the Warrant Agreement dated as of May 3, 1995 between Borrower and the Subordinated Creditor pursuant to which Borrower granted Subordinated Creditor the right to purchase 214,285 shares of Series E Preferred Stock ("WARRANT AGREEMENT"); (2) the principal amount of all indebtedness of the Borrower which shall from time to time exist in favor of the Subordinated Creditor under the Master Lease Agreement dated as of the same date as this Agreement (as the same may from time to time be amended, modified, supplemented or restated, the "MASTER LEASE AGREEMENT") entered into between the Borrower and the Subordinated Creditor; (3) all other indebtedness and obligations of the Borrower to the Subordinated Creditor under or relating to any of the Master lease Agreement or any agreement, document or instrument, including, without limitation, any schedules to the Master Lease Agreement, executed or delivered by the Borrower pursuant to the Master Lease Agreement, including, but not limited to the Warrant Agreement issued in connection therewith dated May 3, 1995; and (4) all amounts due or to become due relating to any of the foregoing, including, without limitation, all interest and all fees, expenses and costs (including attorneys' fees), including costs of enforcement, amounts reimbursable and other liabilities (including interest, fees, professional fees and costs which would become due but for the operation of the Bankruptcy Code) (collectively, the "EXCLUDED LEASE OBLIGATIONS"). 2. 3 2. SUBORDINATION. (a) On the terms and conditions set forth below, the payment and performance, and the Subordinated Creditor's right to receipt thereof, of the Subordinated Debt is hereby subordinated to the full and final payment and performance, and the Senior Creditor's right to receipt thereof, of the Senior Debt. Subject to and except as set forth in Section 3, below, the Subordinated Creditor shall not ask, demand, sue for, take or receive from the Borrower, by setoff or in any other manner, the whole or any part of any monies which may now or hereafter be owing by the Borrower, or any successor or assign of the Borrower, including, without limitation, any receiver or trustee (the term "BORROWER" hereinafter shall include any such successor or assignee of the Borrower), to the Subordinated Creditor, or be owing by any other person to the Subordinated Creditor under a guaranty or similar instrument, on account of the Subordinated Debt, nor any collateral security for any of the foregoing, including, without limitation, any personal property collateral granted to the Subordinated Creditor pursuant to the Subordinated Security Agreement, unless and until all Senior Debt shall have been fully and finally paid in cash and all commitments to extend credit under the Loan Agreement shall have been terminated (the temporary reduction of outstanding obligations, liabilities and indebtedness of the Borrower to the Senior Creditor not being deemed to constitute full payment or satisfaction thereof). (b) The Subordinated Creditor expressly understands that the Senior Creditor is expected not to permit the Subordinated Creditor to create, maintain or perfect any lien on or in any property of the Borrower, other than the security interest granted in favor of the Subordinated Creditor in certain of the Borrower's personal property under and as described in the Subordinated Security Agreement. If, notwithstanding the foregoing, any lien shall be created or shall arise (including, without limitation, the security interests granted in favor of the Subordinated Creditor pursuant to the Subordinated Security Agreement), whether by operation of law or otherwise, and may from time to time exist in favor of the Subordinated Creditor in or on any property of the Borrower securing all or any portion of the Subordinated Debt, then, regardless of the relative times of attachment or perfection thereof or the order of filing of financing statements, mortgages or other documents, any liens granted by the Borrower in favor of the Senior Creditor shall in all respects be first and senior liens, superior to any liens in favor of the Subordinated Creditor, including, without limitation, the security interests granted in favor of the Subordinated Creditor pursuant to the Subordinated Security Agreement. The Subordinated Creditor shall not have any right to possession of any such property or to foreclose upon any such property, whether by judicial action or otherwise, and all liens in and on the property of the Borrower shall be held in trust by the Subordinated Creditor for the benefit of the Senior Creditor unless and until all of the Senior Debt shall have been fully and finally paid in cash and all commitments to extend credit under the Loan Agreement shall have been terminated. In the event the Senior Creditor releases any of its collateral security for the Senior Debt which constitutes collateral security for part or all of the Subordinated Debt, at the request of the Senior Creditor, so long as the Subordinated Debt is paid in full, the Subordinated Creditor shall thereupon execute and deliver to the Borrower such termination statements and releases as the Senior Creditor shall reasonably request to release the Subordinated Creditor's lien, if any, in or on such property. This subordination is intended to define the rights and duties of the Subordinated Creditor and Senior Creditor; it is not intended that any third party shall benefit from it. If the effect of this subordination provision would be to give any third party a priority 3. 4 status to which that party would not otherwise be entitled, that provision shall, to the extent necessary to avoid that priority, be given no effect and the rights and priorities of the Senior Creditor and the Subordinated Creditor shall be determined in accordance with applicable law. (c) No agreement or instrument evidencing any obligation of the Borrower to the Subordinated Creditor may be modified or amended without the Senior Creditor's prior written consent, which consent shall not be unreasonably withheld or delayed. 3. PERMITTED PAYMENTS; PAYMENT BLOCKAGE. (a) Notwithstanding anything to the contrary contained in Section 2, above, but subject expressly to Section 3(b), below, the Borrower shall be permitted to make, and the Subordinated Creditor shall be permitted to accept or receive, (i) scheduled repayments of principal when due under the Subordinated Note, (ii) scheduled payments of accrued interest when due under the Subordinated Note and (iii) payments of reimbursable expenses and costs expressly provided for in the Subordinated Note and the other Subordinated Loan Documents. The payments permitted to be made by the Borrower under this Section 3(a) shall herein be collectively referred to as the "PERMITTED PAYMENTS." (b) Notwithstanding anything to the contrary contained in this Section 3 or elsewhere in this Agreement, the Subordinated Creditor shall not, after delivery of written notice to the Subordinated Creditor from the Senior Creditor that (i) an Event of Default (as defined in the Loan Agreement) shall have occurred and be continuing and shall have resulted in such Senior Debt becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable (an "ACCELERATION NOTICE") or (ii) an Event of Default has occurred, but in respect of which the Senior Creditor has not yet declared the Senior Debt due and payable prior to the date on which it would otherwise have become due and payable (a "BLOCKAGE NOTICE"), accept or receive any payment of any kind, including any Permitted Payment, of or on account of the Subordinated Debt, (A) in the case of any event described in clause (i) above, unless and until such Senior Debt shall have been fully and finally paid in cash or such Acceleration Notice shall have been rescinded by the Senior Creditor in writing (whether as the result of the Borrower having cured all Events of Default or otherwise), or (B) in the case of any event described in clause (ii) above, unless and until the expiration of the Blockage Period. Upon the expiration of the Blockage Period, the Subordinated Creditor shall be entitled to receive all Permitted Payments not previously paid. Each Blockage Notice shall be effective as of the date of delivery thereof to the Subordinated Creditor. As used herein "BLOCKAGE PERIOD" means a period of time beginning on the delivery date of a Blockage Notice and terminating on the earlier to occur of: (1) the one hundred eightieth (180th) day following such date; (2) the Senior Creditor's written consent to such termination; (3) commencement of a judicial proceeding by the Senior Creditor to collect or enforce any of the Senior Debt or giving notice of any non-judicial sale of any of the collateral for the Senior Debt; 4. 5 (4) the cure to the reasonable satisfaction of the Senior Creditor of each Event of Default which is the basis for the applicable Blockage Notice (such cure of each of the Events of Default which is the basis for such Blockage Notice being deemed to also be a cure of any default under the Subordinated Note arising as a result of the occurrence and continuance of any such Event of Default); or (5) an Event of Default under the Loan Agreement relating to an Insolvency Event (as defined in Section 6, below). The Senior Creditor shall not be permitted to issue more than one (1) Blockage Notice in any twelve (12) moth period. 4. ENFORCEMENT RIGHTS. Any rights of the Subordinated Creditor to accelerate the maturity of the Subordinated Debt, enforce any claim, including any default remedy, with respect to the Subordinated Debt, or otherwise to take any action against the Borrower or the Borrower's property with respect to the Subordinated Debt shall be subject to any Blockage Period given pursuant to Section 3 hereof. 5. SUBORDINATED DEBT OWED ONLY TO THE SUBORDINATED CREDITOR. The Subordinated Creditor hereby warrants and represents to the Senior Creditor that the entire Subordinated Debt created in favor of the Subordinated Creditor is owing only to the Subordinated Creditor, that the Subordinated Debt has not been assigned to any other person, and that no subordinations of the Subordinated Debt have previously been made for the benefit of any other person. The Subordinated Creditor hereby covenants to the Senior Creditor that the entire Subordinated Debt created in favor of the Subordinated Creditor shall continue to be owing only to the Subordinated Creditor and any collateral security therefor, including, without limitation, the collateral security granted to the Subordinated Creditor pursuant to the Subordinated Security Agreement, shall continue to be held solely for the benefit of the Subordinated Creditor unless assigned in accordance with the terms of this Agreement. 6. THE SENIOR CREDITOR'S PRIORITY. In the event of any distribution, division, or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the property of the Borrower or the proceeds thereof to the creditors of the Borrower, or the readjustment of the Senior Debt and the Subordinated Debt of the Borrower, whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any other action or proceeding involving the readjustment of all or any part of the Senior Debt or the Subordinated Debt, or the application of the property of the Borrower to the payment or liquidation thereof, or upon the dissolution or other winding up of the Borrower's business, or upon the sale of all or any substantial part of the Borrower's property (any of the foregoing being hereinafter referred to as an "INSOLVENCY EVENT"), then, and in any such event, the Senior Creditor shall be entitled to receive full and final payment in cash of any and all of the Senior Debt before the Subordinated Creditor shall be entitled to receive any payment on account of the Subordinated Debt, and to that end and in furtherance thereof: (a) all payments and distributions of any kind or character, whether in cash or property or securities in respect of the Subordinated Debt to which the Subordinated Creditor would be entitled if the Subordinated Debt were not subordinated pursuant to this Agreement (other than pursuant to the 5. 6 Warrant Agreement), shall be paid to the Senior Creditor and applied in payment of the Senior Debt; (b) the Subordinated Creditor shall promptly file a claim or claims, on the form required in such proceedings, for the full outstanding amount of the Subordinated Debt, and shall use its best efforts to cause said claim or claims to be approved and all payments or other distributions in respect thereof to be made directly to the Senior Creditor; (c) the Subordinated Creditor hereby irrevocably agrees that in the event Subordinated Creditor fails to file a claim or claims, the Senior Creditor may in the name of the Subordinated Creditor, or otherwise, prove up any and all claims of the Subordinated Creditor relating to the Subordinated Debt; and (d) in the event that, notwithstanding the foregoing, any payment or distribution of any kind or character, whether in cash, properties or securities (other than pursuant to the Warrant Agreement), shall be received by the Subordinated Creditor on account of the Subordinated Debt before all of the Senior Debt has been fully and finally paid in cash, then such payment or distribution shall be received by the Subordinated Creditor in trust for and shall be promptly paid over to the Senior Creditor for application to the payments of amounts due on the Senior Debt until all amounts due on the Senior Debt shall have been fully and finally paid in cash. 7. GRANT OF AUTHORITY. In the event of the occurrence of an Insolvency Event, and in order to enable the Senior Creditor to enforce its rights hereunder in any of the aforesaid actions or proceedings, the Senior Creditor is hereby irrevocably authorized and empowered, in the Senior Creditor's discretion, as follows: (a) The Senior Creditor is hereby irrevocably authorized and empowered (in its own name or in the name of the Subordinated Creditor or otherwise) but shall have no obligation, to demand, sue for, collect and receive every payment or distribution referred to in Section 6, above, and give acquittance therefor and (if the Subordinated Creditor has failed to file claims or proofs of claim on or before forty-five (45) days prior to the date such claims or proofs of claim must be filed pursuant to law or the order of any court exercising jurisdiction over such proceeding) to file claims and proofs of claim and take such other action (including, without limitation, enforcing any lien securing payment of the Subordinated Debt) as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the Senior Creditor hereunder; (b) The Subordinated Creditor shall duly and promptly take such action as the Senior Creditor may request to execute and deliver to the Senior Creditor such powers of attorney, assignments, or other instruments as they may request in order to enable the Senior Creditor to enforce any and all claims with respect to, and any liens securing payment of, the Subordinated Debt as such enforcement is contemplated herein; and (c) To the extent that payments or distributions on account of the Subordinated Debt are made in property other than cash, the Subordinated Creditor authorizes the Senior Creditor to sell such property to such buyers and on such terms as are commercially reasonable in the situation in question. Following full and final payment in cash of the Senior Debt, the Senior Creditor shall remit to the Subordinated Creditor to the extent of the Subordinated Creditor's interest therein, all payments or distributions paid to and held by the Senior Creditor in excess of the Senior Debt. 6. 7 8. PAYMENTS RECEIVED BY THE SUBORDINATED CREDITOR. Should any payment or distribution or security be received by the Subordinated Creditor upon or with respect to the Subordinated Debt (other than Permitted Payments and any security issued pursuant to the Warrant Agreement) prior to termination of this Agreement in accordance with Section 11, below, the Subordinated Creditor shall receive and hold the same in trust, as trustee, for the benefit of the Senior Creditor and shall forthwith deliver the same to the Senior Creditor in precisely the form received (except for the endorsement or assignment of the Subordinated Creditor where necessary), for application to any of the Senior Debt, due or not due, and, until so delivered, the same shall be held in trust by the Subordinated Creditor as the property of the Senior Creditor. 9. FURTHER ASSURANCES; COOPERATION. The Subordinated Creditor agrees to cooperate with the Senior Creditor and to take all actions that the Senior Creditor may reasonably require to enable the Senior Creditor to realize the full benefits of this Agreement. 10. ASSIGNMENT OF CLAIMS. The Subordinated Creditor agrees that until the termination of this Agreement in accordance with Section 11, below, the Subordinated Creditor will not assign to others any portion of the Subordinated Debt unless such assignment is made expressly subject to this Agreement. 11. TERMINATION OF AGREEMENT. This Agreement shall be effective and may not be terminated or otherwise revoked by the Subordinated Creditor until the date which is 105 days following the date on which the Senior Debt shall have been fully, completely and finally paid in cash and all commitments under the Loan Agreement shall have been terminated. 12. ADDITIONAL AGREEMENTS. At any time and from time to time, the Senior Creditor may enter into such agreement or agreements with the Borrower as the Senior Creditor may deem proper, extending the time of payment of or renewing or otherwise altering the terms of all or any of the obligations constituting Senior Debt or affecting the collateral security for, supporting or underlying any or all of the Senior Debt, and may exchange, sell, release, surrender or otherwise deal with any such collateral without in any way thereby impairing or affecting this Agreement. 13. SUBROGATION. In case cash or other property otherwise payable or deliverable to the Subordinated Creditor shall have been applied pursuant to this Agreement to the payment of the Senior Debt, and if the Senior Debt shall have been fully and finally paid, to the Senior Creditor's satisfaction, then and in such case, the Subordinated Creditor shall be subrogated to any rights of the Senior Creditor to receive further payments or distributions applicable to the Senior Debt until the Subordinated Debt owed to the Subordinated Creditor shall have been paid in full. No such payments or distributions received by the Subordinated Creditor by reason of such subrogation shall, as between the Borrower and its creditors other than the Senior Creditor, on the one hand, and the Subordinated Creditor, on the other hand, be deemed to be a payment by the Borrower on account of the Subordinated Debt owed to the Subordinated Creditor. 7. 8 14. THE SUBORDINATED CREDITOR'S WAIVERS AND COVENANTS. (a) Without limiting the generality of any other waiver made by the Subordinated Creditor in this Agreement, the Subordinated Creditor hereby expressly waives (i) reliance by the Senior Creditor upon the subordination and other agreements (including, without limitation, any agreement to provide notice) as herein provided and (ii) any claim which the Subordinated Creditor may now or hereafter have against the Senior Creditor arising out of any and all actions which the Senior Creditor in good faith, takes or omits to take (A) with respect to the creation, perfection or continuation of liens in or on any collateral security for the Senior Debt, (B) with respect to the foreclosure upon, sale, release, or depreciation of, or failure to realize upon, any of the collateral security for the Senior Debt, (C) with respect to the collection of any claim for all or any part of the Senior Debt from any account debtor, guarantor or any other third party and (D) with respect to the valuation, use, protection or release of any collateral security for the Senior Debt. (b) Without limiting the generality of any other covenant or agreement made by the Subordinated Creditor in this Agreement, the Subordinated Creditor hereby covenants and agrees that (i) the Senior Creditor has not made any warranties or representations with respect to the due execution, legality, validity, completeness or enforceability of the Loan Agreement or any of the other Senior Loan Documents, or the collectibility of the Senior Debt; (ii) the Senior Creditor shall be entitled to manage and supervise the Senior Creditor's extensions of credit to the Borrower in accordance with applicable law and the Senior Creditor's usual practices, modified from time to time as the Senior Creditor deems appropriate under the circumstances, without regard to the existence of any rights that the Subordinated Creditor may now or hereafter have in or to any of the property of the Borrower; and (iii) the Subordinated Creditor will not interfere with or in any manner oppose a disposition of any collateral security for the Senior Debt by the Senior Creditor. 15. REINSTATEMENT OF SENIOR DEBT. To the extent that the Senior receives payments on, or proceeds of any collateral security for the Senior Debt which are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law, or equitable cause, then, to the extent of such payment or proceeds invalidated, declared to be fraudulent or preferential, set aside or required to be repaid, the Senior Debt, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by the Senior Creditor. 16. NO WAIVERS. The Senior Creditor shall not be prejudiced in its rights under this Agreement by any act or failure to act of the Borrower or the Subordinated Creditor or any noncompliance of the Borrower or the Subordinated Creditor with any agreement or obligation, regardless of any knowledge thereof which the Senior Creditor may have, or with which the Senior Creditor may be charged; and no action permitted hereunder taken by the Senior Creditor shall in any way affect or impair the rights of the Senior Creditor in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by any such person of any right or remedy shall preclude other or further exercise thereof, or their exercise of any other right or remedy; nor shall any modification or waiver of any of the provisions of this Agreement 8. 9 be binding upon the Senior Creditor, except as expressly set forth in a writing duly signed and delivered on by the Senior Creditor. 17. INFORMATION CONCERNING FINANCIAL CONDITION OF THE BORROWER. The Subordinated Creditor hereby assumes responsibility for keeping itself informed of the financial condition of the Borrower, any and all endorsers and any and all guarantors of the Senior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt or the Subordinated Debt that diligent inquiry would reveal, and the Subordinated Creditor hereby agree that the Senior Creditor shall have no duty to advise the Subordinated Creditor of information known to the Senior Creditor regarding such condition. 18. NOTICES. Unless otherwise provided herein, all notices required or desired to be given hereunder shall be deemed validly given or delivered upon the earlier of (a) actual receipt thereof or (b) three (3) business days following deposit in the United States mails, and certified or registered with postage prepaid and if addressed as set forth under each party's signature below or to such other address as such party shall advise in writing. 19. SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 20. EXPENSES. Each party hereto agrees that in the event of any dispute hereunder, any party prevailing in such dispute shall be entitled to receive its reasonable out-of-pocket fees and expenses incurred in connection with such dispute or the enforcement of any of their rights or interests hereunder, including the fees and expenses of their counsel (including outside and the allocated fees and expenses of in-house counsel). 21. GOVERNING LAW; ASSIGNMENT. This Agreement shall be governed by and interpreted, in accordance with the laws of the State of California without regard to principles of conflicts of laws. This Agreement shall be binding upon the Subordinated Creditor, the Borrower and their respective successors and assigns, and shall inure to the benefit of and be enforceable by the Senior Creditor and its successors and assigns. 22. EFFECTIVENESS OF AGREEMENT. This Agreement shall be effective upon the later to occur of (a) the execution of counterparts by both the Subordinated Creditor and the Borrower and (b) the delivery by the Borrower to the Subordinated Creditor of written notice (the "NOTICE OF SENIOR LOAN") that the Borrower has entered into a Loan Agreement with a Senior Creditor, which notice shall identify the Senior Creditor and state the address to which notices to the Senior Creditor are to be sent. The Senior Creditor, as a third party beneficiary, does not need to execute this Agreement for this Agreement to be effective. The Borrower agrees to furnish the Subordinated Creditor with a copy of the Loan Agreement and such other Senior Loan Documents as the Subordinated Creditor shall reasonably request; provided, however, that any delay or failure by the Borrower to furnish such copies shall not limit or impair the effectiveness of this Agreement. 9. 10 23. COUNTERPARTS. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 10. 11 IN WITNESS WHEREOF, this Subordination Agreement has been executed as of the date first above written. THE SUBORDINATED CREDITOR COMDISCO, INC. By: /s/ James Labe ---------------------------------- Name: James Labe Title: President, Comdisco Venture Lease Division Notices To: COMDISCO, INC. 6111 North River Road Rosemont, IL 60018 Attention: General Counsel With a copy to: COMDISCO INC./VENTURE GROUP 6111 North River Road Rosemont, IL 60018 Attention: James Labe THE BORROWER BIOSTAR, INC. By: /s/ Teresa W. Ayers ---------------------------------- Name: Teresa W. Ayers Title: Vice President Finance Notices To: BIOSTAR, INC. 6655 Lookout Road Boulder, Colorado 80301-3371 Attention: Vice President Finance 11. EX-10.67 13 SUBORDINATED PROMISSORY NOTE 1 SUBORDINATED PROMISSORY NOTE $1,406,679.59 March 20, 1996 Chicago, Illinois This Subordinated Promissory Note amends and restates that Subordinated Promissory Note dated May 3, 1995 between the parties hereto. FOR VALUE RECEIVED, BIOSTAR, INC., a Delaware corporation, with its principal place of business located at 6655 Lookout road, Boulder, Colorado 80301 ("Borrower"), hereby promises to pay to the order of COMDISCO, INC., a Delaware corporation, having its principal place of business at 6111 North River Road, Rosemont, Illinois 60018 ("Lender"), in lawful money of the United States of America and in immediately available funds, the principal sum of One Million Four Hundred Six Thousand Six Hundred Seventy-Nine and 59/100 Dollars ($1,406,679.59) (the "Loan"), together with accrued and unpaid interest thereon payable on the dates and in the manner set forth below. This Subordinated Promissory Note is the note referred to in, and is executed and delivered in connection with, that certain Subordinated Security Agreement dated as of May 3, 1995 and the Amendment to Subordinated Security Agreement dated as of March 20, 1996, by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the "Security Agreement"). All terms defined in the Security Agreement shall have the same definitions when used herein, unless otherwise defined herein. 1. LOAN REPAYMENT. The outstanding principal amount of the Loan, together with interest thereon, shall be due and payable in advance on the first day of each month in accordance with the payment schedule set forth below. Payments shall consist of one (1) monthly installment of principal and interest in the amount of $85,450.00 on April 1, 1996; followed by eight (8) equal monthly installments of interest only in the amount of $15,673.87 each, commencing May 1, 1996 and on the first day of each successive month thereafter, to and including December 1, 1996; followed by sixteen (16) equal monthly installments of principal and interest in the amount of $62,267.00 each, commencing January 1, 1997 and on the first day of each successive month thereafter, to and including April 1, 1998; followed by one (1) final installment of deferred principal and interest thereon in the amount of $535,236.00 on May 1, 1998. 2. INTEREST RATE. Interest on the outstanding principal hereof from the date hereof until maturity, whether by acceleration or otherwise, or a default (as hereinafter defined), shall be payable at the rate of fourteen percent (14.00%) per annum or the maximum rate permissible by law (which under the laws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less (the "Applicable Rate"). In the event that the amount of interest contracted for, charged or received from Borrower or otherwise in connection with the Loan evidenced hereby exceeds the Applicable Rate, then at Lender's option, such amount shall either be applied as a credit against any then-unpaid amounts 1. 2 hereof or refunded to Borrower and the effective rate of interest will be automatically reduced to the Applicable Rate. Upon the occurrence of an event of default, this Note shall thereafter bear interest at the rate of nineteen percent (19%) per annum or the maximum rate permissible by law (which under the laws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less. In any event, interest payable hereunder shall be computed on the basis of a 360-day year and twelve 30-day months. 3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable at the office of Lender, P.O. Box 91744, Chicago, Illinois 60693, unless another place of payment shall be specified in writing by Lender. 4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied first to costs of Lender incurred in collection of this Note, if any, then to pay accrued interest, and thereafter to the outstanding principal balance hereof. 5. PREPAYMENT. Borrower may prepay the entire balance of principal owed under this Note in whole or in part without paying any prepayment penalty and without paying a premium or interest charge on the amount of prepaid principal. 6. SECURED NOTE. This Note is secured by the Collateral identified and described as security therefor in the Security Agreement executed by and delivered by Borrower. Borrower shall not, directly or indirectly, suffer or permit to be created or to remain, and shall promptly discharge, any lien on or in the Collateral, or in any portion thereof, except as permitted pursuant to the Security Agreement. In addition, Borrower shall not suffer any other matter whereby an interest of Lender under the Security Agreement in the Collateral or in any lien pursuant to the Security Agreement or any part of the foregoing might be impaired, except as permitted pursuant to such Security Agreement. 7. SUBORDINATED NOTE. THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT BY AND BETWEEN LENDER AND BORROWER DATED MAY 3, 1995. IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL. 8. DEFAULT. Any of the following event shall constitute a default under this Note: (a) Borrower's failure to pay timely any of the principal amount due under this Note or any accrued interest or other amounts due under this Note on the date the same becomes due and payable, by maturity, acceleration or otherwise, or within five (5) calendar days thereafter, or (b) the occurrence of an Event of Default under the Security Agreement or the Master Lease Agreement or any other written agreement between Lender and Borrower. Upon the occurrence of a default hereunder, all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of Lender, be immediate collectible by Lender pursuant to applicable law. 9. WAIVER. Borrower waives, to the extent permitted by law, (a) presentment and demand for payment, notice of dishonor, protest and notice of protest and any other notice as permitted under the UCC or any applicable law; (b) the right, if any, to the benefit of, or to direct 2. 3 the application of, any of the Collateral until all indebtedness of the Borrower to Lender, however arising, has been paid; (c) all defenses and rights to discharge under the UCC and all other suretyship defenses or rights to discharge; (d) Borrower shall pay to Lender, when incurred, all costs of collection and enforcement or protection of Lender's security interest in the Collateral including, without limitation, reasonable attorneys' fees, costs and other expenses. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the full extent permitted by law; and (e) such other waivers as are set forth in the Security Agreement. 10. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 11. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the benefit of and be binding on Borrower and any of its permitted assigns, and shall extend to any holder hereof. Lender may assign its rights hereunder without prior notice to Borrower. 12. AMENDMENT. The terms and conditions of this Note may not be amended, waived or modified except in a writing signed by an authorized agent of Lender which writing expressly states that the writing constitutes an amendment, waiver or modification of this Note. 13. WAIVER OF JURY TRIAL. Borrower and Lender acknowledge that the right to trial by jury is a constitutional one, but that it may be waived. Each party, after consulting (or having had the opportunity to consult) with counsel of their choice, knowingly and voluntarily, and for their mutual benefit, waives any right to trial by jury in the event of litigation regarding the performance of enforcement of, or in any way related to, this Note. BORROWER: BIOSTAR, INC. By: /s/ Teresa W. Ayers ----------------------- Printed Name: Teresa W. Ayers --------------------- Title: President/COO 3. EX-10.68 14 FORM OF CONVERTIBLE SUBORDINATED PROMISSORY NOTE 1 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE BORROWER THAT SUCH REGISTRATION IS NOT REQUIRED. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $<> March 20, 1996 Boulder, Colorado FOR VALUE RECEIVED, BioStar, Inc., a Delaware corporation ("BORROWER"), hereby unconditionally promises to pay to the order of <> ("LENDER"), in lawful money of the United States of America and in immediately available funds, the principal sum of $<> (the "LOAN") together with accrued and unpaid interest thereon, payable on the dates and in the manner set forth below. This convertible note (the "NOTE") is non-negotiable and is executed and delivered in connection with that certain Note and Warrant Purchase Agreement dated as of March 20, 1996, by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented, the "PURCHASE AGREEMENT"). This Note is delivered to Borrower in full satisfaction of all amounts due and owing to the Lender under the Purchase Agreement. All terms defined in the Purchase Agreement shall have the same definitions when used herein, unless otherwise defined herein. In the event of any conflict between the terms of this Note and the terms of the Purchase Agreement, the terms of the Purchase Agreement shall control. 1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan shall be payable as follows: on the earlier of (a) March 20, 1999, or (b) on the closing of a Corporate Event (as defined below), subject to the conversion of the Note into Borrower's capital stock as further described in Section 7 below. A "Corporate Event" shall mean either (i) the Company's initial public offering or (ii) the closing of a consolidation or merger of the Borrower with or into any other corporation or corporations, or a sale, conveyance or disposition of all or substantially all of the assets of the Borrower. The Borrower may prepay this Note at any time without penalty upon the prior written consent of Silicon Valley Bank. 2. INTEREST RATE. Borrower further promises to pay interest on the sum of the unpaid principal balance of the Loan outstanding on each day, from the date of this Note until all such principal amounts shall have been repaid in full, which interest shall be payable at the prime rate as announced by the Bank of America for commercial loans plus 2% or the maximum rate permissible by law (which under the laws of the State of Colorado shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less. Interest shall be payable at maturity and shall be calculated on the basis of a 365-day year for the actual number of days elapsed. 1. 2 3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable to Lender at the address it specifies to Borrower in writing. 4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied first to accrued interest, and thereafter to the outstanding principal balance hereof. 5. DEFAULT. Borrower's failure to pay timely any of the principal amount due under this Note on the date the same becomes due and payable or any accrued interest or other amounts due under this Note on the date the same becomes due and payable or within ten (10) calendar days after written receipt of notice of failure to pay shall constitute a default under this Note. If a default is not cured within 30 days of the receipt of notice of failure to pay, all unpaid principal, accrued interest and other amounts owing thereunder shall, at the option of Lender, be immediately collectible by Lender pursuant to applicable law. 6. NOTE. (a) AGREEMENT TO SUBORDINATE. The Borrower, for itself, its successors and assigns, covenants and agrees, and the Lender by acceptance hereof, likewise covenants and agrees, that the payment of the principal of and interest on this Note is hereby expressly subordinated to the extent and in the manner hereinafter set forth in right of payment to the prior payment in full of certain other obligations of Borrower owed at any time to commercial banks or other financial institutions (including but not limited to the Borrower's current obligations to Silicon Valley Bank and Comdisco, Inc.) (the "Senior Indebtedness"), and that such subordination is for the benefit of the holders of Senior Indebtedness. All persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness, shall be entitled to rely hereon, and such provisions are made for the benefit of the holders of Senior Indebtedness, and they or any of them may proceed to enforce such provisions directly against the Lender. (b) SUBORDINATION IN THE EVENT OF DEFAULT ON SENIOR INDEBTEDNESS. No payment shall be made on this Note at such time as any default exists (or would exist after giving effect to such payment) with respect to the Senior Indebtedness. If any such payment is made, Lender (or its assignee) shall remit to the holder of the Senior Indebtedness all such money so received, which shall be applied to amounts due under the Senior Indebtedness. (c) DISTRIBUTION ON DISSOLUTION, LIQUIDATION AND REORGANIZATION; SUBROGATION OF NOTE. Upon any distribution of assets of Borrower (or Borrower's assignee), upon any dissolution, winding up, liquidation or reorganization of Borrower (or Borrower's assignee), whether in bankruptcy, insolvency, reorganization or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of Borrower (or Borrower's assignee) or otherwise: (1) the holder of all Senior Indebtedness shall first be entitled to receive payment in full thereof before Lender is entitled to receive any payment upon the principal of and premium, if any, or interest on indebtedness evidenced by this Note; 2 3 (2) any payment or distribution of assets of Borrower (or Borrower's assignee) of any kind or character, whether in cash, property or securities, to which Lender would be entitled except for the provisions of this Section 6 shall be paid or delivered by Borrower (or Borrower's assignee) or any liquidating trustee, trustee in bankruptcy, receiver, agent or other person making such payment or distribution directly to the holder of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, as their interests appear, to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and (3) in the event that, notwithstanding the foregoing any payment or distribution of assets of Borrower (or Borrower's assignee) of any kind or character, whether in cash, property or securities, shall be received by Lender before all Senior Indebtedness is paid in full, such payment or distribution shall be paid over or delivered to the holder of such Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, as their interests appear, for application to the payment of all Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall have been paid in full, after giving effect to any concurrent payment or distribution to the holder of such Senior Indebtedness. Subject to the prior payment in full of all Senior Indebtedness, Lender shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property, or securities of Borrower (or Borrower's assignee) applicable to the Senior Indebtedness until the principal of, premium, if any, and interest on this Note shall be paid in full and no such payments or distributions to Lender of cash, property or securities otherwise distributable to the Senior Indebtedness shall, as between Borrower (or Borrower's assignee), its creditors other than the holder of Senior Indebtedness, and Lender, be deemed to be a payment by Borrower (or Borrower's assignee) to or on account of this Note. It is understood that the provisions of this Section 6 are and are intended solely for the purpose of defining the relative rights of the Lender, on the one hand, and the holder of Senior Indebtedness, on the other hand. Nothing contained in this Section 6 or elsewhere in this Note is intended to or shall impair, as between Borrower (or Borrower's assignee), its creditors other than the holder of Senior Indebtedness, and Lender, the obligation of Borrowers (or Borrower's assignee), which is unconditional and absolute, to pay to Lender the principal of, premium, if any, and interest on this Note as and when the same shall become due and payable in accordance with its terms or to affect the relative rights of Lender and creditors of Borrower (or Borrower's assignee) other than the holder of Senior Indebtedness, nor shall anything herein or in this Note prevent Lender from exercising all remedies otherwise permitted by applicable law upon default hereunder, subject to the rights, if any, under this Section 6 of the holder of Senior Indebtedness in respect of cash, property or securities of Borrower (or Borrower's assignee) received upon the exercise of any such remedy. Upon any payment or distribution of assets of Borrower (or Borrower's assignee) referred to in this Section 6 Lender shall be entitled to rely upon any order or decree of a court or competent jurisdiction in which any proceedings of the nature referred to in this Section are pending or upon a certificate of the liquidating trustee, trustee in bankruptcy, receiver, agent or 3 4 other person making any distribution to Lender, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holder of Senior Indebtedness and other indebtedness of Borrower (or Borrower's assignee), the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 6. (d) AGREEMENT TO EFFECT SUBORDINATION. Lender by acceptance of this Note agrees to take such action and execute such documents as may be necessary or appropriate to effectuate the subordination as provided in this Section 6. 7. ADDITIONAL TERMS. (a) OPTIONAL CONVERSION. This Note may be converted at the option of the Lender (or Lender's assignee), in whole or in part, at any time or upon the closing of a Corporate Event, into fully paid and nonassessable shares of either the next series of Preferred Stock sold by Borrower at a price per share of less than $1.75 (the "NEXT ROUND PREFERRED") or the Borrower's Series E Preferred Stock (the "SERIES E")(the Next Round Preferred and the Series E are referred to collectively herein as the "APPLICABLE PREFERRED"). (b) MANDATORY CONVERSION. The Notes will automatically convert at any time upon the election by a majority in interest of the Lenders into shares of Applicable Preferred. (c) CONVERSION PRICE. The number of shares issuable to the holder upon conversion shall be equal to the principal balance and accrued but unpaid interest that is being converted, divided by the lesser of the price per share of the Series E or the price per share at which Borrower sells the Next Round Preferred (the "CONVERSION PRICE"). (d) MECHANICS OF CONVERSION. In the event that Lender shall give written notice to Borrower that it elects to convert the Note pursuant to Section 7(a) above, Lender shall surrender the Note, duly endorsed at the office of Borrower, and shall give written notice to Borrower at such office of the series of Applicable Preferred (i.e., Series E or Next Round Preferred), into which the holder is electing to convert this Note and the name or names in which he wishes the certificate or certificates for shares of Applicable Preferred to be issued. In the event this Note is automatically converted pursuant to Section 7(b) above, the holder shall give written notice to Borrower of the series of Applicable Preferred (i.e., Series E or Next Round Preferred) into which the holder is electing to convert this Note and such conversion shall be deemed to have been made and the person or persons entitled to receive the shares of Applicable Preferred issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Applicable Preferred on such date. (e) ADJUSTMENTS TO CONVERSION PRICE FOR CERTAIN EVENTS. The Conversion Price shall be subject to adjustment from time to time as follows: (1) If the number of outstanding shares of the Preferred Stock of Borrower is increased by a stock dividend, stock split-up or by a subdivision of shares, then, 4 5 following the record date fixed for the determination of holders of Preferred Stock entitled to receive such stock dividend, split-up or subdivision, the Conversion Price shall be appropriately decreased so that the number of shares of Applicable Preferred issuable on conversion of this Note shall be increased in proportion to such increase of outstanding shares of Preferred Stock. (2) If the number of shares of Preferred Stock outstanding is decreased by a combination of the outstanding shares of Preferred Stock, then, following the record date of such combination, the Conversion Price shall be appropriately increased so that the number of shares of Applicable Preferred issuable on conversion of this Note shall be decreased in proportion to such decrease in outstanding shares of Preferred Stock. (f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 7, Borrower at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Lender a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. Borrower shall, upon the written request at any time of Lender, furnish or cause to be furnished to Lender a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price, at the time in effect, and (iii) the number of shares of Applicable Preferred, the amount, if any, of other property which at the time would be received upon the conversion of this Note. (g) NOTICES OF RECORD DATE. In the event of any taking by Borrower of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any security or right convertible into or entitling the holder thereof to receive Preferred Stock or other securities of Borrower, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, Borrower shall mail to Lender at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution, security or right, and the amount and character of such dividend, distribution, security or right. (h) ISSUE TAXES. Borrower shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Applicable Preferred on conversion of this Note pursuant hereto; provided, however, that Borrower shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. Borrower shall at all times reserve and keep available out of its authorized but unissued shares of Preferred Stock or other securities, solely for the purpose of effecting the conversion of this Note, such number of its shares of Preferred Stock or other securities from time to time issuable upon such conversion; and if at any time the number of authorized but unissued shares of Preferred Stock or other securities shall not be sufficient to effect the conversion of this Note, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Preferred Stock or other securities to such number of shares as shall be 5 6 sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. (j) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion of this Note. All shares of Applicable Preferred (including fractions thereof) issuable upon conversion of this Note shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Applicable Preferred, Borrower shall, in lieu of issuing any fractional share, pay Lender who is otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors of the Company). 8. WAIVER. Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred, including, without limitation, reasonable attorneys' fees, costs and other expenses. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the fullest extent permitted by law. 9. ATTORNEY'S FEES. In the event of default by the Borrower (or its assignee) in the payment of principal or interest due on this Note, Lender shall be entitled to receive and Borrower (or its assignee) agrees to pay all costs of collection incurred by Lender, including, without limitation, reasonable attorney's fees for consultation and suit. 10. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Colorado, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 6 7 11. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the benefit of and be binding on any successor to Borrower and shall extend to any holder hereof. BORROWER BIOSTAR, INC. By: ------------------------------------- Teresa W. Ayers President and Chief Operating Officer 7 EX-10.69 15 FORM OF SUBORDINATED PROMISSORY NOTE 1 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE BORROWER THAT SUCH REGISTRATION IS NOT REQUIRED. SUBORDINATED PROMISSORY NOTE $___________ June 20, 1997 Boulder, Colorado FOR VALUE RECEIVED, BioStar, Inc., a Delaware corporation ("BORROWER"), hereby unconditionally promises to pay to the order of ________________________ ("LENDER"), in lawful money of the United States of America and in immediately available funds, the principal sum of $____________ (the "LOAN") together with accrued and unpaid interest thereon, payable on the dates and in the manner set forth below. This subordinated promissory note (the "NOTE") is non-negotiable and is executed and delivered in full satisfaction of all amounts due and owing to the Lender. 1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan shall be payable as follows: on the earlier of (a) February 15, 1998, or (b) on the closing of a Corporate Event. A "Corporate Event" shall mean either (i) the Borrower's initial public offering or (ii) the closing of a consolidation or merger of the Borrower with or into any other corporation or corporations, or a sale, conveyance or disposition of all or substantially all of the assets of the Borrower. The Borrower may prepay this Note at any time without penalty upon the prior written consent of Silicon Valley Bank, Venture Lending, a division of Cupertino National Bank and Trust ("Venture Lending"), and Comdisco, Inc. 2. INTEREST RATE. Borrower further promises to pay interest on the sum of the unpaid principal balance of the Loan outstanding on each day, from the date of this Note until all such principal amounts shall have been repaid in full, which interest shall be payable at the prime rate as announced by the Bank of America for commercial loans plus 2% per annum or the maximum rate permissible by law (which under the laws of the State of Colorado shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less. Interest shall be payable at maturity and shall be calculated on the basis of a 365-day year for the actual number of days elapsed. 3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable to Lender at the address it specifies to Borrower in writing. 4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied first to accrued interest, and thereafter to the outstanding principal balance hereof. 2 5. DEFAULT. Borrower's failure to pay timely any of the principal amount due under this Note on the date the same becomes due and payable or any accrued interest or other amounts due under this Note on the date the same becomes due and payable or within ten (10) calendar days after written receipt of notice of failure to pay shall constitute a default under this Note. If a default is not cured within 30 days of the receipt of notice of failure to pay, all unpaid principal, accrued interest and other amounts owing thereunder shall, at the option of Lender, be immediately collectible by Lender pursuant to applicable law. 6. NOTE. (a) AGREEMENT TO SUBORDINATE. The Borrower, for itself, its successors and assigns, covenants and agrees, and the Lender by acceptance hereof, likewise covenants and agrees, that the payment of the principal of and interest on this Note is hereby expressly subordinated to the extent and in the manner hereinafter set forth in right of payment to the prior payment in full of certain other obligations of Borrower owed at any time to commercial banks or other financial institutions (including but not limited to the Borrower's current obligations to Silicon Valley Bank, Venture Lending and Comdisco, Inc. (other than the subordinated notes held by Comdisco, Inc.)) (the "Senior Indebtedness"), and that such subordination is for the benefit of the holders of Senior Indebtedness. All persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness, shall be entitled to rely hereon, and such provisions are made for the benefit of the holders of Senior Indebtedness, and they or any of them may proceed to enforce such provisions directly against the Lender. (b) SUBORDINATION IN THE EVENT OF DEFAULT ON SENIOR INDEBTEDNESS. No payment shall be made on this Note at such time as any default exists (or would exist after giving effect to such payment) with respect to the Senior Indebtedness. If any such payment is made, Lender (or its assignee) shall remit to the holder of the Senior Indebtedness all such money so received, which shall be applied to amounts due under the Senior Indebtedness. (c) DISTRIBUTION ON DISSOLUTION, LIQUIDATION AND REORGANIZATION; SUBROGATION OF NOTE. Upon any distribution of assets of Borrower (or Borrower's assignee), upon any dissolution, winding up, liquidation or reorganization of Borrower (or Borrower's assignee), whether in bankruptcy, insolvency, reorganization or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of Borrower (or Borrower's assignee) or otherwise: (1) the holder of all Senior Indebtedness shall first be entitled to receive payment in full thereof before Lender is entitled to receive any payment upon the principal of and premium, if any, or interest on indebtedness evidenced by this Note; 2 3 (2) any payment or distribution of assets of Borrower (or Borrower's assignee) of any kind or character, whether in cash, property or securities, to which Lender would be entitled except for the provisions of this Section 6 shall be paid or delivered by Borrower (or Borrower's assignee) or any liquidating trustee, trustee in bankruptcy, receiver, agent or other person making such payment or distribution directly to the holders of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, as their interests appear, to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and (3) in the event that, notwithstanding the foregoing, any payment or distribution of assets of Borrower (or Borrower's assignee) of any kind or character, whether in cash, property or securities, shall be received by Lender before all Senior Indebtedness is paid in full, such payment or distribution shall be paid over or delivered to the holder of such Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, as their interests appear, for application to the payment of all Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall have been paid in full, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. Subject to the prior payment in full of all Senior Indebtedness, Lender shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property, or securities of Borrower (or Borrower's assignee) applicable to the Senior Indebtedness until the principal of, premium, if any, and interest on this Note shall be paid in full and no such payments or distributions to Lender of cash, property or securities otherwise distributable to the Senior Indebtedness shall, as between Borrower (or Borrower's assignee), its creditors other than the holders of Senior Indebtedness, and Lender, be deemed to be a payment by Borrower (or Borrower's assignee) to or on account of this Note. It is understood that the provisions of this Section 6 are and are intended solely for the purpose of defining the relative rights of the Lender, on the one hand, and the holder of Senior Indebtedness, on the other hand. Nothing contained in this Section 6 or elsewhere in this Note is intended to or shall impair, as between Borrower (or Borrower's assignee), its creditors other than the holders of Senior Indebtedness, and Lender, the obligation of Borrower (or Borrower's assignee), which is unconditional and absolute, to pay to Lender the principal of, premium, if any, and interest on this Note as and when the same shall become due and payable in accordance with its terms or to affect the relative rights of Lender and creditors of Borrower (or Borrower's assignee) other than the holders of Senior Indebtedness, nor shall anything herein or in this Note prevent Lender from exercising all remedies otherwise permitted by applicable law upon default hereunder, subject to the rights, if any, under this Section 6 of the holders of Senior Indebtedness in respect of cash, property or securities of Borrower (or Borrower's assignee) received upon the exercise of any such remedy. Upon any payment or distribution of assets of Borrower (or Borrower's assignee) referred to in this Section 6, Lender shall be entitled to rely upon any order or decree of a court or competent jurisdiction in which any proceedings of the nature referred to in this Section are pending or upon a certificate of the liquidating trustee, trustee in bankruptcy, receiver, agent or other person making any distribution to Lender, for the purpose of ascertaining the persons 3 4 entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other indebtedness of Borrower (or Borrower's assignee), the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 6. (d) AGREEMENT TO EFFECT SUBORDINATION. Lender by acceptance of this Note agrees to take such action and execute such documents as may be necessary or appropriate to effectuate the subordination as provided in this Section 6. 7. WAIVER. Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred, including, without limitation, reasonable attorneys' fees, costs and other expenses. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the fullest extent permitted by law. 8. ATTORNEY'S FEES. In the event of default by the Borrower (or its assignee) in the payment of principal or interest due on this Note, Lender shall be entitled to receive and Borrower (or its assignee) agrees to pay all costs of collection incurred by Lender, including, without limitation, reasonable attorneys' fees for consultation and suit. 9. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Colorado, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 10. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the benefit of and be binding on any successor to Borrower and shall extend to any holder hereof. BORROWER: BIOSTAR, INC. By: ----------------------------------------- Teresa W. Ayers President/Chief Executive Officer 4 EX-10.70 16 LOAN AND SECURITY AGREEMENT 1 BIOSTAR, INC. LOAN AND SECURITY AGREEMENT 2
TABLE OF CONTENTS PAGE 1. DEFINITIONS AND CONSTRUCTION.............................................................................1 1.1 Definitions.....................................................................................1 1.2 Accounting Terms................................................................................8 2. LOAN AND TERMS OF PAYMENT................................................................................9 2.1 Bridge Facility.................................................................................9 2.2 Overadvances...................................................................................10 2.3 Interest Rates, Payments, and Calculations.....................................................10 2.4 Crediting Payments.............................................................................10 2.5 Fees...........................................................................................11 2.6 Additional Costs...............................................................................11 2.7 Term...........................................................................................12 3. CONDITIONS OF LOANS.....................................................................................12 3.1 Conditions Precedent to Initial Advance........................................................12 3.2 Conditions Precedent to All Advances...........................................................12 4. CREATION OF SECURITY INTEREST...........................................................................13 4.1 Grant of Security Interest.....................................................................13 4.2 Delivery of Additional Documentation Required..................................................13 4.3 Right to Inspect...............................................................................13 5. REPRESENTATIONS AND WARRANTIES..........................................................................13 5.1 Due Organization and Qualification.............................................................13 5.2 Due Authorization; No Conflict.................................................................13 5.3 No Prior Encumbrances..........................................................................14 5.4 Bona Fide Eligible Accounts....................................................................14 5.5 Merchantable Inventory.........................................................................14 5.6 Name; Location of Chief Executive Office.......................................................14 5.7 Litigation.....................................................................................14 5.8 No Material Adverse Change in Financial Statements.............................................14 5.9 Solvency.......................................................................................14 5.10 Regulatory Compliance..........................................................................14 5.11 Environmental Condition........................................................................15
i. 3
TABLE OF CONTENTS (CONTINUED) PAGE 5.12 Taxes..........................................................................................15 5.13 Subsidiaries...................................................................................15 5.14 Government Consents............................................................................15 5.15 Full Disclosure................................................................................15 6. AFFIRMATIVE COVENANTS...................................................................................16 6.1 Good Standing..................................................................................16 6.2 Government Compliance..........................................................................16 6.3 Financial Statements, Reports, Certificates....................................................16 6.4 Inventory; Returns.............................................................................17 6.5 Taxes..........................................................................................17 6.6 Insurance......................................................................................17 6.7 Principal Depositor............................................................................18 6.8 Profitability..................................................................................18 6.9 Registration of Intellectual Property Rights...................................................18 6.10 Further Assurances.............................................................................18 7. NEGATIVE COVENANTS......................................................................................18 7.1 Dispositions...................................................................................18 7.2 Change in Business.............................................................................18 7.3 Mergers or Acquisitions........................................................................19 7.4 Indebtedness...................................................................................19 7.5 Encumbrances...................................................................................19 7.6 Distributions..................................................................................19 7.7 Investments....................................................................................19 7.8 Transactions with Affiliates...................................................................19 7.9 Subordinated Debt..............................................................................19 7.10 Inventory......................................................................................19 7.11 Compliance.....................................................................................19 8. EVENTS OF DEFAULT.......................................................................................20 8.1 Payment Default................................................................................20 8.2 Covenant Default...............................................................................20
ii. 4 TABLE OF CONTENTS (CONTINUED)
PAGE 8.3 Material Adverse Changes.......................................................................20 8.4 Attachment.....................................................................................20 8.5 Insolvency.....................................................................................21 8.6 Other Agreements...............................................................................21 8.7 Subordinated Debt..............................................................................21 8.8 Judgments......................................................................................21 8.9 Misrepresentations.............................................................................21 9. BANK'S RIGHTS AND REMEDIES..............................................................................21 9.1 Rights and Remedies............................................................................21 9.2 Power of Attorney..............................................................................22 9.3 Accounts Collection............................................................................23 9.4 Bank Expenses..................................................................................23 9.5 Bank's Liability for Collateral................................................................23 9.6 Remedies Cumulative............................................................................23 9.7 Demand; Protest................................................................................24 10. NOTICES.................................................................................................24 11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER..............................................................24 12. GENERAL PROVISIONS......................................................................................25 12.1 Successors and Assigns.........................................................................25 12.2 Indemnification................................................................................25 12.3 Time of Essence................................................................................25 12.4 Severability of Provisions.....................................................................25 12.5 Amendments in Writing, Integration.............................................................25 12.6 Counterparts...................................................................................25 12.7 Survival.......................................................................................25 12.8 Confidentiality................................................................................25
iii. 5 BIOSTAR, INC. LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT is entered into as of May 1, 1997, by and between VENTURE LENDING, a division of Cupertino National Bank & Trust ("Bank") and BIOSTAR, INC., a Delaware corporation ("Borrower"). RECITALS Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank. AGREEMENT The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following definitions: "ACCOUNTS" means all presently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing. "ADVANCE" or "ADVANCES" means a cash advance under the Bridge Loan Facility or the Revolving Facility. "AFFILIATE" means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person's senior executive officers, directors, and partners. "BANK EXPENSES" means all: reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; and Bank's reasonable attorneys' fees and expenses incurred in amending, enforcing or defending the Loan Documents, whether or not suit is brought. "BORROWER'S BOOKS" means all of Borrower's books and records including: ledgers; records concerning Borrower's assets or liabilities, the Collateral, business 1. 6 operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information. "BORROWING BASE" has the meaning set forth in Section 2.1 hereof. "BUSINESS DAY" means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close. "BRIDGE FACILITY" means the facility under which Borrower may request Bank to issue cash advances, as specified in Section 2.1 hereof. "BRIDGE LOAN MATURITY DATE" means October 30, 1997. "CLOSING DATE" means the date of this Agreement. "CODE" means the California Uniform Commercial Code. "COLLATERAL" means the property described on Exhibit A attached hereto. "COMMITTED BRIDGE LINE" means Two Million Dollars ($2,000,000). "COMMITTED REVOLVING LINE" means One Million Dollars ($1,000,000). "CONTINGENT OBLIGATION" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (a) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (b) any obligations with respect to undrawn letters of credit issued for the account of that Person; and (c) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term "Contingent Obligation" shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement. "CURRENT ASSETS" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current assets on the consolidated balance sheet of Borrower and its Subsidiaries as at such date. "CURRENT LIABILITIES" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the extent not already included 2. 7 therein, all outstanding Advances made under this Agreement, including all Indebtedness that is payable upon demand or within one year from the date of determination thereof unless such Indebtedness is renewable or extendable at the option of Borrower or any Subsidiary, to a date more than one year from the date of determination, but excluding Subordinated Debt. "DAILY BALANCE" means the amount of the Obligations owed at the end of a given day. "ELIGIBLE ACCOUNTS" means those Accounts that arise in the ordinary course of Borrower's business that comply with all of Borrower's representations and warranties to Bank set forth in Section 5.4; provided, that standards of eligibility may be fixed and revised from time to time by Bank in Bank's reasonable judgment and upon notification thereof to Borrower in accordance with the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following: (a) Accounts that the account debtor has failed to pay within ninety (90) days of invoice date; (b) Accounts with respect to an account debtor, fifty percent (50%) of whose Accounts the account debtor has failed to pay within ninety (90) days of invoice date; (c) Accounts with respect to which the account debtor is an officer, employee, or agent of Borrower; (d) Accounts with respect to progress billings or service contracts, or with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the account debtor may be conditional; (e) Accounts with respect to which the account debtor is an Affiliate of Borrower; (f) Accounts with respect to which the account debtor does not have its principal place of business in the United States; except for Eligible Foreign Accounts, and Accounts arising from products shipped to or services provided to branches or offices located in the United States of any account debtor that does not have its principal place of business in the United States; (g) Accounts with respect to which the account debtor is the United States or any department, agency, or instrumentality of the United States; (h) Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent of any amounts owing to the account debtor against amounts owed to Borrower; (i) Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose total obligations to Borrower exceed thirty percent (30%) of all Accounts, 3. 8 to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank; (j) Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank reasonably believes that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; and (k) Accounts the collection of which Bank reasonably determines to be doubtful. "ELIGIBLE FOREIGN ACCOUNTS" means Accounts with respect to which the account debtor does not have its principal place of business in the United States and that are: (a) covered by credit insurance in form and amount, and by an insurer satisfactory to Bank less the amount of any deductible(s) which may be or become owing thereon; or (b) supported by one or more letters of credit in favor of Bank as beneficiary, in an amount and of a tenor, and issued by a financial institution, acceptable to Bank; or (c) that Bank approves on a case-by-case basis. "EQUIPMENT" means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest. "ERISA" means the Employment Retirement Income Security Act of 1974, as amended, and the regulations thereunder. "GAAP" means generally accepted accounting principles as in effect from time to time. "INDEBTEDNESS" means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations. "INSOLVENCY PROCEEDING" means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief. "INVENTORY" means all present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Borrower, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition 4. 9 of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing. "INVESTMENT" means any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person. "IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "LIEN" means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance. "LOAN DOCUMENTS" means, collectively, this Agreement, any note or notes executed by Borrower, and any other agreement entered into between Borrower and Bank in connection with this Agreement, all as amended or extended from time to time. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business operations or condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole or (b) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents. "MATURITY DATE" means the day before the first anniversary of the Closing Date. "NEGOTIABLE COLLATERAL" means all of Borrower's present and future letters of credit of which it is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, and Borrower's Books relating to any of the foregoing. "OBLIGATIONS" means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise. "PERIODIC PAYMENTS" means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank. "PERMITTED INDEBTEDNESS" means: (a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document; (b) Indebtedness existing on the Closing Date and disclosed in the Schedule; 5. 10 (c) Subordinated Debt; (d) Indebtedness to trade creditors incurred in the ordinary course of business; (e) Indebtedness of Borrower, not otherwise permitted hereunder, not exceeding $100,000 in the aggregate outstanding at any time; (f) Indebtedness with respect to capital lease obligations and Indebtedness secured by Permitted Liens; and (g) Extensions, renewals, refundings, refinancings, modifications, amendments and restatements of any of the items of Permitted Indebtedness (a) through (f) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower. "PERMITTED INVESTMENT" means: (a) Investments existing on the Closing Date disclosed in the Schedule; (b) (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency, or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank; (c) Extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; (d) Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (e) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; (f) Investments consisting of (i) travel advances, employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower; and (g) Investments of Borrower not otherwise permitted hereunder, aggregating not in excess of $50,000 at any time. 6. 11 "PERMITTED LIENS" means the following: (a) Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents; (b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Bank's security interests; (c) Liens (i) upon or in any equipment acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or (ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment; (d) Liens securing capital lease obligations on assets subject to such capital leases; (e) Liens on equipment leased by Borrower pursuant to an operating lease in the ordinary course of business (including proceeds thereof and accessions thereto) incurred solely for the purpose of financing the lease of such equipment (including Liens arising from UCC financing statements regarding leases permitted by this Agreement); (f) Liens arising from judgment, decrees or attachments to the extent and only so long as such judgment, decree or attachment has not caused or resulted in an Event of Default; (g) Easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and other similar Liens affecting real property not interfering in any material respect with the ordinary conduct of the business of Borrower; (h) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (i) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided such Liens are not prior to the Lien of Bank; and (j) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a), (c), (d) and (e) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase. "PERSON" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, 7. 12 institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency. "PRIME RATE" means the variable rate of interest, per annum, most recently set forth in the Western Edition of The Wall Street Journal as the "prime rate," whether or not such announced rate is the lowest rate available from Bank. "QUICK ASSETS" mean, at any date as of which the amount thereof shall be determined, the consolidated cash, cash-equivalents, accounts receivable and investments, with maturities not to exceed ninety (90) days, of Borrower determined in accordance with GAAP. "RESPONSIBLE OFFICER" means each of the Chief Executive Officer, the Chief Financial Officer and the Controller of Borrower or such other persons of whom Borrower gives Bank written notice. "REVOLVING FACILITY" means the facility under which Borrower may request Bank to issue cash advances, as specified in Section 2.1 hereof. "SCHEDULE" means the schedule of exceptions attached hereto. "SUBORDINATED DEBT" means any debt incurred by Borrower that is subordinated to the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and identified as being such by Borrower and Bank) including specifically that debt incurred by Borrower which is the subject to that certain Subordination Agreement dated May 3, 1995, as amended, between Borrower and Comdisco, Inc. (the "Comdisco Subordination"). "SUBSIDIARY" means any corporation or partnership in which (a) any general partnership interest or (b) more than 50% of the stock of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity, shall, at the time as of which any determination is being made, be owned by Borrower, either directly or through an Affiliate. "TANGIBLE NET WORTH" means at any date as of which the amount thereof shall be determined, the consolidated total assets of Borrower and its Subsidiaries minus without duplication, (i) the sum of any amounts attributable to (a) goodwill, (b) intangible items such as unamortized debt discount and expense, patents, trade and service marks and names, copyrights and research and development expenses except prepaid expenses, and (c) all reserves not already deducted from assets, and (ii) Total Liabilities. "TOTAL LIABILITIES" means at any date as of which the amount thereof shall be determined, all obligations that should, in accordance with GAAP be classified as liabilities on the consolidated balance sheet of Borrower, including in any event all Indebtedness, but specifically excluding Subordinated Debt. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms "financial statements" shall include the notes and schedules thereto. 8. 13 2. LOAN AND TERMS OF PAYMENT 2.1 BRIDGE FACILITY. Subject to and upon the terms and conditions of this Agreement, Bank agrees to make Advances to Borrower in an aggregate amount not to exceed the lesser of Two Million Dollars ($2,000,000) or one and one-half (1.5) times the net revenue of the three (3) months immediately prior to the Advance (the "Bridge Borrowing Base"). Amounts borrowed under the Bridge Facility may be repaid and reborrowed at any time prior to October 30, 1997. The Bridge Facility shall terminate on October 30, 1997, on which date all Advances made under this Section 2.1 shall be immediately due and payable. (a) REVOLVING FACILITY. Subject to and upon the terms and conditions of this Agreement, Bank agrees to make Advances to Borrower under the Revolving Facility, in an aggregate amount not to exceed the lesser of One Million Dollars ($l,000,000) or seventy-five percent (75%) of Eligible Accounts. Subject to the terms and conditions of this Agreement, amounts borrowed under the Revolving Facility may be repaid and reborrowed at any time during the term of this Agreement. (b) REQUESTS FOR ADVANCE. Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. California time, on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer, or without instructions if in Bank's discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1 to Borrower's deposit account. (c) LOCKBOX. Borrower shall open and maintain with Bank an account (the "Account") into which all funds received by Borrower from any source shall immediately be deposited. Borrower shall direct all account debtors to mail or deliver all checks or other forms of payment for amounts owing to Borrower to a post office box designated by Bank, over which Bank shall have exclusive and unrestricted access. Bank shall collect the mail delivered to such post office box, open such mail, and endorse and credit all items to the Account. Borrower shall direct all account debtors or other persons owing money to Borrower who make payments by electronic transfer of funds to wire such firms directly to the Account. Borrower shall hold in trust for Bank all amounts that Borrower receives despite the directions to make payments to the post office box or Account, and immediately deliver such payments to Bank in their original form as received from the account debtor with proper endorsements for deposit into the Account. Notwithstanding any provision of this Section 2.1(c), Borrower shall have the right to use the funds deposited into the Account in the ordinary course of business unless an Event of Default shall have occurred and be continuing. Borrower shall enter into a lockbox agreement with Bank in substantially the form attached hereto. 2.2 OVERADVANCES. If, at any time or for any reason, the amount of Obligations owed by Borrower to Bank pursuant to Section 2.1 of this Agreement is greater than 9. 14 the lesser of (i) the Committed Bridge Line or (ii) the Bridge Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of such excess. If at any time or for any reason the amount of the Obligations owed by Borrower to Bank pursuant to Section 2.1(a) of this Agreement is greater than the lesser of (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of such excess. 2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS (a) INTEREST RATE. Except as set forth in Section 2.3(b), any Advances under the Bridge Loan Facility, shall bear interest, on the average Daily Balance, at a rate equal to three (3) percentage points above the Prime Rate; and any advances under the Revolving Facility, shall bear interest, on the average Daily Balance, at a rate equal to two (2) percentage points above the Prime Rate. (b) DEFAULT RATE. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default. (c) PAYMENTS. Interest hereunder shall be due and payable on the last Business Day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower's deposit accounts or against the Committed Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. (d) COMPUTATION. In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. 2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 2:00 p.m. California time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension. 10. 15 2.5 FEES. Borrower shall pay to Bank the following: (a) COMMITMENT FEE. A Facility Fee equal to Twenty Thousand Dollars ($20,000) for the Bridge Loan Facility, and (b) Ten Thousand Dollars ($10,000) for the Revolving Facility, which fees are due and payable on or before the Closing Date and which have been fully earned and are nonrefundable; (b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary fees and reasonable out-of-pocket expenses for Bank's audits of Borrower's Accounts (not to exceed $2,000 per audit). (c) BANK EXPENSES. Upon the date hereof, all Bank Expenses incurred through the Closing Date, including reasonable attorneys' fees and expenses (not to exceed $8,000) and, after the date hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as and when they become due. 2.6 ADDITIONAL COSTS. In case any law, regulation, treaty, or official directive or the interpretation or application thereof by any court or any governmental authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law): (a) subjects Bank to any tax with respect to payments of principal or interest or any other amounts payable hereunder by Borrower or otherwise with respect to the transactions contemplated hereby (except for taxes on the overall net income of Bank imposed by the United States of America or any political subdivision thereof); (b) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, Bank; or (c) imposes upon Bank any other condition with respect to its performance under this Agreement, and the result of any of the foregoing is to increase the cost to Bank, reduce the income receivable by Bank or impose any expense upon Bank with respect to any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by Bank of a statement of the amount and setting forth Bank's calculation thereof, all in reasonable detail, which statement shall be deemed true and correct absent manifest error. 2.7 TERM. This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for a term ending on the Maturity Date. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Advances under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding. 11. 16 3. CONDITIONS OF LOANS 3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of Bank to make the initial Advance is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following. (a) this Agreement; (b) a certificate of the Secretary of Borrower with respect to incumbency, and resolutions authorizing the execution and delivery of this Agreement; (c) an Intellectual Property Security Agreement; (d) a subordination agreement with Comdisco, Inc.; (e) a lock box agreement executed by Borrower; (f) an audit of Borrower's existing Accounts; (g) financing statements (Forms UCC-1); (h) insurance certificate (i) payment of the fees and Bank Expenses then due specified in Section 2.5 hereof; and (j) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate. 3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of Bank to make each Advance, including the initial Advance, is further subject to the following conditions: (a) timely receipt by Bank of the Payment/Advance Form as provided in Section .1; and (b) the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Advance as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would result from such Advance. Except as otherwise disclosed in writing to Bank, the making of each Advance shall be deemed to be a representation and warranty by Borrower on the date of such Advance as to the accuracy of the facts referred to in this Section 3.2(b). 4. CREATION OF SECURITY INTEREST 4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. 12. 17 Except as set forth in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in Collateral acquired after the date hereof. 4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall from time to time execute and deliver to Bank, at the request of Bank, all Negotiable Collateral, all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfected Bank's security interest in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. 4.3 RIGHT TO INSPECT. Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower's usual business hours, to inspect Borrower's Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, condition of, or any other matter relating to, the Collateral. 5. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants as follows: 5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary is a corporation duly existing and in good standing under the laws of its state of incorporation and qualified and licensed to do business in, and is in good standing in, any state in which the conduct of its business or its ownership of property, requires that it be so qualified and where failure to so qualify, could have a Material Adverse Effect. 5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and performance of the Loan Documents are within Borrower's powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's Articles of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement to which Borrower is a party or by which Borrower is bound. Borrower is not in default under any agreement to which it is a party, or by which it is bound, which default could have a Material Adverse Effect. 5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to the Collateral, free and clear of Liens, except for Permitted Liens. 5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide existing obligations. The property giving rise to such Eligible Accounts has been delivered to the account debtor or to the account debtor's agent for immediate shipment to and unconditional acceptance by the account debtor or as otherwise instructed by Account Debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor that is included in any Borrowing Base Certificate as an Eligible Account. 5.5 MERCHANTABLE INVENTORY. All Inventory is in all material respects of good and marketable quality, free from all material defects. 13. 18 5.6 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof. The chief executive office of Borrower is located at the address indicated in Section 10 hereof. 5.7 LITIGATION. Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary, before any court or administrative agency in which an adverse decision could have a Material Adverse Effect or a material adverse effect on Borrower's interest or Bank's security interest in the Collateral. Borrower does not have knowledge of any such pending or threatened actions or proceedings. 5.8 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All consolidated financial statements related to Borrower and any Subsidiary that have been delivered by Borrower to Bank fairly present in all material respects Borrower's consolidated financial condition as of the date thereof and Borrower's consolidated results of operations for the period then ended. There has not been a material adverse change in the consolidated financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank. 5.9 SOLVENCY. Borrower is solvent and able to pay its debts (including trade debts) as they mature. 5.10 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower's failure to comply with ERISA that is reasonably likely to result in Borrower's incurring any liability that could have a Material Adverse Effect. Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations G, T and U of the Board of Governors of the Federal Reserve System). To the best of its knowledge Borrower has complied with all the provisions of the Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a Material Adverse Effect. 5.11 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's properties or assets has ever been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrower's knowledge, none of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by Borrower or 14. 19 any Subsidiary resulting in the releasing or otherwise disposing of hazardous waste or hazardous substances into the environment. 5.12 TAXES. Borrower and each Subsidiary has filed or caused to be filed all tax returns required to be filed, and has paid, or has made adequate provision for the payment of, all taxes reflected therein except where failure to file or pay would not result in a Material Adverse Effect. 5.13 SUBSIDIARIES. Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments. 5.14 GOVERNMENT CONSENTS. Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower's business as currently conducted. 5.15 FULL DISCLOSURE. No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading. 6. AFFIRMATIVE COVENANTS Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make an Advance hereunder, Borrower shall do all of the following: 6.1 GOOD STANDING. Borrower shall maintain its and each of its Subsidiaries' corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could have a Material Adverse Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, to the extent consistent with prudent management of Borrower's business, in force all licenses, approvals and agreements, the loss of which could have a Material Adverse Effect. 6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each Subsidiary, to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral. 6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall deliver to Bank: (a) as soon as available, but in any event within (30) days after the end of each month, a company prepared consolidated balance sheet and income statement covering Borrower's consolidated operations during such period, certified by a Responsible Officer; (b) as soon as available, but in any event within one hundred sixty (160) days after the end of Borrower's fiscal year, audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an 15. 20 independent certified public accounting firm reasonably acceptable to Bank; (c) within five (5) days upon becoming available, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports, if any, on Form 10-K and 10-Q filed with the Securities and Exchange Commission; (d) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (e) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time. Borrower shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto, together with aged listings of accounts receivable and accounts payable within thirty (30) days of the last day of each month. Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit D hereto. In addition to the initial audit of Borrower's Accounts as a condition to the initial Advance, Bank shall have a right from time to time hereafter to audit Borrower's Accounts at Borrower's expense (subject to the limitations set forth in Section 2.5(b)), provided that such audits will be conducted no more often than every six (6) months (and in any event, not more than once during the first twelve (12) months after the date of this Agreement) unless an Event of Default has occurred and is continuing. 6.4 INVENTORY; RETURNS. Borrower shall keep all Inventory in good and marketable condition, free from all material defects. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than Fifty Thousand Dollars ($50,000). 6.5 TAXES. Borrower shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary to make, timely payment or deposit of all material tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower. 16. 21 6.6 INSURANCE. (a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers and all other hazards and risks, and in such amounts as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower's business is conducted on the date hereof. Borrower shall also maintain insurance relating to Borrower's ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to Borrower's. (b) All such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably satisfactory to Bank. All such policies of property insurance shall contain a lender's loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee thereof, and all liability insurance policies shall show the Bank as an additional insured and shall specify that the insurer must give at least twenty (20) days notice to Bank before canceling its policy for any reason. Upon Bank's request, Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations. 6.7 PRINCIPAL DEPOSITOR. Borrower shall maintain its principal depository and operating accounts with Bank. 6.8 PROFITABILITY. Borrower shall not suffer a loss in excess of Seven Hundred Fifty Thousand Dollars ($750,000) in any calendar month. 6.9 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS. Borrower shall register or cause to be registered (to the extent not already registered) with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, those intellectual property rights listed on Exhibits A, B and C to the Intellectual Property Security Agreement delivered to Bank by Borrower in connection with this Agreement prior to the sale or licensing of products containing such Intellectual Property. Borrower shall register or cause to be registered with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, those additional intellectual property rights developed or acquired by Borrower from time to time in connection with any product prior to the sale or licensing of such product to any third party, including without limitation revisions or additions to the intellectual property rights listed on such Exhibits A, B and C. Borrower shall execute and deliver such additional instruments and documents from time to time as Bank shall reasonably request to perfect Bank's security interest in such additional intellectual property rights. 6.10 FURTHER ASSURANCES. At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement. 17. 22 7. NEGATIVE COVENANTS Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the outstanding Obligations, or for so long as Bank may have any commitment to make any Advances, Borrower will not do any of the following without the written consent of Bank, which consent may be granted or withheld in Bank's sole discretion: 7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries; (iii) sale and leaseback transactions; or (iv) Transfers of worn-out or obsolete Equipment. 7.2 CHANGE IN BUSINESS. Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrower and any business substantially similar or related thereto (or incidental thereto), or suffer a material change in Borrower's ownership. Borrower will not, without thirty (30) days prior written notification to Bank, relocate its chief executive office. 7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person. 7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness. 7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens. 7.6 DISTRIBUTIONS. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock other than repurchases of capital stock issued to employees, directors or consultants following termination of such relationship with the Borrower. 7.7 INVESTMENTS. Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments. 7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a nonaffiliated Person. 18. 23 7.9 SUBORDINATED DEBT. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank's prior written consent. 7.10 INVENTORY. Store the Inventory with a bailee, warehouseman or similar party unless Bank has received a pledge of the warehouse receipt covering such Inventory. Except for Inventory sold in the ordinary course of business and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory only at the location set forth in Section 10 hereof and such other locations of which Borrower gives Bank prior written notice and as to which Borrower signs and files a financing statement where needed to perfect Bank's security interest. 7.11 COMPLIANCE. Become an "investment company" controlled by an "investment company," within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Advance for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could have a Material adverse Effect or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral, or permit any of its Subsidiaries to do any of the foregoing. 8. EVENTS OF DEFAULT Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement: 8.1 PAYMENT DEFAULT. If Borrower fails to pay the principal of, or any interest on, any Advances when due and payable; or fails to pay any portion of any other Obligations not constituting such principal or interest, including without limitation Bank Expenses, within thirty (30) days of receipt by Borrower of an invoice for such other Obligations; 8.2 COVENANT DEFAULT. If Borrower fails to perform any obligation under Sections 6.7 or 6.8 or violates any of the covenants contained in Article 7 of this Agreement, or fails or neglects to perform, keep or observe any other material term, provision, condition, covenant or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure such default within ten (10) days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Advances will be required to be made during such cure period); 19. 24 8.3 MATERIAL ADVERSE CHANGES. If there occurs a material adverse change in Borrower's business or financial condition, or if there is a material impairment of the prospect of repayment of any portion of the Obligations or a material impairment of the value or priority of Bank's security interest in the Collateral; 8.4 ATTACHMENT. If any material portion of Borrower's assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within twenty (20) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower's assets by the United States government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within twenty (20) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Advances will be required to be made during such cure period); 8.5 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within thirty (30) days (provided that no Advances will be made prior to the dismissal of such Insolvency, Proceeding); 8.6 OTHER AGREEMENTS. If there is a default in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000) or that could have a Material Adverse Effect, 8.7 SUBORDINATED DEBT. If Borrower makes any payment on account of Subordinated Debt, except to the extent such payment is allowed under any subordination agreement entered into with Bank; 8.8 JUDGMENTS. If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Advances will be made prior to the satisfaction or stay of such judgment); or 8.9 MISREPRESENTATIONS. If any material misrepresentation or material misstatement existed in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document, at the time such representation or warranty was made or such certificate delivered. 20. 25 9. BANK'S RIGHTS AND REMEDIES 9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5 all Obligations shall become immediately due and payable without any action by Bank); (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank; (c) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable; (d) Without notice to or demand upon Borrower, make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest or compromise any encumbrance, charge or lien which in Bank's determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty (120) days in order to exercise any of Bank's rights or remedies provided herein, at law, in equity or otherwise; (e) Without notice to Borrower, set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank; (f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this Section 9.l, Borrower's rights under all licenses and all franchise agreements shall inure to Bank's benefit; (g) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Bank determines is commercially reasonable; (h) Bank may credit bid and purchase at any public sale; and 21. 26 (i) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. 9.2 POWER OF ATTORNEY. Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank's designated officers or employees) as Borrower's true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank's security interest in the Accounts; (b) endorse Borrower's name on any checks or other forms of payment or security that may come into Bank's possession; (c) sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) make, settle and adjust all claims under and decisions with respect to Borrower's policies of insurance; and (e) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in Section 4.2 regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower's attorney-in-fact, and each and every one of Bank's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank's obligation to provide advances hereunder is terminated. 9.3 ACCOUNTS COLLECTION. If an Event of Default has occurred and is continuing, Bank may notify any Person owing funds to Borrower of Bank's security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank's trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit. 9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following: (a) make payment of the same or any part thereof; (b) set up such reserves under the Revolving Facility as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.6 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement. 9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with reasonable banking practices, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower. Notwithstanding the foregoing, Bank shall be responsible for its own gross negligence or willful misconduct. 22. 27 9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. 9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable. 10. NOTICES Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below: If to Borrower: BioStar, Inc. 6655 Lookout Road Boulder, CO 80301 Attn: Teresa W. Ayers FAX: (303) 530-6641 If to Bank: Venture Lending Three Palo Alto Square, Suite 150 Palo Alto, CA 94306 Attn: Craig Russell F.A.X: (415) 843-6969 The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. 11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive jurisdiction of the state and federal courts located in the County of Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, 23. 28 INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. 12. GENERAL PROVISIONS 12.1 SUCCESSORS AMD ASSIGNS. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank's prior written consent, which consent may be granted or withheld in Bank's sole discretion. Bank shall have the right without the consent of, but with notice to, Borrower to sell, transfer, negotiate or grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits hereunder. 12.2 INDEMNIFICATION. Borrower shall defend, indemnify and hold harmless Bank and its officers, employees and agents against: (a) all obligations, demands, claims and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys' fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct. 12.3 TIME OF ESSENCE. Time is of the essence for the performance of all obligations set forth in this Agreement. 12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be amended or terminated orally. All prior agreements, understandings, representations, warranties and negotiations between the parties hereto with respect to the subject matter of this Agreement, if any, are merged into this Agreement and the Loan Documents. 12.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 12.7 SURVIVAL. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, 24. 29 costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run. 12.8 CONFIDENTIALITY. In handling any confidential information Bank shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or affiliates of Bank in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may deem appropriate in the exercise of remedies after the occurrence of an Event of Default. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. BIOSTAR INC., A DELAWARE CORPORATION By: /s/ Teresa W. Ayers -------------------------------- Title: President/CEO ------------------------------- VENTURE LENDING, A DIVISION OF CUPERTINO NATIONAL BANK & TRUST By: -------------------------------- Title: ------------------------------- 25. 30 SCHEDULE OF EXCEPTIONS 1. Existing Indebtedness: That certain loan in an amount not to exceed Two Million Five Hundred Thousand Dollars ($2,500,000) from Comdisco to Borrower pursuant to a loan agreement dated May 3, 1995, as amended. 2. Lease Agreements with Comdisco and Dominion Ventures and Schedules thereunder. 3. Subordinated Promissory Notes dated February 14, 1997 with various investors in the aggregate amount of $1,000,000 and which may be amended to an amount not to exceed $2,000,000. 4. Convertible Subordinated Debt dated March 20, 1996 and April 15, 1996 in the amount of $4.5 million. 31 EXHIBIT A The Collateral shall consist of all right, title and interest of Borrower in and to the following: (a) All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; (b) All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing; (c) All contract rights and general intangibles now owned or hereafter acquired, including, without limitation, goodwill, trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind; (d) All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing; (e) All documents, cash, deposit accounts, securities, financial assets, securities accounts, securities entitlements, letters of credit, certificates of deposit, instruments and chattel paper now owned or hereafter acquired and Borrower's Books relating to the foregoing; (f) All copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for damages by way of any past, present and future infringement of any of the foregoing; and (g) Any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof. 32 EXHIBIT B LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T. TO: CENTRAL CLIENT SERVICE DIVISION DATE: --------------- FAX NO.: (415) 843-6969 TIME: --------------- - -------------------------------------------------------------------------------- FROM: BIOSTAR, INC. --------------------------------------------------------------------------- CLIENT NAME (BORROWER) REQUESTED BY: ------------------------------------------------------------------- AUTHORIZED SIGNER'S NAME AUTHORIZED SIGNATURE: ----------------------------------------------------------- PHONE NUMBER: ------------------------------------------------------------------- FROM ACCOUNT #: TO ACCOUNT #: --------------------------------- ------------------ REQUETED TRANSACTION TYPE REQUEST DOLLAR AMOUNT - ------------------------- --------------------- PRINCIPAL INCREASE (ADVANCE) $ ------------------------------------------- PRINCIPAL PAYMENT (ONLY) $ ------------------------------------------- INTEREST PAYMENT (ONLY) $ ------------------------------------------- PRINCIPAL AND INTEREST (PAYMENT) $ ------------------------------------------- OTHER INSTRUCTIONS: ------------------------------------------------------------- - -------------------------------------------------------------------------------- All representations and warranties of Borrower stated in the Loan Agreement are true, correct and complete in all material respects as of the date of the telephone request for and Advance confirmed by this Borrowing Certificate; provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BANK USE ONLY TELEPHONE REQUEST: The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me. - --------------------------------------- ------------------------------ Authorized Requester Phone # - --------------------------------------- ------------------------------ Received By (Bank) Phone # ------------------------------ Authorized Signature (Bank) - -------------------------------------------------------------------------------- 33 EXHIBIT C-1 BORROWING BASE CERTIFICATE (REVOLVING FACILITY) ------------------------------------------------------------------------------ Borrower: BioStar, Inc. Commitment Amount: $1,000,000 - ------------------------------------------------------------------------------ ACCOUNTS RECEIVABLE 1. Accounts Receivable Book Value as of _______ $___________ 2. Additions (please explain on reverse) $___________ 3. TOTAL ACCOUNTS RECEIVABLE $___________ ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) 4. Amounts over 90 days due $___________ 5. Balance of 50% over 90 day accounts $___________ 6. Concentration Limits $___________ 7. Foreign Accounts $___________ 8. Governmental Accounts $___________ 9. Contra Accounts $___________ 10. Promotion or Demo Accounts $___________ 11. Intercompany/Employee Accounts $___________ 12. Other (please explain on reverse) $___________ 13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $___________ 14. Eligible Accounts (#3 minus #13) $___________ 15. LOAN VALUE OF ACCOUNTS (75% of #14) $___________ BALANCES 16. Maximum Loan Amount $1,000,000 17. Total Funds Available [Lesser of #15 or #16] $___________ 18. Present balance owing on Line of Credit $___________ 19. RESERVE POSITION (#17 minus #18) $___________ The undersigned represents and warrants that the foregoing is true, complete and correct, and that the information reflected in this Borrowing Base Certificate complies with the representations and warranties set forth in the Loan and Security Agreement between the undersigned and Venture Lending. ---------------------------- COMMENTS: BANK USE ONLY Rec'd By: ------------------- Auth. Signer Date: ---------------------- BioStar, Inc. Verified: ------------------- Auth. Signer By: Date: ----------------------------- ----------------------- Authorized Signer ---------------------------- 34 EXHIBIT C-2 BRIDGE LOAN CERTIFICATE (BRIDGE FACILITY) - -------------------------------------------------------------------------------- Borrower: BioStar, Inc. Commitment Amount: $2,000,000 - ------------------------------------------------------------------------------ NET REVENUE 1. Total Net Revenue Three (3) Months Prior to the Date of this Certificate $___________ 2. Multiplied by 1.5 $___________ 3. TOTAL $___________ The undersigned represents and warrants that the foregoing is true, complete and correct, and that the information reflected in this Borrowing Base Certificate complies with the representations and warranties set forth in the Loan and Security Agreement between the undersigned and Venture Lending. --------------------------- COMMENTS: BANK USE ONLY Rec'd By: ------------------- Auth. Signer Date: ----------------------- BioStar, Inc. Verified: ------------------- Auth. Signer By: Date: ----------------------------- ----------------------- Authorized Signer ---------------------------- 35 EXHIBIT D COMPLIANCE CERTIFICATE TO: VENTURE LENDING FROM: BIOSTAR, INC. The undersigned authorized officer of BioStar, Inc. hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct in all material respects as of the date hereof. Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes. PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN. REPORTING COVENANT REQUIRED COMPLIES ------------------ -------- -------- Monthly financial statements Monthly within 30 days Yes No Annual (CPA Audited) FYE within 160 days Yes No A/R & A/P Agings Monthly within 30 days A/R Audit Initial and Semi-annual Yes No FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES ------------------ -------- ------ -------- Profitability or Maximum Loss: Monthly ($750,000) $_____ Yes No ---------------------------------- COMMENTS REGARDING EXCEPTIONS: SEE ATTACHED. BANK USE ONLY Sincerely, Received By: ---------------------- Authorized Signer - -------------------------------- Signature Date: ----------------------------- - -------------------------------- Title Verified: ------------------------- - -------------------------------- Authorized Signer Date Date: ----------------------------- Compliance Status: Yes No ---------------------------------- EX-10.71 17 WARRANT TO PURCHASE SHARES OF SERIES B PREFERRED 1 NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE, TRANSFER OR OTHER DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED. SHARES ISSUABLE UPON EXERCISE: 60,750 WARRANT TO PURCHASE SHARES OF SERIES B PREFERRED STOCK EXPIRES NOVEMBER 2, 2000 THIS CERTIFIES THAT, For value received, Dominion Ventures, Inc., is entitled to subscribe for and purchase 60,750 shares (as adjusted pursuant to provisions hereof, the "Shares") of the fully paid and nonassessable Series B Preferred Stock of Biostar, Inc., a Delaware corporation (the "Company"). The purchase price of each share shall be the amount set forth in Section 1.1 below as such amount may be adjusted from time to time from adjustments specified herein (the "Warrant Price"), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term "Preferred Stock" shall mean the Company's presently authorized Series B Preferred Stock, and any stock into or for which such Series B Preferred Stock may hereafter be converted or exchanged pursuant to the Certificate of Incorporation of the Company as from time to time amended as provided by law and in such Certificate, and the term "Grant Date" shall mean November 2, 1992. 1. INITIAL WARRANT PRICE AND TERM. 1.1 INITIAL WARRANT PRICE. The initial Warrant Price shall be equal to the lesser of (a) the price per share of the Company's equity securities in the Company's next Equity Financing (as hereinafter defined) and (b) $2.20. The term "Equity Financing" shall be defined as the first sale of preferred equity securities of the Company after the date hereof to reputable venture capital firms, with net proceeds to the Company of not less than $1 million. 1.2 TERM. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time from and after the Grant Date and prior to the earlier of the ninth annual anniversary date of the Grant Date or the fourth annual anniversary of the consummation of the Company's initial public offering of its Common Stock, the aggregate gross proceeds from which exceed $5,000,000. 1. 2 2. METHOD OF EXERCISE; NET ISSUE EXERCISE. 2.1 METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. The purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, by either, at the election of the holder hereof, (a) the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A duly executed) at the principal office of the Company and by the payment to the Company, by check, of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased or (b) if in connection with a registered public offering of the Company's securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-1 duly executed) at the principal office of the Company together with notice of arrangements reasonably satisfactory to the Company for payment to the Company either by check or from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased. The person or persons in whose name(s) any certificate(s) representing shares of Preferred Stock shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as possible and in any event within thirty days of receipt of such notice and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such thirty-day period. 2.2 NET ISSUE EXERCISE. (a) In lieu of exercising this Warrant, holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election in which event the Company shall issue to Holder a number of shares of the Company's Preferred Stock computed using the following formula: X= Y(A-B) ------ A Where X = The number of shares of Common Stock to be issued to Holder. Y = the number of shares of Common Stock purchasable under this Warrant. A = the fair market value of one share of the Company's Common Stock. B = Warrant price (as adjusted to the date of such calculations). 2. 3 (b) For purposes of this Section, fair market value of the Company's Common Stock shall mean the average of the closing bid and asked prices of the Company's Preferred Stock quoted in the Over-The-Counter Market Summary or the closing price quoted on any exchange on which the Preferred Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten trading days prior to the date of determination of fair market value. If the Preferred Stock is not traded Over- The-Counter or on an exchange, the fair market value shall be the price per share which the Company could obtain from a willing buyer for shares sold by the Company from authorized but unissued shares, as such price shall be agreed by the Company and the Holder. 3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may be issued upon the exercise of the rights represented by this Warrant and Common Stock issuable upon conversion of the Preferred Stock will, upon issuance, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by the Warrant may be exercised, the Company will at all times have authorized and reserved for the purpose of issuance upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Preferred Stock (and Common Stock issuable upon conversion thereof) to provide for the exercise of the right represented by this Warrant. 4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and kind of securities purchasable upon the exercise of the Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) RECLASSIFICATION OR MERGER. In case of any reclassification, change or conversion of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is a continuing corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall execute a new Warrant (in form and substance reasonably satisfactory to the holder of this Warrant) providing that the holder of this Warrant shall have the right to exercise such new Warrant and upon such exercise to receive, in lieu of each share of Preferred Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change or merger by a holder of one share of Preferred Stock. Such new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Paragraph 4. The provisions of this subparagraph (a) shall similarly apply to successive reclassifications, changes, mergers and transfers. (b) SUBDIVISIONS OR COMBINATION OF SHARES. If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its Preferred Stock, the Warrant Price and the number of Shares issuable upon exercise hereof shall be proportionately adjusted. 3. 4 (c) STOCK DIVIDENDS. If the Company at any time while this Warrant is outstanding and unexpired shall pay a dividend payable in shares of Preferred Stock (except any distribution specifically provided for in the foregoing subparagraphs (a) and (b)), then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (a) the numerator of which shall be the total number of shares of Preferred Stock outstanding immediately prior to such dividend or distribution, and (b) the denominator of which shall be the total number of shares of Preferred Stock outstanding immediately after such dividend or distribution and the number of Shares subject to this Warrant shall be proportionately adjusted. (d) NO IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Paragraph 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. (e) NOTICES OF RECORD DATE. In the event of any taking by the Company of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed merger or consolidation of the Company with or into any other corporation, or any proposed sale, lease or conveyance of all or substantially all of the assets of the Company, or any proposed liquidation, dissolution or winding up of the Company, the Company shall mail to the holder of the Warrant, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. 5. FRACTIONAL SHARES. No fractional shares of Preferred Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Warrant Price then in effect. 6. COMPLIANCE WITH SECURITIES ACT; DISPOSITION OF WARRANT OR SHARES OF PREFERRED STOCK. (a) COMPLIANCE WITH SECURITIES ACT. The holder of this Warrant, by acceptance hereof, agrees that this Warrant, the shares of Preferred Stock to be issued upon exercise hereof and the Common Stock to be issued upon conversion of such Preferred Stock are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant or any shares of Preferred Stock to be issued upon exercise hereof (or Common Stock issued upon conversion of the Preferred Stock) except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the "Act") and in compliance with the provisions of the legend set forth below. This Warrant and all shares of Preferred Stock issued 4. 5 upon exercise of this Warrant (unless registered under the Act) shall be stamped or imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED. (b) DISPOSITION OF WARRANT AND SHARES. With respect to any offer, sale or other disposition of this Warrant or any shares of Preferred Stock acquired pursuant to the exercise of this Warrant (or Common Stock issued upon conversion of such Preferred Stock) prior transfer of the Warrant or stock, as applicable, the holder hereof and each subsequent holder of the Warrant or stock, as applicable, agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holder's counsel, if reasonably requested by the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state law then in effect) of this Warrant or such shares of Preferred Stock or Common Stock and indicating whether or not under the Act certificates for this Warrant or such shares of Preferred Stock or Common Stock to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to insure compliance with the Act. Each certificate representing this Warrant or the shares of Preferred Stock or Common Stock thus transferred (except a transfer pursuant to Rule 144) shall bear a legend as to the applicable restrictions on transferability in order to insure compliance with the Act, unless in the aforesaid opinion of counsel for the holder and the opinion of counsel to the Company, such legend is not required in order to insure compliance with the Act. Nothing herein shall restrict the transfer of this Warrant or any portion hereof by the initial holder hereof to any partnership affiliated with the initial holder, or to any partner of any such partnership provided such transfer may be made in compliance with applicable federal and state securities laws. The Company may issue stop transfer instructions to its transfer agent in connection with the foregoing restrictions. 7. RIGHTS AS SHAREHOLDERS; INFORMATION. 7.1 SHAREHOLDER RIGHTS. No holder of the Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Preferred Stock or any other securities of the Company which may at any time be issuable on the exercise thereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. 5. 6 7.2 FINANCIAL STATEMENTS AND INFORMATION. The Company shall deliver to the registered holder hereof (i) within 120 days after the end of the fiscal year of the Company, a consolidated balance sheet of the Company as of the end of such year and a consolidated statement of income, retained earnings and cash flows for such year, which year-end financial reports shall be in reasonable detail and certified by independent public accountants of nationally recognized standing selected by the Company, and (ii) within 45 days after the end of each fiscal quarter other than the last fiscal quarter, unaudited consolidated statements of income, retained earnings and cash flows for such quarter and a consolidated balance sheet as of the end of such quarter. In addition, the Company shall deliver to the registered holder hereof any other information or data provided to the shareholders of the Company. 8. REGISTRATION RIGHTS. The holder hereof and Company agree the holder of this Warrant (or any registered transferee thereof pursuant to Section 6 hereof) shall be entitled to participate in the registration rights with respect to the Investors Rights Agreement (as hereinafter defined), that the holder hereof shall be deemed an "Holder" and that all shares of Common Stock issued upon conversion of the Preferred Stock subject to this Warrant shall deemed "Registrable Securities" as such terms are defined in the Investors Rights Agreement (as defined herein) and shall be subject to the same terms and conditions with respect to the registration and sale of such shares as set forth in Section 1 of that certain BioStar, Inc. Investor Rights Agreement dated June 17, 1992 (the "Investors Rights Agreement"), by and among the Company and those certain Investors identified therein. 8.1 TRANSFER OF REGISTRATION RIGHTS. The registration rights of the holder under this Section 9 may be transferred to any transferee of the Warrantholder provided that the Company is given written notice by the holder of this Warrant at the time of such transfer stating the name and address of the transferee and identifying the Registrable Securities with respect to which the rights under this Section 9 are being assigned. Notwithstanding the foregoing and anything to the contrary contained herein or in the Investors Rights Agreement, the holder hereof may transfer the registration rights granted in connection with this Warrant only to affiliated Limited Partnerships of the holder hereof. 9. REPRESENTATIONS AND WARRANTIES. This Warrant is issued and delivered on the basis of the following: (a) This Warrant has been duly authorized and executed by the Company and when delivered will be the valid and binding obligation of the Company enforceable in accordance with its terms; (b) The Preferred Stock has been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable; (c) The rights, preferences, privileges and restrictions granted to or imposed upon the shares of Preferred Stock and the holders thereof are as set forth in the Company's Certificate of Incorporation, as amended, a true and complete copy of which has been delivered to the original Warrantholder; 6. 7 (d) The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved and, when issued in accordance with the terms of the Company's Certificate of Incorporation, as amended, will be validly issued, fully paid and nonassessable; and (e) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company's Certificate of Incorporation or by-laws, do not (i) contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person. 10. AMENDMENT OF CONVERSION RIGHTS. During the term of this Warrant, the Company agrees that it shall not amend its Certificate of Incorporation without the prior written consent of the holder or holders entitled to purchase a majority of the Common Stock upon conversion of the Series A, Series B and Series C Preferred Stock as a result of such amendment any of the conversion rights, including without limitation the conversion price or antidilution protection privileges, of the Preferred Stock would be affected. 11. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 12. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered, or shall be sent by certified or registered mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefore on the signature page of this Warrant. 13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets, and all of the obligations of the Company relating to the Preferred Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. The Company will, at the time of the exercise of this Warrant, in whole or in part, upon request of the holder hereof but at the Company's expense, acknowledge in writing its continuing obligation to the holder hereof in respect of any rights (including, without limitation, any right to registration of the shares of Registrable Securities) to which the holder hereof shall continue to be entitled after such exercise in accordance with this Warrant; provided, that the failure of the holder hereof to make any such request shall not affect the continuing obligation of the Company to the holder hereof in respect of such rights. 7. 8 14. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to the holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will make and deliver a new Warrant or stock certificate, or like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 15. DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. 16. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF CALIFORNIA. BIOSTAR, INC. By: /s/ Teresa W. Ayers -------------------------------- Title: Teresa W. Ayers ----------------------------- Address: 5766 Central Avenue --------------------------- Boulder Colorado 80301 ------------------------------------ Date: November 2, 1992 8. 9 EXHIBIT A NOTICE OF EXERCISE To: 1. The undersigned hereby elects to purchase __________ shares of Series ___ Preferred Stock of _________________________ Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name or names as are specified below: (Name) (Address) 3. The undersigned represents that the aforesaid shares being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares. ---------------------------------- (Signature) - --------------------------------- (Date) 10 EXHIBIT A-1 NOTICE OF EXERCISE To: 1. Contingent upon and effective immediately prior to the closing (the "Closing") of the Company's public offering contemplated by the Registration Statement of Form S-____, filed _______________, 19___, the undersigned hereby elects to purchase _________________ shares of Series ___ Preferred Stock of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) pursuant to the terms of the attached Warrant. 2. Please deliver to the custodian for the selling shareholders a stock certificate representing such _________________ shares. 3. The undersigned has instructed the custodian for the selling shareholders to deliver to the Company $____________ or, if less, the net proceeds due the undersigned from the sale of shares in the aforesaid public offering. If such net proceeds are less than the purchase price for such shares, the undersigned agrees to deliver the difference to the Company prior to the Closing. ---------------------------------- (Signature) - --------------------------------- (Date) EX-10.72 18 WARRANT TO PURCHASE SHARES OF SERIES E PREFERRED 1 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS. WARRANT AGREEMENT TO PURCHASE SHARES OF THE SERIES E PREFERRED STOCK OF BIOSTAR, INC. DATED AS OF MAY 3, 1995 (THE "EFFECTIVE DATE") WHEREAS, BioStar, Inc., a Delaware corporation (the "Company") has entered into a Master Lease Agreement dated as of May 3, 1995, Equipment Schedule No. VL-1 dated as of May 3, 1995 and related Summary Equipment Schedules (the "Leases") with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and WHEREAS, the Company desires to grant to Warrantholder, in consideration for such Leases, the right to purchase shares of its Preferred Stock; NOW, THEREFORE, in consideration of the Warrantholder executing and delivering such Leases and in consideration of mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows: 1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK. The Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase from the Company 57,143 fully paid and non-assessable shares of the Company's Series E Preferred Stock ("Preferred Stock") at a purchase price of $1.75 per share (the "Exercise Price"). The number and purchase price of such shares are subject to adjustment as provided in Section 8 hereof. 2. TERM OF THE WARRANT AGREEMENT. Except as otherwise provided for herein, the term of this Warrant Agreement and the right to purchase Preferred Stock (or Common Stock in the event that the Preferred Stock has been converted into Common Stock) as granted herein shall commence on the Effective Date and shall be exercisable for a period ending nine (9) years from the date of execution hereof, or 2 (ii) four (4) years from the effective date of the Company's initial public offering, whichever is earlier. 3. EXERCISE OF THE PURCHASE RIGHTS. The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder, in whole or in part, at any time or from time to time, prior to the expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the Notice of Exercise indicating the number of shares which remain subject to future purchases, if any. The Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants at the principal office of the Company ("Net Issuance") as determined below. If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula: X = Y(A-B) ------ A Where: X = the number of shares of Preferred Stock to be issued to the Warrantholder. Y = the number of shares of Preferred Stock requested to be exercised under this Warrant Agreement. A = the fair market value of one (1) share of Preferred Stock (at the date of calculation). B = the Exercise Price (as adjusted to the date of calculation). For purposes of the above calculation, current fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock: (i) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the SEC, then the fair market value per share shall be the product of (x) the "Initial Price to Public" specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at time of such exercise; (ii) if this Warrant is exercised after, and not in connection with the Company's initial public offering, and: (1) if traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a twenty-one (21) day 2. 3 period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; or (2) if actively traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) over the twenty-one (21) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the fair market value of Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Company's Board of Directors and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the fair market value of Common Stock shall be deemed to be the value received by the holders of the Company's Preferred Stock on a common equivalent basis pursuant to such merger or acquisition. Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Warrant Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein, including, but not limited to, the Effective Date hereof. 4. RESERVATION OF SHARES. AUTHORIZATION AND RESERVATION OF SHARES. During the term of this Warrant Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein. 5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 6. NO RIGHTS AS SHAREHOLDER. This Warrant Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the Warrant. 3. 4 7. WARRANTHOLDER REGISTRY. The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement. 8. ADJUSTMENT RIGHTS. The purchase price per share and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows: (a) MERGER AND SALE OF ASSETS. If at any time there shall be a capital reorganization of the shares of the Company's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant, the number of shares of preferred stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant Agreement (including adjustments of the Exercise Price and number of shares of Preferred Stock purchasable) shall be applicable to the greatest extent possible. (b) RECLASSIFICATION OF SHARES. If the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. (c) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time shall combine or subdivide its Preferred Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. (d) STOCK DIVIDENDS. If the Company at any time shall pay a dividend payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company's stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Company's stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number 4. 5 of all shares of the Company's stock outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Preferred Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Preferred Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) ANTIDILUTION RIGHTS. Additional antidilution rights applicable to the Preferred Stock purchasable hereunder are as set forth in the Company's Restated Certificate of Incorporation, as amended through the Effective Date, a true and complete copy of which is attached hereto as Exhibit III (the "Charter"). The Company shall promptly provide the Warrantholder with any restatement, amendment, modification or waiver of the Charter. (f) NOTICE OF ADJUSTMENTS. Warrantholder shall be entitled to the same rights with respect to Adjustments as provided to the holders of the Preferred Stock as set forth in the Company's Restated Certificate of Incorporation. 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. (a) RESERVATION OF PREFERRED STOCK. The Preferred Stock issuable upon exercise of the Warrantholder's rights has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Preferred Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and Bylaws, as amended, and minutes of all Board of Directors (including all committees of the Board of Directors, if any) and Shareholder meetings through March 8, 1995. The issuance of certificates for shares of Preferred Stock upon exercise of the Warrant Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Preferred Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Warrantholder. (b) DUE AUTHORITY. The execution and delivery by the Company of this Warrant Agreement and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Preferred Stock, have been duly authorized by all necessary corporate action on the part of the Company, and the Leases and this Warrant Agreement are not inconsistent with the Company's Charter or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Leases and this Warrant Agreement constitute legal, valid and binding agreements of the Company, enforceable in accordance with their respective terms, subject to applicable bankruptcy and other similar laws affecting the rights of creditors generally and rules of law concerning equitable remedies. 5. 6 (c) CONSENTS AND APPROVALS. No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Agreement, except for the filing of notices required by applicable state securities law, if any, which filings will be made by the time required thereby. (d) ISSUED SECURITIES. All issued and outstanding shares of Common Stock, Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all Federal and state securities laws. In addition: (i) The authorized capital of the Company consists of (A) 22,500,000 shares of Common Stock, of which 1,947,451 shares are issued and outstanding, and (B) 18,000,000 shares of Preferred Stock, of which (i) 3,500,000 shares have been designated Series A Preferred Stock, all of which are issued and outstanding; (ii) 5,060,750 shares have been designated Series B Preferred Stock, of which 5,000,000 are issued and outstanding; (iii) 1,737,500 shares have been designated Series C Preferred Stock, none of which are issued and outstanding; (iv) 2,908,889 shares have been designated Series D Preferred Stock, all of which are issued and outstanding; and (v) 4,481,929 shares have been designated Series E Preferred Stock, 4,150,717 of which are issued and outstanding. 17,689,068 shares of Common Stock have been reserved for issuance upon conversation of the Preferred Stock. (ii) The Company has reserved 2,750,000 shares of Common Stock for issuance under its 1995 Equity Incentive Plan, under which 1,606,298 options are outstanding at prices of $0.10 to $0.23 per share. And, except for (1) the conversion privileges of the Series A, Series B, Series C, Series D and Series E Preferred Stock; (2) the rights provided in Section 4 of the Restated Investor's Rights Agreement, dated November 14, 1994; (3) a warrant potentially exercisable for a maximum of 60,750 shares of the Company's Series B Preferred Stock (the "Series B Warrant") issued to Dominion Ventures, Inc. ("Dominion") pursuant to that certain Warrant to Purchase Shares of Series B Preferred Stock, dated November 2, 1992; (4) a convertible instrument potentially convertible into a maximum of 1,600,000 shares of the Company's Series C Preferred Stock (the "Convertible Instrument") issued to the BMPI Liquidating Trust, a Colorado trust, (the "Trust") pursuant to that certain Asset Purchase Agreement dated June 17, 1992, by and between the Company and the Trust (the "Asset Agreement"); and (5) a warrant potentially exercisable for a maximum of 53,357 shares of the Company's Series E Preferred Stock (the "Series E Warrant"), issued to Dominion pursuant to that certain Warrant to Purchase shares of Series E Preferred Stock, dated February 18, 1994, there are not any outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition form the Company of any shares of its capital stock. (iii) In accordance with the Company's Restated Certificate of Incorporation and that certain Restated Investors' Rights Agreement, dated as of November 14, 1994, the Company has obtained the necessary waivers of right of first offer and antidilution protection from its stockholders in connection with the issuance to Warrantholder of this Warrant to 6. 7 purchase shares of the Company's Series E Preferred Stock in connection with the venture leasing arrangement entered into by the parties to this Warrant Agreement. (e) INSURANCE. The Company has in full force and effect insurance policies, with extended coverage, insuring the Company and its property and business against such losses and risks, and in such amounts, as are customary for corporations engaged in a similar business and similarly situated and as otherwise may be required pursuant to the terms of any other contract or agreement. (f) OTHER COMMITMENTS TO REGISTER SECURITIES. Except as set forth in that certain Amended and Restated Investors Rights Agreement dated as of November 14, 1994 and in this Warrant Agreement, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. (g) EXEMPT TRANSACTION. Subject to the accuracy of the Warrantholder's representations in Section 10 hereof, the issuance of the Preferred Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the California Corporate Securities Law, in reliance upon Section 25102(f) thereof. (h) COMPLIANCE WITH RULE 144. If and when the Company becomes subject to such filing requirements, at the written request of the Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time. 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER. This Warrant Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder: (a) INVESTMENT PURPOSE. The right to acquire Preferred Stock or the Preferred Stock issuable upon exercise of the Warrantholder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. (b) PRIVATE ISSUE. The Warrantholder understands (i) that the Preferred Stock issuable upon exercise of this Warrant is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 10. 7. 8 (c) DISPOSITION OF WARRANTHOLDER'S RIGHTS. In no event will the Warrantholder make a disposition of any of its rights to acquire Preferred Stock or Preferred Stock issuable upon exercise of such rights unless and until (i) it shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, it shall have furnished the Company with an opinion of counsel (which counsel may either be inside or outside counsel to the Warrantholder) satisfactory to the Company and its counsel to the effect that (A) appropriate action necessary for compliance with the 1933 Act has been taken, or (B) an exemption from the registration requirements of the 1933 Act is available. Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of its rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of such rights do not apply to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and shall terminate as to any particular share of Preferred Stock when (1) such security shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration or (2) such security shall have been sold without registration in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder at its request by the staff of the Securities and Exchange Commission or a ruling shall have been issued to the Warrantholder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission, as the case may be, if such security is transferred without registration under the 1933 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate as hereinabove provided, the Warrantholder or holder of a share of Preferred Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Preferred Stock not bearing any restrictive legend. (d) FINANCIAL RISK. The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. (e) RISK OF NO REGISTRATION. The Warrantholder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of its rights of the Warrantholder to purchase Preferred Stock or Preferred Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. (f) ACCREDITED INVESTOR. Warrantholder is an "accredited investor" within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 8. 9 11. TRANSFERS. Subject to the terms and conditions contained in Section 10 hereof, this Warrant Agreement and all rights hereunder are transferable in whole or in part by the Warrantholder and any successor transferee; provided, however, in no event shall the number of transfers of the rights and interests in all of the Warrants exceed three (3) transfers. The transfer shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit II (the "Transfer Notice") at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. 12. MISCELLANEOUS. (a) EFFECTIVE DATE. The provisions of this Warrant Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Warrant Agreement shall be binding upon any successors or assigns of the Company. (b) ATTORNEY'S FEES. In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant Agreement. (c) GOVERNING LAW. This Warrant Agreement shall be governed by and construed for all purposes under and in accordance with the laws of the State of Illinois. (d) COUNTERPARTS. This Warrant Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (e) NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, facsimile transmission (provided that the original is sent by personal delivery or mail as hereinafter set forth) or seven (7) days after deposit in the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, cc: Legal Department, (and/or, if by facsimile, (708) 518-5465 and (708) 518-5088) and (ii) to the Company at 6655 Lookout Road, Boulder, Colorado 80301, attention: Teresa Ayers, Vice President, Finance, (and/or if by facsimile, (303) 530-6601) or at such other address as any such party may subsequently designate by written notice to the other party. (f) REMEDIES. In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default and/or an action for specific performance for any default where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement. 9. 10 (g) NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. (h) SURVIVAL. The representations, warranties, covenants and conditions of the respective parties contained herein or made pursuant to this Warrant Agreement shall survive the execution and delivery of this warrant Agreement. (i) SEVERABILITY. In the event any one or more of the provisions of this Warrant Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. (j) AMENDMENTS. Any provision of this Warrant Agreement may be amended by a written instrument signed by the Company and by the Warrantholder. (k) ADDITIONAL DOCUMENTS. The Company, upon execution of this Warrant Agreement, shall provide the Warrantholder with certified resolutions with respect to the representations, warranties and covenants set forth in subparagraphs (a) through (d), (f) and (g) of Section 9 above The Company shall also supply such other documents as the Warrantholder may from time to time reasonably request. IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the Effective Date. COMPANY: BIOSTAR, INC. By: /s/ Teresa W. Ayers --------------------------------- Title: Vice President Finance ------------------------------ WARRANTHOLDER: COMDISCO, INC. By: --------------------------------- Title: ------------------------------ 10. 11 EXHIBIT I NOTICE OF EXERCISE To: -------------------------------- 1. The undersigned Warrantholder hereby elects to purchase ________ shares of the Series E Preferred Stock of _______________, pursuant to the terms of the Warrant Agreement dated the ________ day of ____________, 199___ (the "Warrant Agreement") between ______________________ and the Warrantholder, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any. 2. In exercising its rights to purchase the Series E Preferred Stock of _______________, the undersigned hereby confirms and acknowledges the investment representations and warranties made in Section 10 of the Warrant Agreement. 3. Please issue a certificate or certificates representing said shares of Series E Preferred Stock in the name of the undersigned or in such other name as is specified below. - -------------------------------- (Name) - -------------------------------- (Address) WARRANTHOLDER: COMDISCO, INC. By: -------------------------------- Title: ----------------------------- Date: ------------------------------ 12 ACKNOWLEDGEMENT OF EXERCISE The undersigned ____________________, hereby acknowledge receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ________ shares of the Series E Preferred Stock of ___________________, pursuant to the terms of the Warrant Agreement, and further acknowledges that ________ shares remain subject to purchase under the terms of the Warrant Agreement. COMPANY: By: ---------------------------------- Title: ------------------------------- Date: -------------------------------- 13 EXHIBIT II TRANSFER NOTICE (To transfer or assign the foregoing Warrant Agreement execute this form and supply required information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights evidenced thereby are hereby transferred and assigned to _________________________ whose address is _____________________________________________________________. Dated: ----------------------------------------- Holder's Signature: ---------------------------- Holder's Address: ------------------------------ - ----------------------------------------------- Signature Guaranteed: -------------------------- NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Warrant Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant Agreement. EX-10.73 19 WARRANT AGREEMENT TO PURCHASE SHARES OF SERIES E 1 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS. WARRANT AGREEMENT TO PURCHASE SHARES OF THE SERIES E PREFERRED STOCK OF BIOSTAR, INC. DATED AS OF MAY 3, 1995 (THE "EFFECTIVE DATE") WHEREAS, BioStar, Inc., a Delaware corporation (the "Company"), has entered into a Subordinated Security Agreement dated as of May 3, 1995 (the "Security Agreement") and a Subordinated Promissory Note the ("Note") dated as of May 3, 1995 with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and WHEREAS, the Company desires to grant to Warrantholder, in consideration for such Security Agreement and the Note, the right to purchase shares of its Preferred Stock; NOW, THEREFORE, in consideration of the Warrantholder executing and delivering such Security Agreement and the Note and in consideration of mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows: 1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK. The Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase from the Company 214,285 fully paid and non-assessable shares of the Company's Series E Preferred Stock ("Preferred Stock") at a purchase price of $1.75 per share (the "Exercise Price"). The number and purchase price of such shares are subject to adjustment as provided in Section 8 hereof. 2. TERM OF THE WARRANT AGREEMENT. Except as otherwise provided for herein, the term of this Warrant Agreement and the right to purchase Preferred Stock (or Common Stock in the event that the Preferred Stock has been converted into Common Stock) as granted herein shall commence on the Effective Date and shall be exercisable for a period ending nine (9) years from the date of execution hereof, or 2 (ii) four (4) years from the effective date of the Company's initial public offering, whichever is earlier. 3. EXERCISE OF THE PURCHASE RIGHTS. The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder, in whole or in part, at any time or from time to time, prior to the expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the Notice of Exercise indicating the number of shares which remain subject to future purchases, if any. The Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants at the principal office of the Company ("Net Issuance") as determined below. If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula: X= Y(A-B) ------ A Where: X = the number of shares of Preferred Stock to be issued to the Warrantholder. Y = the number of shares of Preferred Stock requested to be exercised under this Warrant Agreement. A = the fair market value of one (1) share of Preferred Stock (at the date of calculation). B = the Exercise Price (as adjusted to the date of calculation).
For purposes of the above calculation, current fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock: (i) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the SEC, then the fair market value per share shall be the product of (x) the "Initial Price to Public" specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at time of such exercise; (ii) if this Warrant is exercised after, and not in connection with the Company's initial public offering, and: (1) if traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a twenty-one (21) day 2. 3 period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; or (2) if actively traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) over the twenty-one (21) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the fair market value of Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Company's Board of Directors and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the fair market value of Common Stock shall be deemed to be the value received by the holders of the Company's Preferred Stock on a common equivalent basis pursuant to such merger or acquisition. Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Warrant Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof. 4. RESERVATION OF SHARES. AUTHORIZATION AND RESERVATION OF SHARES. During the term of this Warrant Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein. 5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 6. NO RIGHTS AS SHAREHOLDER. This Warrant Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the Warrant. 3. 4 7. WARRANTHOLDER REGISTRY. The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement. 8. ADJUSTMENT RIGHTS. The purchase price per share and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows: (a) MERGER AND SALE OF ASSETS. If at any time there shall be a capital reorganization of the shares of the Company's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant, the number of shares of preferred stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant Agreement (including adjustments of the Exercise Price and number of shares of Preferred Stock purchasable) shall be applicable to the greatest extent possible. (b) RECLASSIFICATION OF SHARES. If the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. (c) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time shall combine or subdivide its Preferred Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. (d) STOCK DIVIDENDS. If the Company at any time shall pay a dividend payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company's stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Company's stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number 4. 5 of all shares of the Company's stock outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Preferred Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Preferred Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) RIGHT TO PURCHASE ADDITIONAL STOCK. If the principal under the Note is not repaid in full on or before May 1, 1998, then on the first day of each month commencing on June 1, 1998, the Warrantholder shall have the right to purchase from the Company, at the Exercise Price per share specified in Section 1 (which price may be subject to adjustment from time to time as provided for in this Section 8), an additional number of shares of Preferred Stock, which number shall be determined by (i) multiplying the Principal Amount of the Note outstanding on each such date by one percent (1%), and (ii) dividing the product thereof by the Exercise Price per share referenced above. The Warrantholder shall be entitled to receive additional shares subject to Warrant pursuant to the above provision until such time as the principal is repaid in full. The above grant of rights to purchase additional shares of Preferred Stock does not, and is not intended to, replace or limit any other rights or remedies the Warrantholder, Lender or their affiliates may have with respect to the Company, under the Note or otherwise, and those rights are granted by the Company to the Warrantholder in addition to and not in lieu of any other rights and remedies of the Warrantholder, Lender or their affiliates. (f) ANTIDILUTION RIGHTS. Additional antidilution rights applicable to the Preferred Stock purchasable hereunder are as set forth in the Company's Restated Certificate of Incorporation, as amended through the Effective Date, a true and complete copy of which is attached hereto as Exhibit III (the "Charter"). The Company shall promptly provide the Warrantholder with any restatement, amendment, modification or waiver of the Charter. (g) NOTICE OF ADJUSTMENTS. Warrantholder shall be entitled to the same rights with respect to Adjustments as provided to the holders of the Preferred Stock as set forth in the Company's Restated Certificate of Incorporation. 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. (a) RESERVATION OF PREFERRED STOCK. The Preferred Stock issuable upon exercise of the Warrantholder's rights has been duly and validly reserved and, when issued in accordance with the provisions of this warrant Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Preferred Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or Federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and Bylaws, as amended, and minutes of all Board of Directors (including all committees of the Board of Directors, if any) and Shareholder meetings through March 8, 1995. The issuance of certificates for shares of Preferred Stock upon exercise of the Warrant Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related 5. 6 issuance of shares of Preferred Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Warrantholder. (b) DUE AUTHORITY. The execution and delivery by the Company of this Warrant Agreement and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Preferred Stock, have been duly authorized by all necessary corporate action on the part of the Company, and the Leases and this Warrant Agreement are not inconsistent with the Company's Charter or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Leases and this Warrant Agreement constitute legal, valid and binding agreements of the Company, enforceable in accordance with their respective terms, subject to applicable bankruptcy and other similar laws affecting the rights of creditors generally and rules of law concerning equitable remedies. (c) CONSENTS AND APPROVALS. No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Agreement, except for the filing of notices required by applicable state securities law, if any, which filings will be made by the time required thereby. (d) ISSUED SECURITIES. All issued and outstanding shares of Common Stock, Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all Federal and state securities laws. In addition: (i) The authorized capital of the Company consists of (A) 22,500,000 shares of Common Stock, of which 1,947,451 shares are issued and outstanding, and (B) 18,000,000 shares of Preferred Stock, of which (i) 3,500,000 shares have been designated Series A Preferred Stock, all of which are issued and outstanding; (ii) 5,060,750 shares have been designated Series B Preferred Stock, of which 5,000,000 are issued and outstanding; (iii) 1,737,500 shares have been designated Series C Preferred Stock, none of which are issued and outstanding; (iv) 2,908,889 shares have been designated Series D Preferred Stock, all of which are issued and outstanding; and (v) 4,481,929 shares have been designated Series E Preferred Stock, 4,150,717 of which are issued and outstanding. 17,689,068 shares of Common Stock have been reserved for issuance upon conversation of the Preferred Stock. (ii) The Company has reserved 2,750,000 shares of Common Stock for issuance under its 1995 Equity Incentive Plan, under which 1,606,298 options are outstanding at prices of $0.10 to $0.23 per share. And, except for (1) the conversion privileges of the Series A, Series B, Series C, Series D and Series E Preferred Stock; (2) the rights provided in Section 4 of the Restated Investor's Rights Agreement, dated November 14, 1994; (3) a warrant potentially exercisable for a maximum of 60,750 shares of the Company's Series B Preferred Stock (the "Series B Warrant") issued to Dominion Ventures, Inc. ("Dominion") pursuant to that certain 6. 7 Warrant to Purchase Shares of Series B Preferred Stock, dated November 2, 1992; (4) a convertible instrument potentially convertible into a maximum of 1,600,000 shares of the Company's Series C Preferred Stock (the "Convertible Instrument") issued to the BMPI Liquidating Trust, a Colorado trust, (the "Trust") pursuant to that certain Asset Purchase Agreement dated June 17, 1992, by and between the Company and the Trust (the "Asset Agreement"); and (5) a warrant potentially exercisable for a maximum of 53,357 shares of the Company's Series E Preferred Stock (the "Series E Warrant"), issued to Dominion pursuant to that certain Warrant to Purchase shares of Series E Preferred Stock, dated February 18, 1994, there are not any outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition form the Company of any shares of its capital stock. (iii) In accordance with the Company's Restated Certificate of Incorporation and that certain Restated Investors' Rights Agreement, dated as of November 14, 1994, the Company has obtained the necessary waivers of right of first offer and antidilution protection from its stockholders in connection with the issuance to Warrantholder of this Warrant to purchase shares of the Company's Series E Preferred Stock in connection with the subordinated loan entered into by the parties to this Warrant Agreement. (e) INSURANCE. The Company has in full force and effect insurance policies, with extended coverage, insuring the Company and its property and business against such losses and risks, and in such amounts, as are customary for corporations engaged in a similar business and similarly situated and as otherwise may be required pursuant to the terms of any other contract or agreement. (f) OTHER COMMITMENTS TO REGISTER SECURITIES. Except as set forth in that certain Amended and Restated Investors Rights Agreement dated as of November 14, 1994 and in this Warrant Agreement, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. (g) EXEMPT TRANSACTION. Subject to the accuracy of the Warrantholder's representations in Section 10 hereof, the issuance of the Preferred Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the California Corporate Securities Law, in reliance upon Section 25102(f) thereof. (h) COMPLIANCE WITH RULE 144. If and when the Company becomes subject to such filing requirements, at the written request of the Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time. 7. 8 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER. This Warrant Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder: (a) INVESTMENT PURPOSE. The right to acquire Preferred Stock or the Preferred Stock issuable upon exercise of the Warrantholder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. (b) PRIVATE ISSUE. The Warrantholder understands (i) that the Preferred Stock issuable upon exercise of this Warrant is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 10. (c) DISPOSITION OF WARRANTHOLDER'S RIGHTS. In no event will the Warrantholder make a disposition of any of its rights to acquire Preferred Stock or Preferred Stock issuable upon exercise of such rights unless and until (i) it shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, it shall have furnished the Company with an opinion of counsel (which counsel may either be inside or outside counsel to the Warrantholder) satisfactory to the Company and its counsel to the effect that (A) appropriate action necessary for compliance with the 1933 Act has been taken, or (B) an exemption from the registration requirements of the 1933 Act is available. Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of its rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of such rights do not apply to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and shall terminate as to any particular share of Preferred Stock when (1) such security shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration, (2) such security shall have been sold without registration in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder at its request by the staff of the Securities and Exchange Commission or a ruling shall have been issued to the Warrantholder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission, as the case may be, if such security is transferred without registration under the 1933 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Warrantholder or holder of a share of Preferred Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Preferred Stock not bearing any restrictive legend. 8. 9 (d) FINANCIAL RISK. The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. (e) RISK OF NO REGISTRATION. The Warrantholder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of its rights of the Warrantholder to purchase Preferred Stock or Preferred Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. (f) ACCREDITED INVESTOR. Warrantholder is an "accredited investor" within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 11. TRANSFERS. Subject to the terms and conditions contained in Section 10 hereof, this Warrant Agreement and all rights hereunder are transferable in whole or in part by the Warrantholder and any successor transferee; provided, however, in no event shall the number of transfers of the rights and interests in all of the Warrants exceed three (3) transfers. The transfer shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit II (the "Transfer Notice"), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. 12. MISCELLANEOUS. (a) EFFECTIVE DATE. The provisions of this Warrant Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Warrant Agreement shall be binding upon any successors or assigns of the Company. (b) ATTORNEYS' FEES. In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant Agreement. (c) GOVERNING LAW. This Warrant Agreement shall be governed by and construed for all purposes under and in accordance with the laws of the State of Illinois. (d) COUNTERPARTS. This Warrant Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9. 10 (e) NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, facsimile transmission (provided that the original is sent by personal delivery or mail as hereinafter set forth) or seven (7) days after deposit in the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, cc: Legal Department, (and/or, if by facsimile, (708) 518-5465 and (708) 518-5088) and (ii) to the Company at 6655 Lookout Road, Boulder, Colorado 80301, attention: Teresa Ayers, Vice President, Finance, (and/or if by facsimile, (303) 530-6601 or at such other address as any such party may subsequently designate by written notice to the other party. (f) REMEDIES. In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement. (g) NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. (h) SURVIVAL. The representations, warranties, covenants and conditions of the respective parties contained herein or made pursuant to this Warrant Agreement shall survive the execution and delivery of this Warrant Agreement. (i) SEVERABILITY. In the event any one or more of the provisions of this Warrant Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. (j) AMENDMENTS. Any provision of this Warrant Agreement may be amended by a written instrument signed by the Company and by the Warrantholder. (k) ADDITIONAL DOCUMENTS. The Company, upon execution of this Warrant Agreement, shall provide the Warrantholder with certified resolutions with respect to the representations, warranties and covenants set forth in subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall also supply such other documents as the Warrantholder may from time to time reasonably request. 10. 11 IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereto duly authorized as of the Effective Date. COMPANY: BIOSTAR, INC. By: /s/ Teresa W. Ayers --------------------------------------------- Title: Vice President Finance ----------------------------------------- WARRANTHOLDER: COMDISCO, INC. By: --------------------------------------------- Title: ----------------------------------------- 11. 12 EXHIBIT I NOTICE OF EXERCISE To: ----------------------------------------- 1. The undersigned Warrantholder hereby elects to purchase shares of the Series E Preferred Stock of _______________, pursuant to the terms of the Warrant Agreement dated the day of _______________, 199___ (the "Warrant Agreement") between ____________________ and the Warrantholder, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any. 2. In exercising its rights to purchase the Series E Preferred Stock of ____________________, the undersigned hereby confirms and acknowledges the investment representations and warranties made in Section 10 of the Warrant Agreement. 3. Please issue a certificate or certificates representing said shares of Series E Preferred Stock in the name of the undersigned or in such other name as is specified below. - --------------------------------------------------- (Name) - --------------------------------------------------- (Address) WARRANTHOLDER: COMDISCO, INC. By: --------------------------------------------------- Title: ------------------------------------------------ Date: ------------------------------------------------- 13 ACKNOWLEDGEMENT OF EXERCISE The undersigned hereby acknowledge receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ______ shares of the Series E Preferred Stock of _____________, pursuant to the terms of the Warrant Agreement, and further acknowledges that ______ shares remain subject to purchase under the terms of the Warrant Agreement. COMPANY: By: ----------------------------------------- Title: -------------------------------------- Date: --------------------------------------- 14 EXHIBIT II TRANSFER NOTICE (To transfer or assign the foregoing Warrant Agreement execute this form and supply required information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights evidenced thereby are hereby transferred and assigned to ____________________ whose address is ________________________________________. Dated: ------------------------------------- Holder's Signature: ------------------------------------------------- Holder's Address: --------------------------------------------------- - -------------------------------------------------------------------- Signature Guaranteed: ----------------------------------------------- NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Warrant Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant Agreement. EX-10.74 20 WARRANT TO PURCHASE SHARES OF SERIES E PREFERRED 1 NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE, TRANSFER OR OTHER DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED. SHARES ISSUABLE UPON EXERCISE: 53,357 WARRANT TO PURCHASE SHARES OF SERIES E PREFERRED STOCK EXPIRES FEBRUARY 18, 2003 THIS CERTIFIES THAT, for value received, Dominion Ventures, Inc., is entitled to subscribe for and purchase 53,357 shares (as adjusted pursuant to provisions hereof, the "Shares") of the fully paid and nonassessable Series E Preferred Stock of BioStar, Inc., a Delaware corporation (the "Company"), at a price per share of $1.75 (such price and such other price as shall result, from time to time, from adjustments specified herein is herein referred to as the "Warrant Price"), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term "Preferred Stock" shall mean the Company's Series E Preferred Stock to be designated in connection with the Company's next round of equity financing, and any stock into or for which such Series E Preferred Stock may hereafter be converted or exchanged pursuant to the Certificate of Incorporation of the Company as from time to time amended as provided by law and in such Certificate, and the term "Grant Date" shall mean February 18, 1994. 1. TERM. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time from and after the Grant Date and prior to the earlier of the ninth annual anniversary date of the Grant Date or the fourth annual anniversary of the consummation of the Company's initial public offering of its Common Stock, the aggregate gross proceeds from which exceed $5,000,000. 2. METHOD OF EXERCISE; NET ISSUE EXERCISE. 2.1 METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. The purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, by either, at the election of the holder hereof, (a) the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A duly executed) at the 1. 2 principal office of the Company and by the payment to the Company, by check, of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased or (b) if in connection with a registered public offering of the Company's securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-1 duly executed) at the principal office of the Company together with notice of arrangements reasonably satisfactory to the Company for payment to the Company either by check or from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased. The person or persons in whose name(s) any certificate(s) representing shares of Preferred Stock shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as possible and in any event within thirty days of receipt of such notice and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such thirty-day period. 2.2 NET ISSUE EXERCISE. (a) In lieu of exercising this Warrant, holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this X= Y(A-B) ------ A issued to Holder. Y - the number of shares of Common Stock purchasable under this Warrant. A - the fair market value of one share of the Company's Common Stock. B - Warrant price (as adjusted to the date of such calculations). (b) For purposes of this Section, fair market value of the Company's Common Stock shall mean the average of the closing bid and asked prices of the Company's Preferred Stock quoted in the Over-The-Counter Market Summary or the closing price quoted on any exchange on which the Preferred Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten trading days prior to the date of determination of fair market value. If the Preferred Stock is not traded Over-The-Counter or on an exchange, the fair market value shall be the price per share which the Company could obtain from a willing buyer for shares sold by the Company from authorized but unissued shares, as such price shall be agreed by the Company and the Holder. 2. 3 3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may be issued upon the exercise of the rights represented by this Warrant and Common Stock issuable upon conversion of the Preferred Stock will, upon issuance, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by the Warrant may be exercised, the Company will at all times have authorized and reserved for the purpose of issuance upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Preferred Stock (and Common Stock issuable upon conversion thereof) to provide for the exercise of the right represented by this Warrant. 4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and kind of securities purchasable upon the exercise of the Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) RECLASSIFICATION OR MERGER. In case of any reclassification, change or conversion of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is a continuing corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall execute a new Warrant (in form and substance reasonably satisfactory to the holder of this Warrant) providing that the holder of this Warrant shall have the right to exercise such new Warrant and upon such exercise to receive, in lieu of each share of Preferred Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change or merger by a holder of one share of Preferred Stock. Such new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Paragraph 4. The provisions of this subparagraph (a) shall similarly apply to successive reclassifications, changes, mergers and transfers. (b) SUBDIVISIONS OR COMBINATION OF SHARES. If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its Preferred Stock, the Warrant Price and the number of Shares issuable upon exercise hereof shall be proportionately adjusted. (c) STOCK DIVIDENDS. If the Company at any time while this Warrant is outstanding and unexpired shall pay a dividend payable in shares of Preferred Stock (except any distribution specifically provided for in the foregoing subparagraphs (a) and (b)), then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (a) the numerator of which shall be the total number of shares of Preferred Stock outstanding immediately prior to such dividend or distribution, and (b) the denominator of which shall be the total number of shares of Preferred Stock outstanding immediately after such dividend or distribution and the number of Shares subject to this Warrant shall be proportionately adjusted. 3. 4 (d) NO IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Paragraph 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. (e) NOTICES OF RECORD DATE. In the event of any taking by the Company of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed merger or consolidation of the Company with or into any other corporation, or any proposed sale, lease or conveyance of all or substantially all of the assets of the Company, or any proposed liquidation, dissolution or winding up of the Company, the Company shall mail to the holder of the Warrant, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. 5. FRACTIONAL SHARES. No fractional shares of Preferred Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Warrant Price then in effect. 6. COMPLIANCE WITH SECURITIES ACT; DISPOSITION OF WARRANT OR SHARES OF PREFERRED STOCK. (a) COMPLIANCE WITH SECURITIES ACT. The holder of this Warrant, by acceptance hereof, agrees that this Warrant, the shares of Preferred Stock to be issued upon exercise hereof and the Common Stock to be issued upon conversion of such Preferred Stock are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant or any shares of Preferred Stock to be issued upon exercise hereof (or Common Stock issued upon conversion of the Preferred Stock) except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the "Act") and in compliance with the provisions of the legend set forth below. This Warrant and all shares of Preferred Stock issued upon exercise of this Warrant (unless registered under the Act) shall be stamped or imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE 4. 5 COMMISSION TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED. (b) DISPOSITION OF WARRANT AND SHARES. With respect to any offer, sale or other disposition of this Warrant or any shares of Preferred Stock acquired pursuant to the exercise of this Warrant (or Common Stock issued upon conversion of such Preferred Stock) prior transfer of the Warrant or stock, as applicable, the holder hereof and each subsequent holder of the Warrant or stock, as applicable, agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holder's counsel, if reasonably requested by the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state law then in effect) of this Warrant or such shares of Preferred Stock or Common Stock and indicating whether or not under the Act certificates for this Warrant or such shares of Preferred Stock or Common Stock to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to insure compliance with the Act. Each certificate representing this Warrant or the shares of Preferred Stock or Common Stock thus transferred (except a transfer pursuant to Rule 144) shall bear a legend as to the applicable restrictions on transferability in order to insure compliance with the Act, unless in the aforesaid opinion of counsel for the holder and the opinion of counsel to the Company, such legend is not required in order to insure compliance with the Act. Nothing herein shall restrict the transfer of this Warrant or any portion hereof by the initial holder hereof to any partnership affiliated with the initial holder, or to any partner of any such partnership provided such transfer may be made in compliance with applicable federal and state securities laws. The Company may issue stop transfer instructions to its transfer agent in connection with the foregoing restrictions. 7. RIGHTS AS SHAREHOLDERS; INFORMATION. 7.1 SHAREHOLDER RIGHTS. No holder of the Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Preferred Stock or any other securities of the Company which may at any time be issuable on the exercise thereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. 7.2 FINANCIAL STATEMENTS AND INFORMATION. The Company shall deliver to the registered holder hereof (i) within 120 days after the end of the fiscal year of the Company, a consolidated balance sheet of the Company as of the end of such year and a consolidated statement of income, retained earnings and cash flows for such year, which year-end financial reports shall be in reasonable detail and certified by independent public accountants of nationally recognized standing selected by the Company, and (ii) within 45 days after the end of each fiscal quarter other than the last fiscal quarter, unaudited consolidated statements of income, retained earnings and cash flows for such quarter and a consolidated balance sheet as of the end of such quarter. In addition, the Company shall deliver to the registered holder hereof any other information or data provided to the shareholders of the Company. 5. 6 8. REGISTRATION RIGHTS. The holder hereof and Company agree the holder of this Warrant (or any registered transferee thereof pursuant to Section 6 hereof) shall be entitled to participate in the registration rights with respect to the Investors Rights Agreement (as hereinafter defined), that the holder hereof shall be deemed an "Holder" and that all shares of Common Stock issued upon conversion of the Preferred Stock subject to this Warrant shall be deemed "Registrable Securities" as such terms are defined in the Investors Rights Agreement (as defined herein) and shall be subject to the same terms and conditions with respect to the registration and sale of such shares as set forth in Section 1 of that certain BioStar, Inc. Investor Rights Agreement dated June 17, 1992 (the "Investors Rights Agreement"), by and among the Company and those certain Investors identified therein. 8.1 TRANSFER OF REGISTRATION RIGHTS. The registration rights of the holder under this Section 9 may be transferred to any transferee of the Warrantholder provided that the Company is given written notice by the holder of this Warrant at the time of such transfer stating the name and address of the transferee and identifying the Registrable Securities with respect to which the rights under this Section 9 are being assigned. Notwithstanding the foregoing and anything to the contrary contained herein or in the Investors Rights Agreement, the holder hereof may transfer the registration rights granted in connection with this Warrant only to affiliated Limited Partnerships of the holder hereof. 9. REPRESENTATIONS AND WARRANTIES. This Warrant is issued and delivered on the basis of the following: (a) This Warrant has been duly authorized and executed by the Company and when delivered will be the valid and binding obligation of the Company enforceable in accordance with its terms; (b) The Preferred Stock has been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable; (c) The rights, preferences, privileges and restrictions granted to or imposed upon the shares of Preferred Stock and the holders thereof are as set forth in the Company's Certificate of Incorporation, as amended, a true and complete copy of which has been delivered to the original Warrantholder; (d) The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved and, when issued in accordance with the terms of the Company's Certificate of Incorporation, as amended, will be validly issued, fully paid and nonassessable; and (e) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company's Certificate of Incorporation or by-laws, do not (i) contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound 6. 7 or require the consent or approval of, the giving of notice to, the registration with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person. 10. AMENDMENT OF CONVERSION RIGHTS. During the term of this Warrant, the Company agrees that it shall not amend its Certificate of Incorporation without the prior written consent of the holder or holders entitled to purchase a majority of the Common Stock upon conversion of the Series A, Series B and Series C Preferred Stock as a result of such amendment any of the conversion rights, including without limitation the conversion price or antidilution protection privileges, of the Preferred Stock would be affected. 11. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 12. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered, or shall be sent by certified or registered mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefore on the signature page of this Warrant. 13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets, and all of the obligations of the Company relating to the Preferred Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. The Company will, at the time of the exercise of this Warrant, in whole or in part, upon request of the holder hereof but at the Company's expense, acknowledge in writing its continuing obligation to the holder hereof in respect of any rights (including, without limitation, any right to registration of the shares of Registrable Securities) to which the holder hereof shall continue to be entitled after such exercise in accordance with this Warrant; provided, that the failure of the holder hereof to make any such request shall not affect the continuing obligation of the Company to the holder hereof in respect of such rights. 14. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to the holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will make and deliver a new Warrant or stock certificate, or like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 15. DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. 7. 8 16. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF CALIFORNIA. BIOSTAR, INC. By: /s/ Teresa W. Ayers -------------------------------- Title: Vice President Finance ------------------------------ Address: 5766 Central Avenue ---------------------------- Boulder Colorado 80301 ------------------------------------ Date: November 2, 1992 ----------------------------------- 8. 9 EXHIBIT A NOTICE OF EXERCISE To: 1. The undersigned hereby elects to purchase ______ shares of Series ____ Preferred Stock of ____________________ Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name or names as are specified below: (Name) (Address) 3. The undersigned represents that the aforesaid shares being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares. ------------------------------ (Signature) - --------------------------- (Date) 9. 10 EXHIBIT A-1 NOTICE OF EXERCISE To: 1. Contingent upon and effective immediately prior to the closing (the "Closing") of the Company's public offering contemplated by the Registration Statement of Form S-___, filed _______________, 19____, the undersigned hereby elects to purchase ______ shares of Series ___ Preferred Stock of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) pursuant to the terms of the attached Warrant. 2. Please deliver to the custodian for the selling shareholders a stock certificate representing such ______ shares. 3. The undersigned has instructed the custodian for the selling shareholders to deliver to the Company $__________ or, if less, the net proceeds due the undersigned from the sale of shares in the aforesaid public offering. If such net proceeds are less than the purchase price for such shares, the undersigned agrees to deliver the difference to the Company prior to the Closing. --------------------------------- (Signature) - -------------------------------- (Date) 10. EX-10.75 21 WARRANT TO PURCHASE SHARES OF SERIES E PREFERRED 1 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE STOCK WARRANT NO. WE-3 ---- Corporation: BIOSTAR, INC. a Delaware corporation Number of Shares: 85,714 Class of Stock: Series E Preferred Initial Exercise Price: $1.75 per share Issue Date: September 15, 1995 Expiration Date: September 14, 2001
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $100.00, SILICON VALLEY BANK ("HOLDER") is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the "SHARES") of the corporation (the "COMPANY") at the initial exercise price per Share (the "WARRANT PRICE") all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth of this Warrant. ARTICLE 1 EXERCISE. 1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased. 1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant Section 1.4. 1.3 [INTENTIONALLY DELETED] 2 1.4 FAIR MARKET VALUE. If the Shares are traded in a public market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the Company's stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing that Holder disagrees with such determination, then the Company and Holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by Holder. 1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY. 1.7.1 "ACQUISITION". For the purpose of this Warrant, "ACQUISITION" means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. 1.7.2 ASSUMPTION OF WARRANT. Upon the closing of any Acquisition, this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly. 1.7.3 [INTENTIONALLY DELETED] ARTICLE 2 ADJUSTMENTS TO THE SHARES. 2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a dividend on its common stock (or the Shares if the Shares are securities other than common stock) payable in common stock, or other securities, subdivides the outstanding common stock into a greater amount of common stock, or, if the Shares are securities other than common stock, subdivides 2. 3 the Shares in a transaction that increases the amount of common stock into which the Shares are convertible, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. 2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Articles of Incorporation upon the closing of a registered public offering of the Company's common stock. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased. 2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the number of Shares issuable upon exercise of this Warrant or, if the Shares are Preferred Stock, the number of shares of common stock issuable upon conversion of the Shares, shall be subject to adjustment, from time to time in the manner set forth on Exhibit A in the event of Diluting Issuances (as defined on Exhibit A). 2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. If the Company takes any action affecting the Shares or its common stock other than as described above that adversely affects Holder's rights under this Warrant, the Warrant Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Warrant Price of this Warrant is unchanged. 2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the 3. 4 nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder amount computed by multiplying the fractional interest by the fair market value of a full Share. 2.7 CERTIFICATE AS TO ADJUSTMENT. Holder shall be entitled to the same rights with respect to notices regarding adjustments as provided to the holders of Series E Preferred Stock as set forth in the Company's Restated Certificate of Incorporation. 2.8 NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitled Holder to any voting rights or other rights as a stockholder of the Company prior to the exercise of the Holder's rights to purchase Preferred Stock as provided for herein. ARTICLE 3 REPRESENTATIONS AND COVENANTS OF THE COMPANY. 3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants to the Holder as follows: (a) The initial Warrant Price referenced on the first page of this Warrant is not greater than (i) the price per share at which the Shares were last issued in an arms-length transaction in which at least $500,000 of the Shares were sold and (ii) the fair market value of the Shares as of the date of this Warrant. (b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. 3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 20 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); 4. 5 and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. 3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder promptly after mailing, copies of all notices or other written communications to the shareholders of the Company. 3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company agrees that the Shares or, if the Shares are convertible into common stock of the Company, such common stock, shall be subject to the registration rights set forth on Exhibit B, if attached. ARTICLE 4 REPRESENTATIONS AND COVENANTS OF HOLDER. This Warrant has been entered into by the Company in reliance upon the following representations and covenants of Holder, which by its acceptance hereof the Holder hereby confirms: 4.1 INVESTMENT PURPOSE. The right to acquire Preferred Stock or the Preferred Stock issuable upon exercise of Holder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Holder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. 4.2 PRIVATE ISSUE. Holder understands (i) that the Preferred Stock issuable upon exercise of the Warrantholder's rights contained herein is not registered under the 1933 Act or qualified under applicable state securities law on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 4. 4.3 FINANCIAL RISK. Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the economic risks of its investment. 4.4 RISK OF NO REGISTRATION. Holder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d) of the Securities Exchange Act of 1934 (the "1934 ACT"), or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Holder also understands that any sale of the rights of the Holder to purchase Preferred Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. 4.5 ACCREDITED INVESTOR. Holder is an "ACCREDITED INVESTOR" within the meaning of Rule 501 of Regulation D under the Act, as presently in effect. 5. 6 ARTICLE 5 MISCELLANEOUS. 5.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date set forth above or, if sooner, the date that is three years after the date that the Company sells its shares in a registered public offering under the Securities Act of 1933, as amended. 5.2 LEGENDS. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. 5.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the Shares issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder, provided such affiliate makes the representations and warranties as are included in Article 4 above, or if there is no material question as to the availability of current information as referenced in Rule 144 (c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder's notice of proposed sale. 5.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2, Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). Unless the Company is filing financial information with the SEC pursuant to the Securities Exchange Act of 1934, the 6. 7 Company shall have the right to refuse to transfer any portion of this Warrant to any person who directly competes with the Company. 5.5 NOTICES. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such holder from time to time. 5.6 WAIVER. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver; discharge or termination is sought. 5.7 ATTORNEYS FEES. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. 5.8 GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. COMPANY: BIOSTAR, INC. By: /s/ Teresa W. Ayers ----------------------------------------- Name: Teresa W. Ayers ------------------------------------ (Print) Title: Vice President By: /s/ Teresa W. Ayers ----------------------------------------- Name: Teresa W. Ayers ------------------------------------ (Print) Title: Chief Financial Officer, Secretary 7. 8 APPENDIX 1 NOTICE OF EXERCISE 1. The undersigned hereby elects to purchase __________ shares of the Common/Series __________ Preferred [STRIKE ONE] Stock of __________________ pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 1. The undersigned hereby elects to convert the attached Warrant into Shares in the manner specified in the Warrant. This conversion is exercised with respect to ______________ of the Shares covered by the Warrant. [STRIKE PARAGRAPH THAT DOES NOT APPLY.] 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: ------------------------ (Name) ------------------------ ------------------------ (Address) 3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. --------------------------------------- (Signature) - ------------------ (Date) 1. 9 EXHIBIT A ANTI-DILUTION PROVISIONS (FOR PREFERRED STOCK WARRANTS WITH EXISTING ANTI-DILUTION PROTECTION) In the event of the issuance (a "DILUTING ISSUANCE") by the Company, after the Issue Date of the Warrant, of securities at a price per share less than the Warrant Price, then the number of shares of common stock issuable upon conversion of the Shares shall be adjusted in accordance with those provisions (the "PROVISIONS") of the Company's Articles (Certificate) of Incorporation which apply to Diluting Issuances. Under no circumstances shall the aggregate Warrant Price payable by the Holder upon exercise of the Warrant increase as a result of any adjustment arising from a Diluting Issuance. 1. 10 EXHIBIT B REGISTRATION RIGHTS The Shares (if common stock), or the common stock issuable upon conversion of the Shares, shall be deemed "REGISTRABLE SECURITIES" or otherwise entitled to "PIGGY BACK" registration rights in accordance with the terms of the following agreement (the "AGREEMENT") between the Company and its investor(s): Amended and Restated Investor Rights Agreement, dated as of November 14, 1994 between the Company and certain shareholders of the Company The Company agrees that no amendments will be made to the Agreement which would have an adverse impact on Holder's registration rights thereunder without the consent of Holder. By acceptance of the Warrant to which this Exhibit B is attached, Holder shall be deemed to be a party to the Agreement. If no Agreement exists, then the Company and the Holder shall enter into Holder's standard form of Registration Rights Agreement as in effect on the Issue Date of the Warrant. 1. EX-10.76 22 WARRANT TO PURCHASE SHARES OF SERIES E PREFERRED 1 THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE STOCK Corporation: BioStar, Inc. Number of Shares: See below Class of Stock: See below Initial Exercise Price: See below Issue Date: May 1, 1997 Expiration Date: April 30, 2002 THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and valuable consideration, VENTURE LENDING, a division of Cupertino National Bank & Trust ("HOLDER") is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the "SHARES") of the corporation (the "COMPANY") at the initial exercise price per Share (the "WARRANT PRICE") all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth of this Warrant. The Shares shall be of the class issued, and the Warrant Price shall be equal to the price at which the Company issues such shares, in the next sale of its equity securities in which the Company receives net proceeds of not less than $3,000,000 (the "EQUITY EVENT"). The number of Shares to be issued under this Warrant shall be equal to the Coverage Amount specified below divided by the Warrant Price. The Coverage Amount shall be based upon the date that Borrower repays in full the Advances outstanding under the Bridge Facility, as defined in the Loan and Security Agreement between Holder and Company as follows:
Loan Termination occurs in: Coverage Amount - --------------------------- --------------- April, May, June 1997 $330,000 July 1997 $360,000 August 1997 $433,333 September 1997 $494,118 October 1997 $562,500
Notwithstanding the foregoing, if the Equity Event does not occur by October 30, 1997, this Warrant shall be for 321,429 shares of Series E Preferred Stock, and the Warrant Price shall be $1.75, provided that if any amount is outstanding under the Bridge Facility on November 10, 1997, the Warrant Price thereafter shall be $1.40. 2 ARTICLE 1 EXERCISE 1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased. 1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant Section 1.4. 1.3 NO RIGHTS SHAREHOLDER. This Warrant does not entitle Holder to any voting rights as a shareholder of the Company prior to the exercise hereof. 1.4 FAIR MARKET VALUE. If the Shares are traded in a public market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the Company's stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing that Holder disagrees with such determination, then the Company and Holder shall promptly agree upon a reputable investment banking or public accounting firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by Holder. 1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 2. 3 1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY. 1.7.1 ACQUISITION. For the purpose of this Warrant, "Acquisition" means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. 1.7.2 NONASSUMPTION. If upon the closing of any Acquisition the successor entity does not assume the obligations of this Warrant and Holder has not otherwise exercised this Warrant in full, then the unexercised portion of this Warrant shall be deemed to have been automatically converted pursuant to Section 1.2, and thereafter Holder shall participate in the acquisition on the same terms as other holders of the same class of securities of the Company. 1.7.3 PURCHASE RIGHT. Notwithstanding the foregoing, at the election of Holder, the Company shall purchase the unexercised portion of this Warrant for cash upon the closing of any Acquisition for an amount equal to (a) the fair market value of any consideration that would have been received by Holder in consideration of the Shares had Holder exercised the unexercised portion of this Warrant immediately before the record date for determining the shareholders entitled to participate in the proceeds of the Acquisition, less (b) the aggregate Warrant Price of the Shares, but in no event less than zero. Notwithstanding any other provisions of this Warrant, if an Acquisition occurs on or before October 30, 1997, as a condition to the consummation of such Acquisition, Company shall repurchase, this Warrant from Bank for One Hundred Fifty Thousand Dollars ($150,000) in cash. 1.7.4 PUBLIC OFFERING. For purposes of this Warrant, a "Public Offering" means the sale of the Company's Common Stock pursuant to a registration statement under the Securities Act of 1933, as amended, for an underwritten public offering (other than a registration on Form S-8, Form S-4 or comparable forms), which results in aggregate cash proceeds (prior to underwriters' commissions and expenses) to the Company of more than $7,500,000. Immediately prior to the closing of any Public Offering, any portion of this Warrant then not exercised or exercisable will be for the number of shares of the Company's Common Stock that would have resulted from the conversion, pursuant to the Company's Articles of Incorporation as of the Public Offering of the maximum number of shares of Preferred Stock that could have been acquired by the Holder upon the exercise of the unexpired portion of this Warrant immediately prior to such Public Offering. ARTICLE 2 ADJUSTMENTS TO THE SHARES 2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a dividend on its common stock (or the Shares if the Shares are securities other than common stock) payable in common stock, or other securities, subdivides the outstanding common stock into a greater amount of common stock, or, if the Shares are securities other than common stock, subdivides the Shares in a transaction that increases the amount of common stock into which the Shares are convertible, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, 3. 4 without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. 2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Articles of Incorporation upon the closing of a registered public offering of the Company's common stock. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased. 2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the number of Shares issuable upon exercise of this Warrant or, if the Shares are Preferred Stock, the number of shares of common stock issuable upon conversion of the Shares, shall be subject to adjustment, from time to time in the manner set forth on Exhibit A in the event of Diluting Issuances (as defined on Exhibit A). 2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. If the Company takes any action affecting the Shares or its common stock other than as described above that adversely affects Holder's rights under this Warrant, the Warrant Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Warrant Price of this Warrant is unchanged. 2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the 4. 5 Warrant, the Company shall eliminate such fractional share interest by paying Holder amount computed by multiplying the fractional interest by the fair market value of a full Share. 2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. ARTICLE 3 REPRESENTATIONS AND COVENANTS OF THE COMPANY 3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants to the Holder as follows: (a) The initial Warrant Price referenced on the first page of this Warrant is equal to the price per share at which the Shares will be issued in the Equity Event. (b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. 3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 20 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining right to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. 3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder (a) promptly after mailing, copies of all notices 5. 6 or other written communications to the shareholders of the Company, (b) within ninety (90) days after the end of each fiscal year of the Company, the annual financial statements of the Company. 3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company agrees that the Shares or, if the Shares are convertible into common stock of the Company, such common stock, shall be subject to the registration rights granted to the purchasers in the Equity Event or, if this Warrant is for Series A Preferred Stock, then the registration rights held by the purchasers of Series A Preferred Stock. ARTICLE 4 MISCELLANEOUS 4.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date set forth above. The Company shall give Holder written notice of Holder's right to exercise this Warrant in the form attached as Appendix 2 not more than 90 days and not less than 30 days before the Expiration Date. If the notice is not given, the Expiration Date shall automatically be extended until 30 days after the date the Company delivers the notice to Holder. 4.2 LEGENDS. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the Shares issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder's notice of proposed sale. 4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2, Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the 6. 7 securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). Unless the Company is filing financial information with the SEC pursuant to the Securities Exchange Act of 1934, the Company shall have the right to refuse to transfer any portion of this Warrant to any person who directly competes with the Company. 4.5 NOTICES. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such holder from time to time. 4.6 WAIVER. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 4.7 ATTORNEYS FEES. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. 4.8 GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. COMPANY: BIOSTAR, INC. By: /s/ Teresa W. Ayers ----------------------------------- Title: President/CEO -------------------------------- 7. 8 APPENDIX 1 NOTICE OF EXERCISE 1. The undersigned hereby elects to purchase __________ shares of the Common/Series __________ Preferred [STRIKE ONE] Stock of __________________ pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 1. The undersigned hereby elects to convert the attached Warrant into Shares/cash [STRIKE ONE] in the manner specified in the Warrant. This conversion is exercised with respect to ______________ of the Shares covered by the Warrant. [STRIKE PARAGRAPH THAT DOES NOT APPLY.] 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: ------------------------ (Name) ------------------------ ------------------------ (Address) 3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. -------------------------------------- (Signature) - ------------------ (Date) 9 APPENDIX 2 NOTICE THAT WARRANT IS ABOUT TO EXPIRE _______________, ___ (Name of Holder) (Address of Holder) Attn: Chief Financial Officer Dear:_______________ This is to advise you that the Warrant issued to you described below will expire on _______________, 19___. Issuer: Issue Date: Class of Security Issuable: Exercise Price per Share: Number of Shares Issuable: Procedure for Exercise: Please contact [NAME OF CONTACT PERSON AT (PHONE NUMBER)] with any questions you may have concerning exercise of the Warrant. This is your only notice of pending expiration. -------------------------------------- (Name of Issuer) By: ----------------------------------- Its: ---------------------------------- 10 EXHIBIT A ANTI-DILUTION PROVISIONS (FOR PREFERRED STOCK WARRANTS WITH EXISTING ANTI-DILUTION PROTECTION) In the event of the issuance (a "DILUTING ISSUANCE") by the Company, after the Issue Date of the Warrant, of securities at a price per share less than the Warrant Price, then the number of shares of common stock issuable upon conversion of the Shares shall be adjusted in accordance with those provisions (the "PROVISIONS") of the Company's Articles of Incorporation which apply to Diluting Issuances with respect to the class or series of the Company's stock for which this Warrant is exercisable. EX-10.77 23 WARRANT TO PURCHASE SHARES OF COMMON STOCK 1 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE STOCK Warrant No. ____ Corporation: BIOSTAR, INC., a Delaware corporation Number of Shares: 35,000 Class of Stock: Common Initial Exercise Price: $0.23 per share Issue Date: October 28, 1996 Expiration Date: October 27, 2002 THIS WARRANT CERTIFIES THAT, for the agreed upon value of $100.00, SILICON VALLEY BANK ("Holder") is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the "Shares") of the corporation (the "Company") at the initial exercise price per Share (the "Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth of this Warrant. ARTICLE 1. EXERCISE. 1.1 Method of Exercise. Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased. 1.2 Conversion Right. In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant Section 1.4. 1.3 [Intentionally Deleted] 1.4 Fair Market Value. If the Shares are traded in a public market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the Company's stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not traded in a public market, the Board of Directors of the 1 2 Company shall determine fair market value in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing that Holder disagrees with such determination, then the Company and Holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by Holder. 1.5 Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1.6 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 1.7 Repurchase on Sale, Merger, or Consolidation of the Company. 1.7.1 "Acquisition". For the purpose of this Warrant, "Acquisition" means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. 1.7.2 Assumption of Warrant. Upon the closing of any Acquisition, this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly. 1.7.3 [Intentionally Deleted] ARTICLE 2. ADJUSTMENTS TO THE SHARES. 2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on its common stock (or the Shares if the Shares are securities other than common stock) payable in common stock, or other securities, subdivides the outstanding common stock into a greater amount of common stock, or, if the Shares are securities other than common stock, subdivides the Shares in a transaction that increases the amount of common stock into which the Shares are convertible, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. 2.2 Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, 2 3 exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Articles of Incorporation upon the closing of a registered public offering of the Company's common stock. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 2.3 Adjustments for Combinations, Etc. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased. 2.4 No Impairment. The Company shall not, by amendment of its Articles of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. If the Company takes any action affecting the Shares or its common stock other than as described above that adversely affects Holder's rights under this Warrant, the Warrant Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Warrant Price of this Warrant is unchanged. 2.5 Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder amount computed by multiplying the factional interest by the fair market value of a full Share. 2.6 Certificate as to Adjustment. Holder shall be entitled to the same rights with respect to notices regarding adjustments as provided to the holders of Series E Preferred Stock as set forth in the Company's Restated Certificate of Incorporation. 2.7 No Rights as Shareholders. This Warrant does not entitled Holder to any voting rights or other rights as a stockholder of the Company prior to the exercise of the Holder's rights to purchase Common Stock as provided for herein. ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY. 3.1 Representations and Warranties. The Company hereby represents and warrants to the Holder as follows: (a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the fair market value of the Shares as of the date of this Warrant. (b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon 3 4 issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. 3.2 Notice of Certain Events. If the Company proposes at any time (a) to declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 20 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. 3.3 Information Rights. So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder promptly after mailing, copies of all notices or other written communications to the shareholders of the Company. 3.4 Registration Under Securities Act of 1933, as amended. The Company agrees to use commercially reasonable efforts to cause the Shares to be "registrable securities" entitled to "piggyback" registration rights granted to the purchasers in the sale of the Company's securities next following the date hereof in which the Company receives proceeds of at least $500,000. ARTICLE 4. REPRESENTATIONS AND COVENANTS OF HOLDER. This Warrant has been entered into by the Company in reliance upon the following representations and covenants of Holder, which by its acceptance hereof the Holder hereby confirms: 4.1 Investment Purpose. The right to acquire Common Stock upon exercise of Holder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Holder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. 4.2 Private Issue. Holder understands (i) that the Common Stock issuable upon exercise of the Warrantholder's rights contained herein is not registered under the 1933 Act or qualified under applicable state securities law on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 4. 4.3 Financial Risk. Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the economic risks of its investment. 4 5 4.4 Risk of No Registration. Holder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d) of the Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Common Stock pursuant to this Warrant Agreement, or (ii) the Common Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Holder also understands that any sale of the rights of the Holder to purchase Common Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. 4.5 Accredited Investor. Holder is an "accredited investor" within the meaning of Rule 501 of Regulation D under the Act, as presently in effect. ARTICLE 5. MISCELLANEOUS. 5.1 Term; Notice of Expiration. This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date set forth above or, if sooner, the date that is three years after the date that the Company sells its shares in a registered public offering under the Securities Act of 1933, as amended. 5.2 Legends. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. 5.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder, provided such affiliate makes the representations and warranties as are included in Article 4 above, or if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder's notice of proposed sale. 5 6 5.4 Transfer Procedure. Subject to the provisions of Section 4.2, Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). Unless the Company is filing financial information with the SEC pursuant to the Securities Exchange Act of 1934, the Company shall have the right to refuse to transfer any portion of this Warrant to any person who directly competes with the Company. 5.5 Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such holder from time to time. 5.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 5.7 Attorneys Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. 6 7 5.8 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. "COMPANY" BIOSTAR, INC. By --------------------------------------------- Name ------------------------------------------- (Print) Title: Chairman of the Board, President, or Vice President By --------------------------------------------- Name ------------------------------------------- (Print) Title: Chief Financial Officer, Secretary Assistant Treasurer, or Assistant Secretary 7 8 APPENDIX 1 NOTICE OF EXERCISE 1. The undersigned hereby elects to purchase _____________ shares of the Common Stock of __________________________ pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 1. The undersigned hereby elects to convert the attached Warrant into Shares in the manner specified in the Warrant. This conversion is exercised with respect to _____________________ of the Shares covered by the Warrant. [Strike paragraph that does not apply.] 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: ---------------------------- (Name) ---------------------------- ---------------------------- (Address) 3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. (Signature) - -------------------- (Date) 8 EX-10.78 24 FORM OF WARRANT TO PURCHASE SHARES OF COMMON STOCK 1 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON TRANSFER CONTAINED IN THAT CERTAIN BIOSTAR, INC. NOTE AND WARRANT PURCHASE AGREEMENT, DATED MARCH 20, 1996 WHICH RESTRICTIONS ON TRANSFER ARE INCORPORATED HEREIN BY REFERENCE. WARRANT TO PURCHASE SHARES OF COMMON STOCK OF BIOSTAR, INC. (VOID AFTER APRIL 15, 2001) This certifies that ____________ (the "Holder"), or assigns, for value received, is entitled to purchase from BioStar, Inc., a Delaware corporation (the "Company"), having a place of business at 6655 Lookout Road, Boulder, Colorado 80301, a maximum of ___________ fully paid and nonassessable shares of the Company's Common Stock ("Common Stock") for cash at a price of Twenty-Three Cents ($.23) per share (the "Stock Purchase Price") at any time or from time to time up to and including 5:00 p.m. (Mountain Time) on the earlier of (i) the fourth anniversary of the closing of the initial public offering of the Company's Common Stock pursuant to a registration statement under the Securities Act of 1933, as amended, or (ii) April 15, 2001, such earlier day being referred to herein as the "Expiration Date," upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and, if applicable, upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. I. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. A. GENERAL. This Warrant is exercisable at the option of the holder of record hereof, at any time or from time to time, up to the Expiration Date for all or any part of the shares of Common Stock (but not for a fraction of a share) which may be purchased hereunder. B. ISSUANCE OF CERTIFICATES. The Company agrees that the shares of Common Stock purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed, executed Form of Subscription delivered and payment made for such shares. Certificates for the shares of Common Stock so purchased, together with any other securities or property to which the Holder hereof is entitled 1 2 upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Common Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder. C. NET ISSUE EXERCISE. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Company's Common Stock is greater than the Stock Purchase Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Form of Subscription and notice of such election in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) A = the fair market value of one share of the Company's Common Stock (at the date of such calculation) B = Stock Purchase Price (as adjusted to the date of such calculation) For purposes of the above calculation, fair market value of one share of Common Stock shall be determined by the Company's Board of Directors in good faith; provided, however, that where there exists a public market for the Company's Common Stock at the time of such exercise, the fair market value per share shall be the average of the closing bid and asked prices of the Common stock quoted in the Over-The-Counter Market Summary or the last reported sale price of the Common Stock or the closing price quoted on the Nasdaq National Market or on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the five (5) trading days prior to the date of determination of fair market value. I. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder and free of all taxes, liens 2 3 and charges with respect to the issue thereof. The Company further covenants and agrees that, except as noted in the last two sentences of the introductory paragraph of this Warrant, during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Common Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Common Stock may be listed; provided, however, that the Company shall not be required to effect a registration under federal or state securities laws with respect to such exercise. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (i) if the total number of shares of Common Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Common Stock then authorized by the Company's Certificate of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Preferred Stock, together with all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all such shares of Preferred Stock, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Company's Certificate of Incorporation. II. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. A. SUBDIVISION OF COMBINATION OF STOCK. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. B. DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION. If at any time or from time to time the Holders of Common Stock (or any shares of stock or other 3 4 securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, 1. Common Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution; 2. Any cash paid or payable otherwise than as a cash dividend; or 3. Common Stock or additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, combination of shares or similar corporate rearrangement (other than (i) shares of Common Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 3.1 above or (ii) an event for which adjustment is otherwise made pursuant to Section 3.3 below), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses 3.2.1 and 3.2.2 above) which such Holder would hold on the date of such exercise had he been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property. C. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby; provided, however, that in the event the value of the stock, securities or other assets or property (determined in good faith by the Board of Directors of the Company) issuable or payable with respect to one share of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby is in excess of the Stock Purchase Price hereof effective at the time of the merger and securities received in such reorganization, if any, are publicly traded, then this Warrant shall expire unless exercised prior to the reorganization. In any reorganization described above, appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall 4 5 thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. D. NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase Price or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant, the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered Holder of this Warrant at the address of such Holder as shown on the books of the Company. The notice shall be signed by the Company's chief financial officer and shall state the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. E. OTHER NOTICES. If at any time: 1. the Company shall declare any cash dividend upon its Common Stock; 2. the Company shall declare any dividend upon its Common Stock payable in stock or make any special dividend or other distribution to the holders of its Common Stock; 3. there shall be any capital reorganization or reclassification of the capital stock of the Company; or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; 4. there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or 5. there shall be an initial public offering of Company securities; then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, (a) at least ten (10) days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or public offering, at least ten (10) days prior written notice of the date when the same shall take place; provided, however, that the Holder shall make a best efforts attempt to respond to such notice as early as possible after the receipt thereof. Any notice given in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, 5 6 distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or public offering, as the case may be. F. CERTAIN EVENTS. If any change in the outstanding Common Stock of the Company or any other event occurs as to which the other provision of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with such provisions, the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. III. ISSUE TAX. The issuance of certificates for shares of Common Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. IV. CLOSING OF BOOKS. The Company will at no time close its transfer books against the transfer of any warrant or of any shares of Common Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant. V. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained in this Warrant shall be construed as conferring upon the holder hereof the right to vote or to consent or to receive notice as a stockholder of the Company or any other matters or any rights whatsoever as a stockholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provision hereof in the absence of affirmative action by the holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Stock Purchase Price or as a stockholder of the Company, whether such liability is asserted by the Company or by its creditors. VI. REGISTRATION RIGHTS AGREEMENT. The registration rights of the Holder (including Holders' successors) with respect to this Warrant and the underlying stock will be the same as granted to the holders of the Company's Preferred Stock. VII. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal and state securities laws and the transfer restrictions set forth in the Note and Warrant Purchase Agreement 6 7 dated as of March 20, 1996, under which this Warrant was purchased, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed and in compliance with the provisions of the Note and Warrant Purchase Agreement. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company, at the Company's option, and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. VIII. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, referred to in Sections 7 and 8 shall survive the exercise of this Warrant. IX. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought, provided that any change, waiver, discharge or termination agreed to in writing by a majority in interest of holders of warrants of the Company of even date issued pursuant to the Note and Warrant Purchase Agreement shall be binding on Holder and assigns. X. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the older hereof or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant or such other address as either may from time to time provide to the other. XI. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Common Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. XII. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Colorado. XIII. LOST WARRANTS. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon 7 8 surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. XIV. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this _____, day of April, 1996. BIOSTAR, INC. a Delaware corporation -------------------------------------- Teresa W. Ayers President and Chief Operating Officers 8 9 EXHIBIT A SUBSCRIPTION FORM Date:______________, 19___ BioStar, Inc. 6655 Lookout Road Boulder, Colorado 80301 Gentlemen: [ ] The undersigned hereby elects to exercise the warrant issued to it by BioStar, Inc. (the "Company") and dated March _____, 1996, Warrant No. CW-___ (the "Warrant") and to purchase thereunder __________ shares of the Common Stock of the Company (the "Shares") at a purchase price of ______________________________ ($______) per Share, or an aggregate purchase price of ______________________________ ($______) (the "Purchase Price"). [ ] The undersigned hereby elects to convert ___________________ percent (___%) of the value of the Warrant pursuant to the provisions of Section 2 of the Warrant. Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. Very truly yours, ----------------------------------------- By: -------------------------------------- Title: ----------------------------------- 9 EX-10.79 25 FORM OF WARRANT TO PURCHASE SHARES OF SERIES F 1 Warrant No. WF-__ THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE SHARES OF SERIES F PREFERRED STOCK OF BIOSTAR, INC. (VOID AFTER JUNE 20, 2002) This certifies that ______________________________ (the "Holder"), or assigns, for value received, is entitled to purchase from BioStar, Inc., a Delaware corporation (the "Company"), having a place of business at 6655 Lookout Road, Boulder, Colorado 80301, a maximum of __________________________________________ fully paid and nonassessable shares of the Company's Series F Preferred Stock ("Series F Stock"), and any security into or for which such Series F Stock may hereafter be converted or exchanged pursuant to the Certificate of Incorporation of the Company as from time to time amended as provided by law, for cash at a price of Eighty-Eight Cents ($.88) per share (the "Stock Purchase Price") at any time or from time to time up to and including 5:00 p.m. (Mountain Time) on the earliest of (i) the fourth anniversary of the closing of the initial public offering of the Company's Common Stock pursuant to a registration statement under the Securities Act of 1933, as amended (the "1933 Act"), (ii) June 20, 2002, or (iii) the closing of a consolidation or merger of the Company with or into any other corporation or corporations, or a sale, conveyance or disposition of all or substantially all of the assets of the Company, such earliest day being referred to herein as the "Expiration Date," upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Subscription Form attached hereto as Exhibit A duly filled in and signed and, if applicable, upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. 1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. 1.1 GENERAL. This Warrant is exercisable at the option of the holder of record hereof, at any time or from time to time, up to the Expiration Date for all or any part of the shares of Series F Stock (but not for a fraction of a share) which may be purchased hereunder. 1.2 ISSUANCE OF CERTIFICATES. The Company agrees that the shares of Series F Stock purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed, executed Subscription Form (a copy of 1. 2 which is attached hereto as Exhibit A) delivered and payment made for such shares. Certificates for the shares of Series F Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. Each stock certificate so delivered shall be in such denominations of Series F Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder. In case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. 1.3 NET ISSUE EXERCISE. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Company's Series F Stock is greater than the Stock Purchase Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Form of Subscription and notice of such election in which event the Company shall issue to the Holder a number of shares of Series F Stock computed using the following formula: X= Y(A-B) ------ A Where X = The number of shares of Series F Stock to be issued to Holder Y = the number of shares of Series F Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such cancelation) A = the fair market value of one share of the Company's Series F Stock (at the date of such calculation) B = Stock Purchase Price (as adjusted to the date of such calculations) For purposes of the above calculation, the fair market value of one share of Series F Stock shall be determined by the Company's Board of Directors in good faith; provided, however, that in the event the Company makes an initial public offering of its Common Stock the fair market value per share shall be: (i) if the Warrant is being converted in connection with and contingent upon a public offering of the Company's securities, and if the Company's registration statement relating to such public offering has been declared effective by the U.S. Securities and Exchange Commission, then the fair market value of the Series F Stock shall be the initial "Price to Public" specified in the final prospectus with respect to such offering multiplied by the number of shares of Common Stock into which each share of Series F Stock is then convertible; or (ii) if the Warrant is not being converted in connection with and contingent upon a public offering of the Company's securities, then as follows: (x) if traded on a securities exchange or the Nasdaq National Market, the fair market value of the Common Stock shall be deemed to be the average of the closing or last reported sale prices of the Common Stock on such exchange or market over 2. 3 the 30-day period ending five business days prior to the date of calculation, and the fair market value of the Series F Stock shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series F Stock is then convertible or (y) if otherwise traded in an over-the-counter market, the fair market value of the Common Stock shall be deemed to be the average of the reported closing bid and ask prices of the Common Stock over the 30-day period ending five business days prior to the date of calculation, and the fair market value of the Series F Stock shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series F Stock is then convertible. 2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees that all shares of Series F Stock that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that, during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Series F Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Series F Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Series F Stock may be listed; provided, however, that the Company shall not be required to effect a registration under Federal or State securities laws with respect to such exercise. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as set forth in Section 3 hereof) (i) if the total number of shares of Series F Stock issuable after such action upon exercise of all outstanding warrants and options, together with all shares of Series F Stock then outstanding and all shares of Series F Stock then issuable upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Series F Stock then authorized by the Company's Certificate of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all outstanding shares of Series F Stock, together with all shares of Common Stock then issuable upon the conversion of all shares of Series F Stock then issuable upon exercise of all outstanding warrants and options, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all warrants and options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Company's Certificate of Incorporation. 3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such 3. 4 adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 3.1 SUBDIVISION OF COMBINATION OF STOCK. In case the Company shall at any time subdivide its outstanding shares of Series F Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Series F Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. 3.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION. If at any time or from time to time the Holders of Series F Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, 3.2.1 Series F Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Series F Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution; 3.2.2 Any cash paid or payable otherwise than as a cash dividend; or 3.2.3 Series F Stock or additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, combination of shares or similar corporate rearrangement (other than (i) shares of Series F Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 3.1 above or (ii) an event for which adjustment is otherwise made pursuant to Section 3.3 below); then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Series F Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses 3.2.2 and 3.2.3 above) which such Holder would hold on the date of such exercise had he been the holder of record of such Series F Stock as of the date on which holders of Series F Stock received or became entitled to receive such shares or all other additional stock and other securities and property. 3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any recapitalization, reclassification or capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets or other transaction shall be effected in such a way that holders of Series F Stock shall be entitled to receive stock, securities, or other assets or property (a "Restructuring"), then, as a condition of such Restructuring, lawful and adequate provisions shall be made whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Series F Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number 4. 5 of outstanding shares of such Series F Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby; provided, however, that in the event the value of the stock, securities or other assets or property (determined in good faith by the Board of Directors of the Company) issuable or payable with respect to one share of the Series F Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby is in excess of the Stock Purchase Price hereof effective at the time of a merger and securities received in such reorganization, if any, are publicly traded, then this Warrant shall expire unless exercised prior to the Restructuring. In any Restructuring described above, appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 3.4 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase Price or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant, the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered Holder of this Warrant at the address of such Holder as shown on the books of the Company. The notice shall be signed by the Company's President and shall state the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 3.5 OTHER NOTICES. If at any time: 3.5.1 the Company shall declare any cash dividend upon its Series F Stock; 3.5.2 the Company shall declare any dividend upon its Series F Stock payable in stock or make any special dividend or other distribution to the holders of its Series F Stock; 3.5.3 there shall be any Restructuring; 3.5.4 there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or 3.5.5 there shall be an initial public offering of Company securities; then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the Holder of this Warrant at the address of such Holder as shown on the books of 5. 6 the Company, (a) at least ten (10) days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such Restructuring, dissolution, liquidation or winding-up, and (b) in the case of any such Restructuring, dissolution, liquidation, winding-up or public offering, at least ten (10) days prior written notice of the date when the same shall take place; provided, however, that the Holder shall make a best efforts attempt to respond to such notice as early as possible after the receipt thereof. Any notice given in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Series F Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (b) shall also specify the date on which the holders of Series F Stock shall be entitled to exchange their Series F Stock for securities or other property deliverable upon such Restructuring, dissolution, liquidation, winding-up or public offering, as the case may be. 3.6 CERTAIN EVENTS. If any change in the outstanding Series F Stock of the Company or any other event occurs as to which the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with such provisions, the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. 4. ISSUE TAX. The issuance of certificates for shares of Series F Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 5. CLOSING OF BOOKS. The Company will at no time close its transfer books against the transfer of any warrant or of any shares of Series F Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant. 6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a stockholder of the Company or any other matters or any rights whatsoever as a stockholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provision hereof in the absence of affirmative action by the holder to purchase shares of Series F Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such holder for the Stock Purchase Price or as a stockholder of the Company, whether such liability is asserted by the Company or by its creditors. 6. 7 7. INVESTORS' RIGHTS AGREEMENT. The registration rights of the Holder (including Holder's successors) with respect to this Warrant and the underlying stock will be the same as granted to the holders of the Company's Series F Stock. 8. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal and state securities laws, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed and in compliance with such provisions. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company, at the Company's option, and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. 9. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Series F Stock issued upon exercise of this Warrant, referred to in Sections 7 and 8 shall survive the exercise of this Warrant. 10. MODIFICATION AND WAIVER. Any change, waiver, discharge or termination agreed to in writing by a majority in interest of holders of warrants of the Company of even date shall be binding on Holder and assigns. 11. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered or shall be sent by first-class mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant or such other address as either may from time to time provide to the other. 12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Series F Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Colorado. 14. LOST WARRANTS. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of 7. 8 an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. 15. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. 8. 9 IN WITNESS WHEREOF,the Company has caused this Warrant to be duly executed by its President and Chief Executive Officer, thereunto duly authorized this _____ day of June, 1997. BIOSTAR, INC., a Delaware corporation --------------------------------- Teresa W. Ayers President/Chief Executive Officer 9. 10 EXHIBIT A SUBSCRIPTION FORM Date:______________, 19___ BioStar, Inc. 6655 Lookout Road Boulder, Colorado 80301 Attn: President/Chief Executive Officer Ladies and Gentlemen: [ ] The undersigned hereby elects to exercise the warrant issued to it by BioStar, Inc. (the "Company") and dated June 20, 1997, Warrant No. WF-1 (the "Warrant") and to purchase thereunder __________ shares of the Series F Preferred Stock of the Company (the "Shares") at a purchase price of Eighty-Eight Cents ($.88) per Share, or an aggregate purchase price of ___________________________________ ($__________) (the "Purchase Price"). [ ] The undersigned hereby elects to convert ___________________ percent (___%) of the value of the Warrant pursuant to the provisions of Section 1.3 of the Warrant. Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. The undersigned also makes the representations set forth on the attached Exhibit B of the Warrant. Very truly yours, ------------------------------------ By: -------------------------------- Title: ----------------------------- 11 EXHIBIT B INVESTMENT REPRESENTATIONS THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO BIOSTAR, INC. ALONG WITH THE SUBSCRIPTION FORM BEFORE THE SERIES F PREFERRED STOCK ISSUABLE UPON EXERCISE OF THE WARRANT DATED __________________, 199__, WILL BE ISSUED. _____________________, 19__ BioStar, Inc. 6655 Lookout Road Boulder, Colorado 80301 Attn: President/Chief Executive Officer Ladies and Gentlemen: The undersigned, __________________________ ("Purchaser"), intends to acquire up to _______________ shares of the Series F Preferred Stock (the "Series F Stock") of BioStar, Inc. (the "Company") from the Company pursuant to the exercise or conversion of certain Warrants to purchase Series F Stock held by Purchaser. The Series F Stock will be issued to Purchaser in a transaction not involving a public offering and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "1933 Act") and applicable state securities laws. Purchaser has been advised that the Series F Stock has not been registered under the 1933 Act or state securities laws on the ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on Purchaser's representations set forth in this letter. Accordingly, Purchaser represents, warrants and agrees as follows: 1. Purchaser is acquiring the Series F Stock for its own account and beneficial interest, to hold for investment and not for sale or with a view to distribution of the Series F Stock or any part thereof. Purchaser has no present intention of selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the same, and does not presently have reason to anticipate a change in such intention. 2. Purchaser acknowledges that it has received all the information it has requested from the Company and considers necessary or appropriate for deciding whether to acquire the Series F Stock. Purchaser represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series F Stock and to obtain any additional information necessary to verify the accuracy of the information given the Purchaser. Purchaser further represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risk of this investment. 3. Purchaser is an "accredited investor" as such term is defined in Rule 501 under the 1933 Act. 1. 12 4. Purchaser acknowledges that investment in the Series F Stock involves a high degree of risk, and represents that it is able, without materially impairing its financial condition, to hold the Series F Stock for an indefinite period of time and to suffer a complete loss of its investment. 5. Purchaser has been informed that under the 1933 Act, the Series F Stock must be held indefinitely unless it is subsequently registered under the 1933 Act or unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition by Purchaser of the Series F Stock. Purchaser further agrees that the Company may refuse to permit Purchaser to sell, transfer or dispose of the Series F Stock (except as permitted under Rule 144) unless there is in effect a registration statement under the 1933 Act and any applicable state securities laws covering such transfer, or unless Purchaser furnishes an opinion of counsel reasonably satisfactory to counsel for the Company, to the effect that such registration is not required. Purchaser shall not make any sale, transfer or other disposition of the Series F Stock in violation of the 1933 Act or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission or in violation of any applicable state securities law. 6. Purchaser also understands and agrees that there will be placed on the certificate(s) for the Series F Stock, or any substitutions therefor, a legend stating in substance: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "1933 Act"), or any state securities laws. These shares have been acquired for investment and may not be sold or otherwise transferred in the absence of an effective registration statement for these shares under the 1933 Act and applicable state securities laws, or an opinion of counsel satisfactory to the Company that registration is not required and that an applicable exemption is available." Purchaser has carefully read this letter and has discussed its requirements and other applicable limitations upon Purchaser's resale of the Series F Stock with Purchaser's counsel. Very truly yours, -------------------------------- By: ---------------------------- Title: ------------------------- 2. EX-10.80 26 RESTATED INVESTORS' RIGHTS AGREEMENT 1 RESTATED INVESTORS' RIGHTS AGREEMENT THIS RESTATED INVESTORS' RIGHTS AGREEMENT is made as of November 14, 1994 by and among BIOSTAR, INC., a Delaware corporation (the "Company"), and the investors listed on Schedule A hereto. Each such investor is herein referred to individually as an "Investor" and collectively as the "Investors." RECITALS WHEREAS, in connection with the sale and issuance of additional shares of the Company's Series E Preferred Stock the Company and a new investor listed on Schedule A hereto are parties to that certain Series E Preferred Stock Purchase Agreement, dated June 27, 1994, as amended by Letter Agreement of even date herewith (the "Series E Agreement"); WHEREAS, stock rights were previously granted pursuant to the Restated Investors' Rights Agreement dated as of June 27, 1994 (the "Prior Rights Agreement") to the BMPI Liquidating Trust (the "Trust"), Dominion Ventures, Inc. ("DVI"), the investors who previously purchased Series D Preferred Stock, and the investors who previously purchased Series E Preferred Stock (the "Prior Investors"); WHEREAS, in order to induce the Company to enter into the Series E Agreement and to induce certain of the investors listed on Schedule A hereto to invest funds in the Company pursuant to the Series E Agreement, the investors listed on Schedule A hereto and the Company hereby agree that this Agreement shall govern the rights of the investors listed on Schedule A hereto to cause the Company to register shares of Common Stock issuable to the investors listed on Schedule A hereto and certain other matters as set forth herein; and WHEREAS, it is anticipated that future sales of securities of a similar nature may occur; WHEREAS, the Company and the Investors desire to set forth in a single agreement the rights to be granted to the investors who are parties to the Series E Agreement. NOW, THEREFORE,the parties hereby agree as follows: 1. REGISTRATION RIGHTS. The Company covenants and agrees as follows: 1.1 DEFINITIONS. For purposes of this Agreement: (a) The term "ACT" means the Securities Act of 1933, as amended; (b) The term "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document; (c) The term "REGISTRABLE SECURITIES" means (1)the Common Stock issuable or issued upon conversion of the Series A Preferred Stock, (2) the Common Stock 1. 2 issuable upon conversion of the Series B Preferred Stock, (3) the Common Stock issuable upon conversion of the Series B Preferred Stock issuable upon exercise of a warrant potentially exercisable for a maximum of 60,750 shares of the Company's Series B Preferred Stock (the "Series B Warrant") issued to DVI pursuant to that certain Warrant to Purchase Shares of Series B Preferred Stock, dated November 2, 1992, (4)the Common Stock issuable upon conversion of the Series C Preferred Stock issuable upon conversion or exercise of a convertible instrument potentially convertible into a maximum of 1,600,000 shares of the Company's Series C Preferred Stock (the "Convertible Instrument") issued to the Trust pursuant to that certain Asset Purchase Agreement dated June 17, 1992, by and between the Company and the Trust (the "Asset Purchase Agreement"), (5) the Common Stock issuable upon conversion of the Series E Preferred Stock issuable upon exercise of a warrant potentially exercisable for a maximum of 53,357 shares of the Company's Series E Preferred Stock (the "Series E Warrant") issued to DVI pursuant to that certain Warrant to Purchase shares of Series E Preferred Stock, dated February 18, 1994, (6)the Common Stock issuable upon conversion of the Series D Preferred Stock, (7)the Common Stock issuable upon conversion of the Series E Preferred Stock, and (8) any Common Stock of the Company issued (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such Series A, Series B, Series C, Series D or Series E Preferred Stock or Common Stock, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned; (d) The number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities; (e) The term "HOLDER" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.13 hereof; and (f) The term "FORM S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the Securities and Exchange Commission ("SEC") which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. 1.2 REQUEST FOR REGISTRATION. (a) If the Company shall receive at any time after the earlier of (i) June 27, 1997, or (ii) three (3) months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction), a written request from the Holders of at least a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Act covering the registration of at least twenty percent (20%) of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of underwriting discounts and commissions would exceed $5,000,000), then the 2. 3 Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of subsection 1.2(b), effect as soon as practicable, and in any event shall use its best efforts to effect within sixty (60) days of the receipt of such request, the registration under the Act of all Registrable Securities which the Holders request to be registered within twenty (20) days of the mailing of such notice by the Company in accordance with paragraph 3.5. (b) If the Holders initiating the registration request hereunder ("Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. (c) The Company is obligated to effect only two (2) such registrations pursuant to this Section 1.2. (d) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than 60 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period. 1.3 COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration 3. 4 relating solely to the sale of securities to participants in a Company stock plan, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 3.5, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdiction as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 4. 5 (g) Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i)an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 1.5 FURNISH INFORMATION. (a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. (b) The Company shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 1.12 if, due to the operation of subsection 1.5(a), the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company's obligation to initiate such registration as specified in subsection 1.2(a) or subsection 1.12(b)(2), whichever is applicable. 1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2 including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel or the Company, and the reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all Participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2; provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2. 5. 6 1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.13), including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of one counsel for the selling Holders selected by them, but excluding underwriting discounts and Commissions relating to Registrable Securities. 1.8 UNDERWRITING REQUIREMENTS. In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders) but in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below thirty percent (30%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities in which case the selling stockholders may be excluded if the underwriters make the determination described above and no other stockholder's securities are included or (ii) notwithstanding (i) above, any shares being sold by a stockholder exercising a demand registration right similar to that granted in Section 1.2 be excluded from such offering. For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and stockholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder," and any pro-rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder," as defined in this sentence. 1.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 6. 7 1.10 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii)any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.10(a) shall not apply to amounts paid in settlement of any such loss claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.10(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 1.10(b) exceed the gross proceeds from the offering received by such Holder. 7. 8 (c) Promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10. (d) If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: 8. 9 (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.12 FORM S-3 REGISTRATION. In case the Company shall receive from any Holder or Holders of twenty percent (20%) or more of the Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.12: (1) if Form S-3 is not available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $250,000; (3) if the Company shall furnish to the Holders a certificate signed by the president of the Company stating that in the good faith judgment of the Board of Directors of the 9. 10 Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than sixty (60) days after receipt of the request of the Holder or Holders under this Section 1.12; provided, however, that the Company shall not utilize this right more than once in any twelve- month period; (4) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section 1.12; or (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All expenses incurred in connection with a registration requested pursuant to Section 1.12, including (without limitation) all registration, filing, qualification, printer's and accounting fees and the reasonable fees and disbursements of counsel for the selling Holder or Holders and counsel for the Company, but excluding any underwriters' discounts or commissions associated with Registrable Securities, shall be borne pro rata by the Holder or Holders participating in the Form S-3 Registration. Registrations effected pursuant to this Section 1.12 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively. 1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities who, after such assignment or transfer, holds at least 500,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations and other recapitalization), or if less, the entire amount of Registrable Securities held by such Holder is transferred, provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of a partnership who are partners or retired partners of such partnership (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the partnership; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights receiving notices or taking any action under this Section 1. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee the holdings of transferees and assignees of a trust who are beneficiaries of such trust (including spouses and ancestors, lineal descendants and siblings of such beneficiaries or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the trust; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 1. 10. 11 The registration rights of the Holders under this Agreement may be transferred to any transferee which is an affiliated Limited Partnership (as defined in the Series B Warrant) or fund of such Holder ("Affiliated Fund") without the prior written consent of the Company and without regard to the number of shares of Registrable Securities held by such transferee. 1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 1.2(a) or within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 1.2. 1.15 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby agrees that, during the period of duration specified by the Company and an underwriter of Common Stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Act, shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that (i) all officers and directors of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements, (ii) the provisions of this Section 1.15 shall terminate and be of no further force or effect three (3) years after the consummation of the initial public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction) and (iii) such period of duration shall not exceed one hundred eighty (180) days; provided that the parties hereto expressly agree to and understand that such 180-day period may be shortened or lengthened by a writing signed by the holders of a majority of the Registrable Securities. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 1.16 AMENDMENT AND WAIVER OF REGISTRATION RIGHTS. Any provision of this Section 1 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of at least fifty percent (50%) of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. 11. 12 1.17 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled to exercise any right provided for in this Section ! after five (5) years following the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public. 2. COVENANTS OF THE COMPANY. 2.1 DELIVERY OF FINANCIAL STATEMENT. The Company shall deliver to each Major Investor who holds at least an aggregate of 400,000 shams of the Series A, Series B, Series C, Series D or Series E Preferred Stock of the Company (or the common stock issued upon conversion thereof) ("Major Investor"): (a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of shareholder's equity as of the end of such year, and a schedule as to the sources and applications of funds for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; (b) as soon as practicable, but in any event within forty- five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited profit or loss statement, schedule as to the sources and application of funds for such fiscal quarter, an unaudited balance sheet and a statement of shareholder's equity as of the end of such fiscal quarter and a statement showing the number of shares of each class and Series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the number of common shares issuable upon conversion or exercise of any outstanding securities convertible or exercisable for common shares and the exchange ratio or exercise price applicable thereto, all in sufficient detail as to permit the Major Investor to calculate its percentage equity ownership in the Company; (c) within thirty (30) days of the end of each month, an unaudited income statement and schedule as to the sources and application of funds and balance sheet for and as of the end of such month, in reasonable detail; (d) as soon as practicable, but in any event thirty (30) days prior to the end of each fiscal year, a budget and business plan for the next fiscal year, prepared on a monthly basis, including balance sheets and sources and applications of funds statements for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company; (e) with respect to the financial statements called for in subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief Financial Officer or President of the Company and certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment; 12. 13 (f) such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Investor or any assignee of the Investor may from time to time request, provided, however, that the Company shall not be obligated under this subsection (f) or any other subsection of Section 2.1 to provide information which it deems in good faith to be a trade secret or similar confidential information. 2.2 INSPECTION. The Company shall permit each Major Investor, at such Major Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information. 2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The covenants set forth in subsections 2.1(c), (d) and (f) and Section 2.2 shall terminate as to Investors and be of no further force or effect when the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the firm commitment underwritten offering of its securities to the general public is consummated or when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall first occur. 3. RIGHT OF FIRST REFUSAL. 3.1 GENERAL. No party to this Agreement other than the Company shall sell, assign, transfer, or in any other manner dispose of or alienate, or transfer or assign any interest in, any or all of the Shares (as such term is defined below) which now or hereafter may be held or owned by them to any person or entity unless such party (for purposes of this Section 3 only referred to as "Offeror") shall have first made the written offer to sell as hereinafter described, and the offered Shares shall not have been purchased, within the time hereinafter provided. For purposes of this Section 3, "Shares" shall include and be deemed to mean: (i) Series A Preferred Stock, (ii) Series B Preferred Stock, (iii) Series C Preferred Stock, (iv) Series D Preferred Stock, (v)Series E Preferred Stock, (vi) the Common Stock issued or issuable upon conversion of the Series A, Series B, Series C, Series D or Series E Preferred Stock, and (vii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such Series A, Series B, Series C, Series D, or Series E Preferred Stock or Common Stock. 3.2 OFFER BY STOCKHOLDER. The Shares which the Offeror desires to sell, assign, or transfer (the "Offered Shares") shall first be offered to the Company by a written offer (the "Offer") to sell at the price, and on the terms, set forth in subsection 3.4 below) to which shall be attached a statement of intention to sell, assign, transfer, or otherwise dispose of the Shares being offered, as the case may be, the name and address of each prospective purchaser or assignee, if any, the number of Shares involved in the proposed sale, assignment, or transfer, and 13. 14 the price and terms of any such bona fide offer. The Offer shall be signed by the Offeror and shall be delivered pursuant to the notice provisions of Section 5.5. 3.3 OPTION OF COMPANY TO PURCHASE. For thirty (30) days after the receipt of the Offer (the "Offer Period"), the Company shall have the right, but not the obligation to purchase all or some of the Offered Shares. If the Company elects to purchase any of the Offered Shares, it shall so notify the Offeror prior to the end of the Offer Period. The notice shall specify a date for the closing of the purchase which shall not be more than thirty (30) days after the date of the giving of such notice. 3.4 PURCHASE PRICE AND TERMS. The purchase price of the Shares offered by the Offeror pursuant to this Section 3 to the Company shall be equal to the price offered for the Shares by a prospective purchaser pursuant to a bona fide offer of purchase (if received), as set forth in the Offer. The Company shall purchase the Shares, on terms and conditions no less favorable to the Company than those received by the Offeror in a bona fide offer of purchase by a third party. In the event the purchase price specified in the Offer is payable in property other than cash, the Company shall have the right to pay the purchase price in the form of cash equal in amount to the fair market value of such property as determined in good faith by the parties. If the Offeror and the Company cannot agree on such cash value within ten (10) days after the Company's receipt of the notice by the Offeror pursuant to this Section 3, the valuation shall be made by an appraiser of recognized standing selected by the Offeror and the Company or, if they cannot agree on an appraiser within twenty (20) days after receipt of such notice, each shall select an appraiser of recognized standing and the two appraisers shall designate a third appraiser of recognized standing, whose appraisal shall be determinative of such value, and which appraisal shall be completed within forty-five (45) days after receipt of such notice. The closing for such purchase shall then be held on the later of (i) the 15th business day following the exercise of the rights hereunder or (ii) the 15th day after such cash valuation shall have been made. 3.5 RELEASE FROM RESTRICTION. If all of the Offered Shares are not purchased by the Company in accordance with the terms of this Section 3, the Offeror's offer shall be deemed rejected with respect to the remaining Offered Shares, and, subject to the provisions of this Section 3 below, the Offeror may make a bona fide sale, assignment, transfer, or other disposition of all, but not less than all, of the remaining Offered Shares to the prospective purchaser named in the statement attached to the offer at a price not less than, and upon terms not more favorable than, the bona fide offer, if any, described in the Offer. If the Offeror shall fail to make such sale, assignment, transfer, or other disposition within one hundred twenty (120) days following the expiration of all periods of time hereinabove provided for purchase by the Company, the remaining Offered Shares shall again become subject to all of the restrictions of this Agreement and except as otherwise provided in this Agreement, the Offeror shall not sell, assign, transfer or otherwise dispose of or alienate the Shares without again offering said Shares to the Company as hereinabove provided. 3.6 ASSIGNMENT. The Company may assign its right of first refusal under this Section 3 to any party or parties. 14. 15 3.7 LAPSE. The right of first refusal under this Section 3 shall not be applicable to any sale of Shares pursuant to Section 1 of this Agreement. In addition, the right of first refusal shall not apply to the distribution of any Shares (i)held by the Trust to its beneficiaries; provided, that the Trust obtains the prior written consent of the Company to such distribution, and (ii) by a party to an Affiliated Fund. The right of first refusal shall lapse upon the consummation of the Company's sale of its Common Stock in a bona fide, firm commitment underwriting pursuant to a registration statement on Form S-1 under the Act, the public offering price of which was not less than $5.00 per share (adjusted to reflect subsequent stock dividends, stock splits or recapitalization) and $10,000,000 in the aggregate. 4. RIGHT OF FIRST OFFER. Subject to the terms and conditions specified in this Section 4, the Company hereby grants to each Major Investor a right of first offer with respect to future sales by the Company of its Company Shares (as hereinafter defined). A Major Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and affiliates in such proportions as it deems appropriate. Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock ("Company Shares"), the Company shall first make an offering of such Company Shares to each Major Investor in accordance with the following provisions: 4.1 NOTICE. The Company shall deliver a notice by certified mail ("Notice") to the Major Investors stating (i)its bona fide intention to offer such Company Shares, (ii)the number of such Company Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Company Shares. 4.2 ELECTION TO EXERCISE. Within ten (10) days after receipt of the Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Company Shares which equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Series A, Series B, Series C, Series D and Series E Preferred Stock then held, by such Major Investor bears to the total number of shares of Common Stock (assuming conversion of the Series A, Series B, Series C, Series D and Series E Preferred Stock and the exercise or conversion of all outstanding options, warrants and other instruments convertible into or exercisable for either Common Stock or securities convertible into or exercisable for Common Stock) of the Company then outstanding. 4.3 UNSUBSCRIBED PORTIONS. If all Company Shares referred to in the Notice are not elected to be obtained as provided in subsection 4.2 hereof, the Company may, during the 30-day period following the expiration of the period provided in subsection 4.2 hereof, offer the remaining unsubscribed portion of such Company Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Company Shares within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Company Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith. 15. 16 4.4 APPLICABILITY. The right of first offer in this Section 4 shall not be applicable (i)to the issuance or sale of shares of Common Stock (or options therefor) to employees, directors or consultants of the Company, (ii) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, (iii) the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, (iv)the issuance of securities pursuant to a corporate partnership (as determined by the Board of Directors), (v) the issuance of stock, warrants or other securities or rights to persons or entities with which the Company has business relationships, provided such issuances are for other than primarily equity financing purposes, (vi)the issuance of securities pursuant to an underwritten offering of the Company's securities, whether in a public offering or in a private placement, or (vii)after consummation of the Company's sale of its Common Stock in a bona fide, firm commitment underwriting pursuant to a registration statement on Form S-1 under the Act, the public offering price of which was not less than $5.00 per share (adjusted to reflect subsequent stock dividends, stock splits or recapitalization) and $10,000,000 in the AGGREGATE. 4.5 WAIVER OF RIGHT OF FIRST OFFER. Those undersigned Investors who are parties to the Prior Rights Agreement hereby agree that the issuance of shares of Series E Preferred Stock to the Investors listed in Schedule A hereto shall not be subject to the right of first offer held by the Prior Investors pursuant to Section 4 of the Prior Rights Agreement. In addition, the Prior Investors hereby waive the notice provisions contained in Section 4.1 of the Prior Rights Agreement. The Prior Investors represent at least a majority of the shares held by the "Major Investors" (as defined in the Prior Rights Agreement). Each of the parties to this Agreement expressly agrees and acknowledges that any rights specified in this Section 4 may be waived for any reason by a writing signed by Major Investors holding a majority of the shares held by all Major Investors. The Major Investors acknowledge and agree that they owe no duty by reason of this Agreement to each other or among themselves to provide any opportunity to exercise the right of first offer set forth in this Section 4, and that any waiver in accordance with this provision shall be binding on all of them. 5. MISCELLANEOUS. 5.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 5.2 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware. 16. 17 5.3 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 5.4 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 5.5 NOTICES. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 5.6 EXPENSES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 5.7 AMENDMENTS AND WAIVERS. Except with respect to Sections 1 and 4, any term of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Common Stock issued or issuable upon conversion of the Series A, Series B, Series C, Series D and Series E Preferred Stock, so long as such amendment or waiver does not treat the holders of Common Stock issued or issuable upon conversion of a particular Series of Preferred Stock differently than the holders of Common Stock issued or issuable upon conversion of another Series of Preferred Stock. Any amendment or waiver effected in accordance with any applicable provision of this Agreement shall be binding upon each holder of any such Series A, Series B, Series C, Series D or Series E Preferred Stock (including the Common Stock into which such Preferred Stock are convertible) each future party to this Agreement, and the Company. 5.8 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 5.9 ASSIGNMENT. Except as provided in Sections 1.13 and 3.6, neither this Agreement nor the rights and obligations contained herein may be assigned by an Investor without the prior written consent of the Company. Any assignment in violation of the preceding sentence shall be void. 5.10 ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 5.11 AGGREGATION OF STOCK. All shares of the Company's Common Stock or Preferred Stock held or acquired by affiliated venture capital or partnerships or limited or general 17. 18 partners of such partnerships shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 5.12 TERMINATION OF PRIOR RIGHTS AGREEMENT. This Agreement amends and supersedes the Prior Rights Agreement. The Prior Rights Agreement was amended pursuant to Section 5.7 of that agreement pursuant to the written consent of the company and the holders of a majority of the Common Stock issued or issuable upon conversion of the Series A, Series B, Series C and Series D Preferred Stock, and, with respect to Section 1 of the Prior Rights Agreement by the holders of a majority of the Registrable Securities and with respect to Section 4 of the Prior Rights Agreement by a majority of the shares held by the Major Investors (as defined in the Prior Rights Agreement). IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. BIOSTAR, INC. By: /s/ Henry T. Pietraszek ----------------------------- Henry T. Pietraszek, President Address: 6655 Lookout Road Boulder, CO 80301 INVESTORS: KLEINER PERKINS CAUFIELD & BYERS VI By: ----------------------------- A general partner Address: 2750 Sand Hill Road Menlo Park, CA 94025 HILL PARTNERSHIP III By: Hill, Carman Ventures A Limited Partnership By: ----------------------------- A general partner Address: 885 Arapahoe Avenue Boulder, CO 80303 18. 19 MARQUETTE VENTURE PARTNERS II, L.P. By: Marquette General II, L.P. its General Partner By: ----------------------------- An authorized signatory Address: 520 Lake Cook Road, Suite 450 Deerfield, IL 60015 MVP II AFFILIATES FUND, L.P. By: Marquette General II, its General Partner By: ----------------------------- An authorized signatory Address: 520 Lake Cook Road, Suite 450 Deerfield, IL 60015 INTEGRAL CAPITAL PARTNERS, L.P. By: Integral Capital Management, L.P., its General Parmer By: ----------------------------- Its general partner Address: Two Embarcadero Place 2200 Geng Road Palo Alto, CA 94303 19. 20 INTEGRAL CAPITAL PARTNERS INTERNATIONAL, C.V. By: Integral Capital Management, L.P., its investment General Partner By: ----------------------------- Its general partner Address: Two Embarcadero Place 2200 Geng Road Palo Alto, CA 94303 WILLIAM H. GATES, L.P. By: ----------------------------- Address: 15302 Woodfern Drive, S.E. Millcreek, WA 98012 DOMINION VENTURES, INC. By: ----------------------------- Address: SKANDIGEN AB By: ----------------------------- Address: Norrlandsgatan 15 S-111 43 Stockholm, Sweden 20. 21 AB THOMAS FISCHER & CO. By: ----------------------------- Address: Skandigen AB c/o Krister Wallin Norrlandsgatan 15 S-Ill 43 Stockholm, Sweden BMPI LIQUIDATING TRUST By: ----------------------------- Address: c/o Colorado Venture Management Inc. 4845 Pearl Street, East Suite 300 Boulder, CO 80301 PHILIP L. MCMAHON By: ----------------------------- Address: c/o BioStar, Inc. 6655 Lookout Road Boulder, CO 80301 MARC D. BEER By: ----------------------------- Address: c/o BioStar, Inc. 6655 Lookout Road Boulder, CO 80301 MARVIN H. CARUTHERS TRUST FOR JONATHAN MARVIN CARUTHERS By: ----------------------------- Trustee Address: 21. 22 MARVIN H. CARUTHERS TRUST FOR ANDREW HARRY CARUTHERS By: ----------------------------- Trustee Address: GC&H INVESTMENTS By: ----------------------------- Address: c/o Cooley Godward LLP One Maritime Plaza 20th Floor San Francisco, CA 94111-3580 KPCB VI FOUNDERS FUND By: ----------------------------- A general partner Address: 2750 Sand Hill Road Menlo Park, CA 94025 MAYFIELD VI By: ----------------------------- A general partner 22. 23 MAYFIELD ASSOCIATES By: ------------------------- A general partner Address: 2800 Sand Hill Rd., Suite 250 Menlo Park, CA 94025 FRANK BARNES ----------------------------- Frank Barnes Address: Frank Barnes & Associates 809 W. 57th Street Kansas City, MO 64113 23. 24 SCHEDULE A SCHEDULE OF INVESTORS Kleiner Perkins Caufield & Byers VI Hill Partnership III Marquette Venture Partners II, L.P. MVP II Affiliates Fund L.P. Integral Capital Partners Integral Capital Partners International Skandigen AB BMPI Liquidating Trust Thomas Fischer KPCB VI Founders Fund Mayfield VI Mayfield Associates Mayfield Medical Partners William H. Gates, L.P. Dominion Ventures, Inc. AB Thomas Fischer & Co. Henry T. Pietraszek Philip L. McMahon Marc D. Beer Marvin H. Caruthers Trust for Jonathan Marvin Caruthers Marvin H. Caruthers Trust for Andrew Harry Caruthers GC&H Investments Frank Barnes 24. 25 AMENDMENT TO RESTATED INVESTORS' RIGHTS AGREEMENT Section 1.1(c) of the Restated Investors' Rights Agreement dated as of June 27, 1994, as amended, by and among BioStar, Inc. and the investors listed on Schedule A thereto (the "Investors' Rights Agreement") shall be amended and restated to read in its entirety as follows: (a) The term "REGISTRABLE SECURITIES" means (1) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock, (2) the Common Stock issuable upon conversion of the Series B Preferred Stock, (3) the Common Stock issuable upon conversion of the Series B Preferred Stock issuable upon exercise of a warrant potentially exercisable for a maximum of 60,750 shares of the Company's Series B Preferred Stock (the "Series B Warrant") issued to DVI pursuant to that certain Warrant to Purchase Shares of Series B Preferred Stock, dated November 2, 1992, (4) the Common Stock issuable upon conversion of the Series C Preferred Stock issuable upon conversion or exercise of a convertible instrument potentially convertible into a maximum of 1,600,000 shares of the Company's Series C Preferred Stock (the "Convertible Instrument") issued to the Trust pursuant to that certain Asset Purchase Agreement dated June 17, 1992, by and between the Company and the Trust (the "Asset Purchase Agreement"), (5) the Common Stock issuable upon conversion of the Series D Preferred Stock, (6) the Common Stock issuable upon conversion of the Series E Preferred Stock, (7) the Common Stock issuable upon conversion of the Series E Preferred Stock issuable upon exercise of warrants potentially exercisable for a maximum of 53,357 shares of the Company's Series E Preferred Stock issued to DVI pursuant to that certain Warrant to Purchase shares of Series D Preferred Stock, dated February 18, 1994, (8) the Common Stock issuable upon exercise of warrants potentially exercisable for a maximum of 2,571,429 shares of the Company's Common Stock, issued pursuant to that certain Note and Warrant Purchase Agreement dated as of March 20, 1996 by and between the Company and various investors, (9) the Common Stock issuable upon conversion of the Series E Preferred Stock issuable upon exercise of warrants potentially exercisable for a maximum of 85,714 shares of the Company's Series E Preferred stock issued to Silicon Valley Bank pursuant to that certain Loan and Security Agreement, dated September 15, 1995 and the Common Stock issuable upon conversion of the Series E Preferred Stock issuable upon exercise of warrants potentially exercisable for a maximum of 1,000,000 shares of the Company's Series E Preferred Stock issued to Venture Lending, a Division of Cupertino National Bank and Trust pursuant to that certain Bridge Loan Agreement, dated April 30, 1997, (10) the Common Stock issuable upon conversion of the Series F Preferred Stock issuable upon exercise of warrants potentially exercisable for a maximum of 2,238,000 shares of the Company's Series F Preferred Stock (the "Series F Warrants") and (11) any Common Stock of the Company issued (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such Series A, Series B, Series C, Series D, Series E or Series F Preferred Stock or Common Stock, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned;" The introductory paragraph to Section 2.1 of the Investors' Rights Agreement shall be amended and restated to read in its entirety as follows: 1. 26 "2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to each Investor and Warrant Investor who holds at least an aggregate of 400,000 shares of the Series A, Series B, Series C, Series D, Series E or Series F Preferred Stock of the Company (or the common stock issued upon conversion thereof) ("Major Investor"):" Section 3.1 of the Investors' Rights Agreement shall be amended and restated to read in its entirety as follows: "3.1 GENERAL. No party to this Agreement other than the Company shall sell, assign, transfer, or in any other manner dispose of or alienate, or transfer or assign any interest in, any or all of the Shares (as such term is defined below) which now or hereafter may be held or owned by them to any person or entity unless such party (for purposes of this Section 3 only referred to as "Offeror") shall have first made the written offer to sell as hereinafter described, and the offered Shares shall not have been purchased, within the time hereinafter provided. For purposes of this Section 3, "Shares" shall include and be deemed to mean: (i) Series A Preferred Stock, (ii) Series B Preferred Stock, (iii) Series C Preferred Stock, (iv) Series D Preferred Stock, (v) Series E Preferred Stock, (vi) Series F Preferred Stock, (vii) the Common Stock issued or issuable upon conversion of the Series A, Series B, Series C, Series D, Series E or Series F Preferred Stock, and (vii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such Series A, Series B, Series C, Series D, Series E or Series F Preferred Stock or Common Stock." Section 4.2 of the Investors' Rights Agreement shall be amended and restated to read in its entirety as follows: "4.2 ELECTION TO EXERCISE. Within ten (10) days after receipt of the Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Company Shares which equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock then held, by such Major Investor bears to the total number of shares of Common Stock (assuming conversion of the Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock and the exercise or conversion of all outstanding options, warrants and other instruments convertible into or exercisable for either Common Stock or securities convertible into or exercisable for Common Stock) of the Company then outstanding." Section 5.7 of the Investors' Rights Agreement shall be amended and restated to read in its entirety as follows: "5.7 AMENDMENTS AND WAIVERS. Except with respect to Sections 1 and 4, any term of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Common Stock issued or issuable upon conversion of the Series A, Series B, Series C, Series D, Series E and Series F 2. 27 Preferred Stock, so long as such amendment or waiver does not treat the holders of Common Stock issued or issuable upon conversion of a particular series of Preferred Stock differently than the holders of Common Stock issued or issuable upon conversion of another series of Preferred Stock. Any amendment or waiver effected in accordance with any applicable provision of this Agreement shall be binding upon each holder of any such Series A, Series B, Series C, Series D, Series E or Series F Preferred Stock (including the Common Stock into which such Preferred Stock are convertible) each future party to this Agreement, and the Company." 3. EX-10.81 27 RESTATED INVESTORS' RIGHTS AGREEMENT 1 RESTATED INVESTORS' RIGHTS AGREEMENT THIS RESTATED INVESTORS' RIGHTS AGREEMENT (the "AGREEMENT") is made as of ____________, 1998 by and among BIOSTAR, INC., a Delaware corporation, and its successors or assigns (the "COMPANY"), Cortech, Inc., a Delaware corporation ("Cortech") and the investors listed on Schedule A hereto. Each such investor is herein referred to individually as an "INVESTOR" and collectively as the "INVESTORS." RECITALS WHEREAS, the Company has entered into an Agreement and Plan of Merger and Reorganization dated as of December 22, 1997 (the "MERGER AGREEMENT") with Cortech, and Cortech Merger Sub, Inc., a wholly-owned subsidiary of Cortech ("MERGER SUB"), pursuant to which Merger Sub will merge with and into the Company (the "MERGER"). Upon consummation of the Merger, Merger Sub will cease to exist and the Company will be a wholly-owned subsidiary of Cortech; WHEREAS, stock rights were previously granted to the Investors pursuant to the Restated Investors' Rights Agreement dated as of June 27, 1994, as amended November 14, 1994, March 12, 1996, June 20, 1997 and February 2, 1998 (the "PRIOR RIGHTS AGREEMENT"); WHEREAS, pursuant to Section 5.14 of the Merger Agreement, upon the Effective Time of the Merger, Cortech shall assume the Company's obligations under the Prior Agreement, as to be amended and restated as further set forth herein; and WHEREAS, in order to induce Cortech, Merger Sub and the Company to consummate the Merger, the Investors and the Company hereby agree to amend and restate the Prior Rights Agreement as further set forth herein; NOW, THEREFORE, the parties hereby agree as follows: 1. REGISTRATION RIGHTS. The Company covenants and agrees as follows: 1.1 DEFINITIONS. For purposes of this Agreement: (a) The term "ACT" means the Securities Act of 1933, as amended; (b) The term "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document; (c) The term "REGISTRABLE SECURITIES" means the Cortech Common Stock (as defined in the Merger Agreement) issued in exchange for: (1) the Series A Preferred Stock, (2) the Series B Preferred Stock, (3) the Series B Preferred Stock issuable upon exercise of a warrant potentially exercisable for a maximum of 60,750 shares of the Company's Series B Preferred Stock (the "SERIES B WARRANT") issued to Dominion Ventures, Inc. ("DVI") pursuant 1. 2 to that certain Warrant to Purchase Shares of Series B Preferred Stock, dated November 2, 1992, (4) the Series C Preferred Stock issuable in exchange for cancellation of the Convertible Contingent Payment Instrument (the "CONVERTIBLE INSTRUMENT") issued to the BMPI Liquidating Trust (the "TRUST") pursuant to that certain Asset Purchase Agreement dated June 17, 1992, by and between the Company and the Trust (the "ASSET PURCHASE Agreement"), (5) the Series D Preferred Stock, (6) the Series E Preferred Stock, (7) the Series E Preferred Stock issuable upon exercise of warrants potentially exercisable for a maximum of 53,357 shares of the Company's Series E Preferred Stock issued to DVI pursuant to that certain Warrant to Purchase shares of Series E Preferred Stock, dated February 18, 1994, (8) the Common Stock issuable upon exercise of warrants potentially exercisable for a maximum of 2,571,426 shares of the Company's Common Stock, issued pursuant to that certain Note and Warrant Purchase Agreement dated as of March 20, 1996 by and between the Company and various investors, (9) the Series E Preferred Stock issuable upon exercise of warrants potentially exercisable for a maximum of 85,714 shares of the Company's Series E Preferred stock issued to Silicon Valley Bank pursuant to that certain Loan and Security Agreement, dated September 15, 1995 and the Series E Preferred Stock issuable upon exercise of warrants potentially exercisable for a maximum of 321,429 shares of the Company's Series E Preferred Stock issued to Venture Lending, a Division of Cupertino National Bank and Trust ("VENTURE LENDING") pursuant to that certain Bridge Loan Agreement, dated April 30, 1997, (10) the Series F Preferred Stock issuable upon exercise of warrants issued in connection with the sale of Subordinated Notes in June 1997 and issued to Venture Lending in connection with the Loan and Security Agreement, dated January , 1998, upon conversion of Convertible Notes issued in March and April of 1996 (as amended) and accrued interest thereon and upon conversion of Subordinated Notes issued in June 1997 (as amended) and accrued interest thereon and (11) any Common Stock of the Company issued (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such Series A, Series B, Series C, Series D, Series E or Series F Preferred Stock or Common Stock, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned; (d) The number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities; (e) The term "HOLDER" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.13 hereof; and (f) The term "FORM S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the Securities and Exchange Commission ("SEC") which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. 2. 3 1.2 REQUEST FOR REGISTRATION. (a) If the Company shall receive after the earlier of (A) ninety (90) days after the effective date of a registration statement for the first public offering of securities of Cortech (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction) following the Effective Time of the Merger (as defined in the Merger Agreement), and (B) the first anniversary of the Effective Time of the Merger, a written request from the Holders of at least a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Act covering the registration of at least twenty percent (20%) of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of underwriting discounts and commissions would exceed $5,000,000), then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of subsection 1.2(b), effect as soon as practicable, and in any event shall use its best efforts to effect within sixty (60) days of the receipt of such request, the registration under the Act of all Registrable Securities which the Holders request to be registered within twenty (20) days of the mailing of such notice by the Company in accordance with paragraph 2.6. (b) If the Holders initiating the registration request hereunder ("INITIATING HOLDERS") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. (c) The Company is obligated to effect only two (2) such registrations pursuant to this Section 1.2. (d) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by 3. 4 the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than 60 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period. 1.3 COMPANY REGISTRATION. If, after the earlier of (A) ninety (90) days after the effective date of a registration statement for the first public offering of securities of Cortech following the Effective Time of the Merger and (B) the first anniversary of the Effective Time of the Merger (but without any obligation to do so), the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 2.6, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdiction as 4. 5 shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 1.5 FURNISH INFORMATION. (a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. (b) The Company shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 1.12 if, due to the operation of subsection 1.5(a), the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company's obligation to initiate such registration as specified in subsection 1.2(a) or subsection 1.12(b)(2), whichever is applicable. 5. 6 1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2 including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel or the Company, and the reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all Participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2; provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2. 1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.13), including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of one counsel for the selling Holders selected by them, but excluding underwriting discounts and Commissions relating to Registrable Securities. 1.8 UNDERWRITING REQUIREMENTS. In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders) but in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below thirty percent (30%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities in which case the selling stockholders may be excluded if the underwriters make the determination described above and no other stockholder's securities are included or (ii) notwithstanding (i) above, any shares being sold by a stockholder exercising a demand registration right similar to that granted in Section 1.2 be excluded from such offering. For purposes of the preceding parenthetical concerning 6. 7 apportionment, for any selling stockholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and stockholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder," and any pro-rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder," as defined in this sentence. 1.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.10 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934 ACT"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "VIOLATION"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.10(a) shall not apply to amounts paid in settlement of any such loss claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under 7. 8 the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.10(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 1.10(b) exceed the gross proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10. (d) If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. 8. 9 (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.1 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the Effective Time of the Merger; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the 1998 fiscal year; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.12 FORM S-3 REGISTRATION. In case, after the earlier of (A) ninety (90) days after the effective date of a registration statement for the first public offering of Cortech's shares following the Effective Time of the Merger and (B) the first anniversary of the Effective Time of the Merger, the Company shall receive from any Holder or Holders of twenty percent (20%) or more of the Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: 9. 10 (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.12: (1) if Form S-3 is not available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $250,000; (3) if the Company shall furnish to the Holders a certificate signed by the president of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than sixty (60) days after receipt of the request of the Holder or Holders under this Section 1.12; provided, however, that the Company shall not utilize this right more than once in any twelve-month period; (4) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section 1.12; or (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All expenses incurred in connection with a registration requested pursuant to Section 1.12, including (without limitation) all registration, filing, qualification, printer's and accounting fees and the reasonable fees and disbursements of counsel for the selling Holder or Holders and counsel for the Company, but excluding any underwriters' discounts or commissions associated with Registrable Securities, shall be borne pro rata by the Holder or Holders participating in the Form S-3 Registration. Registrations effected pursuant to this Section 1.12 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively. 1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities who, after such assignment or transfer, holds at least 500,000 shares of Registrable Securities (subject to appropriate adjustment to reflect the Exchange Ratio (as defined in the Merger Agreement), stock splits, stock dividends, combinations and other recapitalization), or if less, the entire amount of Registrable Securities held by such Holder is transferred, provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration 10. 11 rights are being assigned; and provided, further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of a partnership who are partners or retired partners of such partnership (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the partnership; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights receiving notices or taking any action under this Section 1. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee the holdings of transferees and assignees of a trust who are beneficiaries of such trust (including spouses and ancestors, lineal descendants and siblings of such beneficiaries or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the trust; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 1. The registration rights of the Holders under this Agreement may be transferred to any transferee which is an affiliated Limited Partnership (as defined in the Series B Warrant) or fund of such Holder ("AFFILIATED FUND") without the prior written consent of the Company and without regard to the number of shares of Registrable Securities held by such transferee. 1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 1.2(a) or within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 1.2. 1.15 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby agrees that, during the period of duration specified by the Company and an underwriter of Common Stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Act, shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that (i) all officers and directors of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements, (ii) the provisions of this Section 1.15 shall terminate and be of no further force or effect three (3) years after the consummation of the first public offering of securities of Cortech after the Effective Time of the 11. 12 Merger (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction) and (iii) such period of duration shall not exceed one hundred eighty (180) days; provided that the parties hereto expressly agree to and understand that such 180-day period may be shortened or lengthened by a writing signed by the holders of a majority of the Registrable Securities. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 1.16 AMENDMENT AND WAIVER OF REGISTRATION RIGHTS. Any provision of this Section 1 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of at least fifty percent (50%) of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. 1.17 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled to exercise any right provided for in this Section 1 after five (5) years after the earlier of (A) one (1) year following the Effective Time of the Merger or (B) ninety (90) days after the effective date of the registration statement for the consummation of the first public offering of securities of Cortech after the Effective Time of the Merger. 2. MISCELLANEOUS. 2.1 EFFECTIVENESS OF AGREEMENT; SUPERSEDES PRIOR RIGHTS AGREEMENT; ASSUMPTIONS OF OBLIGATIONS BY CORTECH. This Agreement shall be effective from and after the Effective Time of the Merger and shall supersede the Prior Agreement, which agreement shall be terminated as of the Effective Time of the Merger without any liability to any party thereto and shall be of no further force or effect. By executing this Agreement, each signatory consents to the termination of such prior agreement, without liability to any party thereto, as provided by this Section 2. Upon the effectiveness of this Agreement, Cortech shall be deemed a successor and assign of the Company for purposes of this Agreement and shall assume all of the Company's obligations under this Agreement, and the term the "Company" as used herein shall be deemed to specifically include Cortech from and after the effectiveness hereof. 2.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 12. 13 2.3 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware. 2.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 2.5 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 2.6 NOTICES. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 2.7 EXPENSES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 2.8 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only as set forth in Section 1.16 above. Any amendment or waiver effected in accordance with this Agreement shall be binding upon each holder of any Cortech Common Stock issued in exchange for any Registrable Securities pursuant to the Merger Agreement and the Company. 2.9 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 2.10 ASSIGNMENT. Except as provided in Section 1.13, neither this Agreement nor the rights and obligations contained herein may be assigned by an Investor without the prior written consent of the Company. Any assignment in violation of the preceding sentence shall be void. 2.11 ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 2.12 AGGREGATION OF STOCK. All shares of the Company's Common Stock or Preferred Stock held or acquired by affiliated venture capital or partnerships or limited or general partners of such partnerships shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 13. 14 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. BIOSTAR, INC. CORTECH, INC. By: By: ------------------------------- ------------------------------- Teresa W. Ayers, President/Chief Kenneth R. Lynn, President/Chief Executive Officer Executive Officer Address: 6655 Lookout Road Address: 6850 N. Broadway, Suite G Boulder, CO 80301 Denver, CO 80221 INVESTORS: KLEINER PERKINS CAUFIELD & BYERS VI SILICON VALLEY BANK By: By: ------------------------------- -------------------------------- A general partner Address: 2750 Sand Hill Road Menlo Park, CA 94025 HILL PARTNERSHIP III SKANDIGEN AB By: Hill, Carman Ventures A Limited Partnership By: --------------------------------- By: ------------------------------- Address: Norrlandsgatan 15 A general partner S-111 43 Stockholm, Sweden Address: 885 Arapahoe Avenue Boulder, CO 80303 MARQUETTE VENTURE PARTNERS II, L.P. MVP II AFFILIATES FUND, L.P. By: Marquette General II, L.P. By: Marquette General II, its General Partner its General Partner By: By: ------------------------------- -------------------------------- An authorized signatory An authorized signatory Address: 520 Lake Cook Road, Suite 450 Address: 520 Lake Cook Road, Deerfield, IL 60015 Suite 450 Deerfield, IL 60015 14. 15 INTEGRAL CAPITAL PARTNERS, L.P. INTEGRAL CAPITAL PARTNERS INTERNATIONAL, C.V. By: Integral Capital Management, L.P., By: Integral Capital Management, L.P., its General Parmer its Investment General Partner By: By: ------------------------------- ------------------------------------- Its general partner Its general partner Address: 2750 Sand Hill Road Address: 2750 Sand Hill Road Menlo Park, CA 94025 Menlo Park, CA 94025 WILLIAM H. GATES, L.P. DOMINION VENTURES, INC. By: By: ------------------------------- ------------------------------------- Address: 15302 Woodfern Drive, S.E. Address: Attn: Andy Evans Millcreek, WA 98012 15302 25th Drive, SE Millcreek, WA 98012 AB THOMAS FISCHER & CO. By: ------------------------------- ------------------------------------- Marc D. Beer Address: 50 Silverhill Road Address: Skandigen AB Sudbury, MA 01776 c/o Krister Wallin Norrlandsgatan 15 S-111 43 Stockholm, Sweden BMPI LIQUIDATING TRUST By: -------------------------------- ------------------------------------- Philip L. McMahon Address: c/o Colorado Venture Management Inc. Address: 2200 Alpine Drive 4845 Pearl Street, East Boulder, CO 80304 Suite 300 Boulder, CO 80301 15. 16 MARVIN H. CARUTHERS TRUST FOR MARVIN H. CARUTHERS TRUST FOR ANDREW HARRY CARUTHERS JONATHAN MARVIN CARUTHERS By: By: -------------------------------- ---------------------------------- Trustee Trustee Address: 2450 Cragmoor Road Address: 2450 Cragmoor Road Boulder, CO 80303 Boulder, CO 80303 VENTURE BANKING GROUP, A DIVISION GC&H INVESTMENTS OF CUPERTINO NATIONAL BANK AND TRUST By: By: ---------------------------------- ----------------------------------- Address: Three Palo Alto Square Address: c/o Cooley Godward LLP Suite 150 One Maritime Plaza Palo Alto, CA 94306 20th Floor San Francisco, CA 94111-3580 ---------------------------------- ------------------------------------- Henry T. Pietraszek Frank Barnes Address: 4951 North Abendia de Vizcaya Address: Frank Barnes & Associates Tucson, AZ 85718 809 W. 57th Street Kansas City, MO 64113 MAYFIELD MEDICAL PARTNERS MAYFIELD ASSOCIATES By: By: ------------------------------- ------------------------------- A general partner A general partner Address: 2800 Sand Hill Rd., Suite 250 Address: 2800 Sand Hill Rd., Menlo Park, CA 94025 Suite 250 Menlo Park, CA 94025 16. 17 MAYFIELD VI By: ------------------------------------ A general partner Address: 2800 Sand Hill Rd., Suite 250 Menlo Park, CA 94025 17. 18 SCHEDULE A SCHEDULE OF INVESTORS Kleiner Perkins Caufield & Byers VI Hill Partnership III Marquette Venture Partners II, L.P. MVP II Affiliates Fund L.P. Integral Capital Partners Integral Capital Partners International Skandigen AB BMPI Liquidating Trust Thomas Fischer Mayfield VI Mayfield Associates Mayfield Medical Partners William H. Gates, L.P. Dominion Ventures, Inc. AB Thomas Fischer & Co. Henry T. Pietraszek Philip L. McMahon Marc D. Beer Marvin H. Caruthers Trust for Jonathan Marvin Caruthers Marvin H. Caruthers Trust for Andrew Harry Caruthers GC&H Investments Frank Barnes Venture Banking Group EX-10.82 28 MASTER LEASE AGREEMENT 1 MASTER LEASE AGREEMENT COMDISCO, INC. - LESSOR MASTER LEASE AGREEMENT, May 3, 1995 by and between COMDISCO, INC. ("Lessor") and BIOSTAR, INC. ("Lessee"). IN CONSIDERATION of the mutual agreements described below, the parties agree as follows (all capitalized terms are defined in Section 14.19): 1. PROPERTY LEASED. Lessor leases to Lessee all of the Equipment described on each Schedule. In the event of a conflict, the terms of a Schedule prevail over this Master Lease. 2. TERM. On the Commencement Date, Lessee will be deemed to accept the Equipment, will be bound to its rental obligations for each item of Equipment and the term of a Schedule will begin and continue through the Initial Term and thereafter until terminated by either party upon prior written notice received during the Notice Period. No termination may be effective prior to the expiration of the Initial Term. 3. RENT AND PAYMENT. Rent is due and payable in advance, in immediately available funds, on the first day of each Rent Interval to the payee and at the location specified in Lessor's invoice. Interim Rent is due and payable when invoiced. If any payment is not made when due, Lessee will pay interest at the Overdue Rate. Upon Lessee's execution of each Schedule, Lessee will pay Lessor the Advance specified on the Schedule. The Advance will be credited towards the final Rent payment if Lessee is not then in default. No interest will be paid on the Advance. 4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES. 4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and disclaims any reliance upon statements made by the Lessor. 4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that, so long as Lessee is not in default, Lessor will not disturb Lessee's quiet and peaceful possession, and unrestricted use of the Equipment. To the extent permitted by the manufacturer, Lessor assigns to Lessee during the term of the Schedule any manufacturer's warranties for the Equipment. LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability, claim, loss, damage or expense of any kind (including strict liability in tort) caused by the Equipment except for any loss or damage 1. 2 caused by the negligent acts of Lessor. In no event is Lessor responsible for special, incidental or consequential damages. 5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT. 5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights of the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor, as Lessee's agent, to prepare, execute and file in Lessee's name precautionary Uniform Commercial Code financing statements showing the interest of the Owner, Lessor, and any Assignee or Secured Party in the Equipment and to insert serial numbers in Schedules as appropriate. Lessee will, at its expense, keep the Equipment free and clear from any liens or encumbrances of any kind (except any caused by Lessor) and will indemnify and hold Lessor, Owner, any Assignee and Secured Party harmless from and against any loss caused by Lessee's failure to do so. 5.2 RELOCATION OR SUBLEASE. Upon prior written consent, Lessee may relocate Equipment to any location within the continental United States provided (i) the Equipment will not be used by an entity exempt from federal income tax, (ii) all additional costs (including any administrative fees, additional taxes and insurance coverage) are reconciled and promptly paid by Lessee. Lessee may sublease the Equipment upon the reasonable consent of the Lessor and the Secured Party. Such consent to sublease will be granted if: (i) Lessee meets the relocation requirements set out above, (ii) the sublease is expressly subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its rights in the sublease to Lessor and the Secured Party as additional collateral and security, (iv) Lessee's obligation to maintain and insure the Equipment is not altered, (v) all financing statements required to continue the Secured Party's prior perfected security interest are filed, and (vi) the sublease is not to a leasing entity affiliated with the manufacturer of the Equipment described on the Schedule. Lessor acknowledges Lessee's right to sublease for a term which extends beyond the expiration of the Initial Term. If Lessee subleases the Equipment for a term extending beyond the expiration of such Initial Term of the applicable Schedule, Lessee will remain obligated upon the expiration of the Initial Term to return such Equipment, or, at Lessor's sole discretion to (i) return Like Equipment or (ii) negotiate a mutually acceptable lease extension or purchase. If the parties cannot mutually agree upon the terms of an extension or purchase, the term of the Schedule will extend upon the original terms and conditions until terminated pursuant to Section 2. No relocation or sublease will relieve Lessee from any of its obligations under this Master Lease and the relevant Schedule. 5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have been fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its interest or grant a security interest in each Schedule and/or the Equipment to a Secured Party or Assignee. In that event, the term Lessor will mean the Assignee and any Secured Party. However, any assignment, sale, or other transfer by Lessor will not relieve Lessor of its obligations to Lessee and will not materially change Lessee's duties or materially increase the burdens or risks imposed on Lessee. The Lessee consents to and will acknowledge such assignments in a written notice given to Lessee. Lessee also agrees that: 2. 3 (a) The Secured Party will be entitled to exercise all of Lessor's rights, but will not be obligated to perform any of the obligations of Lessor. The Secured Party will not disturb Lessee's quiet and peaceful possession and unrestricted use of the Equipment so long as Lessee is not in default and the Secured Party continues to receive all Rent payable under the Schedule; and (b) Lessee will pay all Rent and all other amounts payable to the Secured Party, despite any defense or claim which it has against Lessor. Lessee reserves its right to have recourse directly against Lessor for any defense or claim; (c) Subject to and without impairment of Lessee's leasehold rights in the Equipment, Lessee holds the Equipment for the Secured Party to the extent of the Secured Party's rights in that Equipment. 6. NET LEASE; TAXES AND FEES. 6.1 NET LEASE. Each Schedule constitutes a net lease. Lessee's obligation to pay Rent and all other amounts is absolute and unconditional and is not subject to any abatement, reduction, set-off, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever. 6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all taxes, fees or any other charges (together with any related interest or penalties not arising from the negligence of Lessor) accrued for or arising during the term of each Schedule against Lessor, Lessee or the Equipment by any governmental authority (except only Federal, state and local taxes on the capital or the net income of Lessor). Lessor will file all personal property tax returns for the Equipment and pay all property taxes due. Lessee will reimburse Lessor for property taxes within thirty (30) days of receipt of an invoice. 7. CARE, USE AND MAINTENANCE; ATTACHMENTS AND RECONFIGURATIONS; AND INSPECTION BY LESSOR. 7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good operating order and appearance, protect the Equipment from deterioration, other than normal wear and tear, and will not use the Equipment for any purpose other than that for which it was designed. If commercially available, Lessee will maintain in force a standard maintenance contract with the manufacturer of the Equipment, or another party acceptable to Lessor, and will provide Lessor with a complete copy of that contract. If Lessee has the Equipment maintained by a party other than the manufacturer, Lessee agrees to pay any costs necessary for the manufacturer to bring the Equipment to then current release, revision and engineering change levels, and to re-certify the Equipment as eligible for manufacturer's maintenance at the expiration of the lease term. The lease term will continue upon the same terms and conditions until recertification has been obtained. 7.2 ATTACHMENTS AND RECONFIGURATIONS. Upon receiving the prior written consent of Lessor, Lessee may reconfigure and install Attachments on the Equipment. In the event of such a Reconfiguration or Attachment, Lessee will, upon return of the Equipment, at its expense, restore the Equipment to the original configuration specified on the Schedule in accordance with 3. 4 the manufacturer's specifications and in the same operating order, repair and appearance as when installed (normal wear and tear excluded). If any parts of the Equipment are removed during a Reconfiguration or Attachment, Lessor may require Lessee to provide additional security, satisfactory to the Lessor, in order to ensure performance of Lessee's obligations set forth in this subsection. Neither Attachments nor parts installed on Equipment in the course of Reconfiguration will be accessions to the Equipment. 7.3 INSPECTION BY LESSOR. Upon request, Lessee, during reasonable business hours and subject to Lessee's security requirements, will make the Equipment and its related log and maintenance records available to Lessor for inspection. 8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents, warrants and covenants that with respect to the Master Lease and each Schedule executed hereunder: (a) The Lessee is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction of its incorporation, is duly qualified to do business in each jurisdiction (including the jurisdiction where the Equipment is, or is to be, located) where its ownership or lease of property or the conduct of its business requires such qualification; and has full corporate power and authority to hold property under the Master Lease and each Schedule and to enter into and perform its obligations under such Lease. (b) The execution and delivery by the Lessee of the Master Lease and each Schedule and its performance thereunder have been duly authorized by all necessary corporate action on the part of the Lessee, and the Master Lease and each Schedule are not inconsistent with the Lessee's Certificate of Incorporation or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Master Lease and each Schedule constitute legal, valid and binding agreements of the Lessee, enforceable in accordance with their terms. (c) There are no actions, suits, proceedings or patent claims pending or, to the knowledge of the Lessee, threatened against or affecting the Lessee in any court or before any governmental commission, board or authority which, if adversely determined, will have a material adverse effect on the ability of the Lessee to perform its obligations under the Master Lease and each Schedule. (d) The Equipment is personal property and when subjected to use by the Lessee will not be or become fixtures under applicable law. (e) The Lessee has no material liabilities or obligations, absolute or contingent (individually or in the aggregate), except the liabilities and obligations of the Lessee as set forth in the Financial Statements and liabilities and obligations which have occurred in the ordinary course of business, and which have not been, in any case or in the aggregate, materially adverse to Lessee's ongoing business. (f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has access to, or can become licensed on reasonable terms under all patents, patent applications, trademarks, trade names, inventions, franchises, licenses, permits, computer software and 4. 5 copyrights necessary for the operations of its business as now conducted, with no known infringement of, or conflict with, the rights of others. (g) All material contracts, agreements and instruments to which the Lessee is a party are in full force and effect in all material respects, and are valid, binding and enforceable by the Lessee in accordance with their respective terms, subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally, and rules of law concerning equitable remedies. 9. DELIVERY AND RETURN OF EQUIPMENT. Lessee hereby assumes the full expense of transportation and in-transit insurance to Lessee's premises and installation thereat of the Equipment. Upon termination (by expiration or otherwise) of each Schedule, Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense (including, without limitation, expenses of transportation and in-transit insurance), return the Equipment to Lessor in the same operating order, repair, condition and appearance as when received, less normal depreciation and wear and tear. Lessee shall return the Equipment to Lessor at its address set forth herein or at such other address within the continental United States as directed by Lessor, provided, however, that Lessee's expense shall be limited to the cost of returning the equipment to Lessor's address as set forth herein. During the period subsequent receipt of a notice under Section 2, Lessor may demonstrate the Equipment's operation in place and Lessee will supply any of its personnel as may reasonably be required to assist in the demonstrations. 10. LABELING. Upon request, Lessee will mark the Equipment indicating Lessor's interest. Lessee will keep all Equipment free from any other marking or labeling which might be interpreted as a claim of ownership. 11. INDEMNITY. Lessee will indemnify and hold Lessor, any Assignee and any Secured Party harmless from and against any and all claims, costs, expenses, damages and liabilities, including reasonable Attorneys' fees, arising out of the ownership (for strict liability in tort only), selection, possession, leasing, operation, control, use, maintenance, delivery, return or other disposition of the Equipment. However, Lessee is not responsible to a party indemnified hereunder for any claims, costs, expenses, damages and liabilities occasioned by the negligent acts of such indemnified party. Lessee agrees to carry bodily injury and property damage liability insurance during the term of the Master Lease in amounts and against risks customarily insured against by the Lessee on equipment owned by it. Any amounts received by Lessor under that insurance will be credited against Lessee's obligations under this Section. 12. RISK OF LOSS. Effective upon delivery and until the Equipment is returned, Lessee relieves Lessor of responsibility for all risks of physical damage to or loss or destruction of the Equipment. Lessee will carry casualty insurance for each item of Equipment in an amount not less than the Casualty 5. 6 Value. All policies for such insurance will name the Lessor and any Secured Party as additional insured and as loss payee, and will provide for at least thirty (30) days prior written notice to the Lessor of cancellation or expiration, and will insure Lessor's interests regardless of any breach or violation by Lessee of any representation, warranty or condition contained in such policies and will be primary without right of contribution from any insurance effected by Lessor. Upon the execution of any Schedule, the Lessee will furnish appropriate evidence of such insurance acceptable to Lessor. Lessee will promptly repair any damaged item of Equipment unless such Equipment has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss, Lessee will provide written notice of that loss to Lessor and Lessee will, at Lessor's option, either (a) replace the item of Equipment with Like Equipment and marketable title to the Like Equipment will automatically vest in Lessor or (b) pay the Casualty Value and after that payment and the payment of all other amounts due and owing, Lessee's obligation to pay further Rent for the item of Equipment will cease. 13. DEFAULT, REMEDIES AND MITIGATION. 13.1 DEFAULT. The occurrence of any one or more of the following Events of Default constitutes a default under a Schedule: (a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if that failure continues for five (5) days after written notice; or (b) Lessee's failure to perform any other term or condition of the Schedule or the material inaccuracy of any representation or warranty made by the Lessee in the Schedule or in any document or certificate furnished to the Lessor hereunder if that failure or inaccuracy continues for ten (10) days after written notice; or (c) An assignment by Lessee for the benefit of its creditors, the failure by Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee or the filing against Lessee of any petition under any bankruptcy or insolvency law or for the appointment of a trustee or other officer with similar powers, the adjudication of Lessee as insolvent, the liquidation of Lessee, or the taking of any action for the purpose of the foregoing; or (d) The occurrence of an Event of Default under any Schedule or other agreement between Lessee and Lessor or its Assignee or Secured Party. 13.2 REMEDIES. Upon the occurrence of any of the above Events of Default, Lessor, at its option, may: (a) Enforce Lessee's performance of the provisions of the applicable Schedule by appropriate court action in law or in equity; (b) Recover from Lessee any damages and or expenses, including Default Costs; 6. 7 (c) With notice and demand, recover all sums due and accelerate and recover the present value of the remaining payment stream of all Rent due under the defaulted Schedule (discounted at the same rate of interest at which such defaulted Schedule was discounted with a Secured Party plus any prepayment fees charged to Lessor by the Secured Party or, if there is no Secured Party, then discounted at 6%) together with all Rent and other amounts currently due as liquidated damages and not as a penalty; (d) With notice and process of law and in compliance with Lessee's security requirements, Lessor may enter on Lessee's premises to remove and repossess the Equipment without being liable to Lessee for damages due to the repossession, except those resulting from Lessor's, its assignees', agents' or representatives' negligence; and (e) Pursue any other remedy permitted by law or equity. The above remedies, in Lessor's discretion and to the extent permitted by law, are cumulative and may be exercised successively or concurrently. 13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of Section 13.2, Lessor will use its best efforts in accordance with its normal business procedures (and without obligation to give any priority to such Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise dispose of all or any part of the Equipment at a public or private sale for cash or credit with the privilege of purchasing the Equipment. The proceeds from any sale, lease or other disposition of the Equipment are defined as either: (a) If sold or otherwise disposed of, the cash proceeds less the Fair Market Value of the Equipment at the expiration of the Initial Term less the Default Costs; or (b) If leased, the present value (discounted at three points over the prime rate as referenced in the Wall Street Journal at the time of the mitigation) of the rentals for a term not to exceed the Initial Term, less the Default Costs. Any proceeds will be applied against liquidated damages and any other sums due to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may recover, the amount by which the proceeds are less than the liquidated damages and other sums due to Lessor from Lessee. 14. ADDITIONAL PROVISIONS. 14.1 BOARD ATTENDANCE. Lessor or its duly appointed representative will have the right to attend Lessee's corporation Board of Directors meetings and Lessee will give Lessor reasonable notice in advance of any special Board of Directors meeting, which notice will provide an agenda of the subject matter to be discussed at such board meeting. Lessee will provide Lessor with a certified copy of the minutes of each Board of Directors meeting within thirty (30) days following the date of such meeting held during the term of this Lease. 7. 8 14.2 FINANCIAL STATEMENTS. Lessee will provide to Lessor the financial statements specified in this Section, prepared in accordance with generally accepted accounting principles, consistently applied (the "Financial Statements"); provided however, after the effective date of the initial registration statement covering a public offering of Lessee's securities, the term "Financial Statements" will be deemed to refer to only those statements required by the Securities and Exchange Commission, to be provided no less frequently than quarterly. Lessee will provide to Lessor (i) as soon as practicable (within thirty (30) days) after the end of each month, the same information which Lessee provides to its Board of Directors, but which will include not less than a monthly income statement, balance sheet and statement of cash flows, certified by Lessee's Chief Executive or Financial Officer to be true and correct; and (ii) as soon as practicable (and in any event within ninety (90) days) after the end of each fiscal year, audited balance sheets as of the end of such year (consolidated if applicable), and related statements of income or loss, retained earnings or deficit and changes in the financial position and capital structure of Lessee for such year, setting forth in comparative form the corresponding figures for the preceding fiscal year, and accompanied by an audit report and opinion of the independent certified public accountants selected by Lessee. Lessee will promptly furnish to Lessor any additional information (including but not limited to tax returns, income statements, balance sheets, and names of principal creditors) as Lessor reasonably believes necessary to evaluate Lessee's continuing ability to meet financial obligations. 14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor will not be obligated to lease any Equipment which would have a Commencement Date after said notice if: (i) Lessee is in default under this Master Lease or any Schedule; (ii) Lessee is in default under any loan agreement, the result of which would allow the Lender or any secured party to demand immediate payment of the indebtedness; (iii) there is a material adverse change in Lessee's credit standing; or (iv) Lessor determines (in reasonable good faith) that Lessee will be unable to perform its obligations under this Master Lease. 14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed Merger at least twenty (20) days prior to the closing date. Lessor may, in its discretion, either (i) consent to the assignment of the Master Lease and all relevant Schedules to the successor entity, or (ii) terminate the Master Lease and all relevant Schedules. If Lessor elects to consent to the assignment, Lessee and its successor will sign the assignment documentation provided by Lessor. If Lessor elects to terminate the Master Lease and all relevant Schedules, then Lessee will pay Lessor all amounts then due and owing and a termination fee equal to the present value (discounted at 6%) of the remaining Rent for the balance of the Initial Term(s) of all Schedules, and will return the Equipment in accordance with Section 9. 14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules supersede all other oral or written agreements or understandings between the parties concerning the Equipment including, for example, purchase orders. ANY AMENDMENT OF THIS MATER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE ENFORCED. 14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to constitute a waiver of compliance with any representation, warranty or covenant contained in this Master 8. 9 Lease or a Schedule. The waiver by Lessor or Lessee of a breach of any provision of this Master Lease or a Schedule will not operate or be construed as a waiver of any subsequent breach. 14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS. 14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not limited to those arising under Section 6.2, representations and warranties contained in this Master Lease, any Schedule or in any document delivered in connection with those agreements are for the benefit of Lessor and any Assignee or Secured Party and survive the execution, delivery, expiration or termination of this Master Lease. 14.9 NOTICES. Any notice, request or other communication to either party by the other will be given in writing and deemed received upon the earlier of actual receipt or three days after mailing if mailed postage prepaid by regular or airmail to Lessor (to the attention of "Lease Administrator") or Lessee, at the address set out in the Schedule or, one day after it is sent by courier or on the same day as sent via facsimile transmission, provided that the original is sent by personal delivery or mail by the receiving party. 14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE. 14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease or any Schedule is for any reason held invalid, illegal or unenforceable, the remaining provisions of this Master Lease and any such Schedule will be unimpaired, and the invalid, illegal or unenforceable provision replaced by a mutually acceptable valid, legal and enforceable provision that is closest to the original intention of the parties. 14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any number of counterparts, each of which will be deemed an original, but all such counterparts together constitute one and the same instrument. If Lessor grants a security interest in all or any part of a Schedule, the Equipment or sums payable thereunder, only that counterpart Schedule marked "Secured Party's Original" can transfer Lessor's rights and all other counterparts will be marked "Duplicate". 14.13 NONSPECIFIED FEATURES AND LICENSED PRODUCTS. If the Equipment is supplied from Lessor's inventory and contains any features not specified in the Schedule, Lessee grants Lessor the right to remove any such feature. Any removal will be performed by the manufacturer or another party unacceptable to Lessee, upon the request of Lessor, at a time convenient to Lessee, provided that Lessee will not unreasonably delay the removal of such features. 9. 10 Lessee will obtain no title to Licensed Products which will at all times remain the property of the owner of the Licensed Products. A license from the owner may be required and it is Lessee's responsibility to obtain any required license before the use of the Licensed Products. Lessee agrees to treat the Licensed Products as confidential information of the owner, to observe all copyright restrictions, and not to reproduce or sell the Licensed Products. 14.14 ADDITIONAL DOCUMENTS. Lessee will, upon execution of this Master Lease and as may be requested thereafter, provide Lessor with a secretary's certificate of incumbency and authority and any other documents reasonably requested by Lessor. Upon the execution of each Schedule with a purchase price in excess of $1,000,000, Lessee will provide Lessor with an opinion from Lessee's counsel in a form acceptable to Lessor regarding the representations and warranties in Section 8. 14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the other by electronic means under mutually agreeable terms. 14.16 LESSOR'S RIGHT TO MATCH. Lessee's rights under Section 5.2 and 7.2 are subject to Lessor's right to match any sublease or upgrade proposed by a third party. Lessee will provide Lessor with the terms of the third party offer and Lessor will have three (3) business days to match the offer. Lessee will obtain such upgrade from or sublease the Equipment to Lessor if Lessor has timely matched the third party offer. 14.17 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in a form satisfactory to Lessor. 14.18 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees that Lessor shall not, by virtue of its entering into this Lease, be required to remit any payments to any manufacturer or other third party until Lessee accepts the Equipment subject to this Lease. 14.19 DEFINITIONS. ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of each Schedule. ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as owner and Lessor of Equipment. ATTACHMENT - means any accessory, equipment or device and the installation thereof that does not impair the original function or use of the Equipment and is capable of being removed without causing material damage to the Equipment and is not an accession to the Equipment. CASUALTY LOSS - means the irreparable loss or destruction of Equipment. CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid for the balance of the lease term or the Fair Market Value of the Equipment immediately prior to 10. 11 the Casualty Loss. However, if a Casualty Value Table is attached to the relevant Schedule its terms will control. COMMENCEMENT CERTIFICATE - means the Lessor provided certificate which must be signed by Lessee within ten (10) days of the Commencement Date as requested by Lessor. COMMENCEMENT DATE - is defined in each Schedule. DEFAULT COSTS - means reasonable attorney's fees and remarketing costs resulting from a Lessee default or Lessor's enforcement of its remedies. EQUIPMENT - means the property described on a Schedule and any replacement for that property required or permitted by this Master Lease or a Schedule but not including any Attachment. EVENT OF DEFAULT - means the events described in Subsection 13.1. FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an arm's-length transaction between an informed and willing buyer/user and an informed and willing seller under no compulsion to sell. INITIAL TERM - means the period of time beginning on the first day of the first full Rent Interval following the Commencement Date for all items of Equipment and continuing for the number of Rent Intervals indicated on a Schedule. INSTALLATION DATE - means the day on which Equipment is installed and qualified for a commercially available manufacturer's standard maintenance contract or warranty coverage, if available. INTERIM RENT - means the pro-rata portion of Rent due for the period from the Commencement Date through but not including the first day of the first full Rent Interval included in the Initial Term. LICENSED PRODUCTS - means any software or other licensed products attached to the Equipment. LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same model, type, configuration and manufacture as Equipment. LIKE PART - means a substituted part which is lien free and of the same manufacturer and part number as the removed part, and which when installed on the Equipment will be eligible for maintenance coverage with the manufacturer of the Equipment. MERGER - means any consolidation or merger of the Lessee with or into any other corporation or entity, any sale or conveyance of all or substantially all of the assets of the Lessee to any other person or entity or any stock acquisition of the Lessee by any other person or entity. 11. 12 NOTICE PERIOD - means the time period described in a Schedule during which Lessee may give Lessor notice of the termination of the term of that Schedule. OVERDUE RATE - means the lesser of five percent (5%) of the payment due or the maximum rate permitted by the law of the state where the Equipment is located. OWNER - means the owner of Equipment. RECONFIGURATION - means any change to Equipment that would upgrade or downgrade the performance capabilities of the Equipment in any way. RENT - means the rent, including Interim Rent, Lessee will pay for each item of Equipment expressed in a Schedule either as a specific amount or an amount equal to the amount which Lessor pays for an item of Equipment multiplied by a lease rate factor plus all other amounts due to Lessor under this Master Lease or a Schedule. RENT INTERVAL - means a full calendar month or quarter as indicated on a Schedule. SCHEDULE - means an Equipment Schedule which incorporates all of the terms and conditions of this Master Lease and, for purposes of Section 14.12, its associated Commencement Certificate(s). SECURED PARTY - means an entity to whom Lessor has granted a security interest in a Schedule and related Equipment for the purpose of securing a loan. IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as of the day and year first above written. BIOSTAR, INC. COMDISCO, INC. AS LESSEE AS LESSOR By: /s/ Teresa W. Ayers By: /s/ James P. Labe ----------------------------- -------------------------------------- Title: Vice President Finance Title: President Venture Lease Division -------------------------- ----------------------------------- 12. 13 ADDENDUM TO THE MASTER LEASE AGREEMENT DATED AS OF MAY 3, 1995 BETWEEN COMDISCO, INC., AS LESSOR, AND BIOSTAR, INC., AS LESSEE The undersigned hereby agree that the terms and conditions of the above-referenced Master Lease Agreement are amended and modified as follows: 1. In the first paragraph after the words "MASTER LEASE AGREEMENT" insert "(the "Master Lease")." 2. Section 1, "PROPERTY LEASED." In the first sentence before the word "Schedule" insert the words "Summary Equipment" Second sentence, second line, replace "a Schedule" with "the applicable Schedule" 3. Section 2, "TERM." In the second line, delete "a" and insert "the applicable Summary Equipment" before "Schedule". 4. Section 3, "RENT AND PAYMENT." In the third sentence, delete the words "interest at the Overdue Rate." and replace with "a Late Charge on the overdue amount." 5. Section 4, "SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES." Subsection 4.2, fourth sentence, line 3, insert "or willful misconduct" after the words "negligent acts". 6. Section 5, "TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT." Subsection 5.1, line 4, before "Schedules" insert "Summary Equipment". In the second paragraph, fourth sentence, insert "Summary Equipment" before "Schedule". Subsection 5.2, first paragraph, line 3, insert "and" after the words "federal income tax," Subsection 5.3, paragraph (b), first sentence, line 1, add the phrase "After receipt of written notice of assignment from Lessor" before the word "Lessee". 1. 14 7. Section 6, "NET LEASE; TAXES AND FEES" Subsection 6.2, add the following paragraph at the end of this subsection: "Lessee shall not be liable for any taxes, fees or charges to the extent the same result from any sale or assignment or grant of security interest by Lessor, or to the extent any such action increases the taxes, fees or charges that would otherwise be payable. Lessee shall have the right to contest by proper legal proceedings any taxes levied, as agent for or in the name of Lessor. Lessor will cooperate in any legal proceedings being prosecuted by Lessee with regard to any taxes, but Lessee will pay the expenses in such litigation. Lessee shall have the right to contest in good faith and by appropriate proceeding the validity or the amount of taxes unless such contest would adversely affect the title of the Lessor to the Equipment or would subject it to forfeiture or sale. Lessee shall have the rights to any refund received as a result of any such contest or proceeding." 8. Section 7, "CARE, USE AND MAINTENANCE; ATTACHMENTS AND RECONFIGURATIONS; AND INSPECTION BY LESSOR." Subsection 7.1, second sentence, line 3, insert "at commercially reasonable prices" after "commercially available"; line 4, after the words "another party acceptable to Lessor", add the words "including self-maintenance by Lessee"; third sentence, in line 2 after the words "other than the manufacturer", add "or self-maintains the Equipment."; last sentence, insert the following at the end thereof: "or Lessee has exercised its option to purchase such Equipment." Subsection 7.2, first sentence, line 1, after the word "Lessor", insert ", which consent shall not be unreasonably withheld". Second sentence, line 3, after the words "specified on the" insert "Summary Equipment". Fourth Sentence, line 1, delete "the" and insert "such" between accessions to" and "Equipment". Subsection 7.3, add the following sentence at the end thereof: "Notwithstanding the foregoing, in no event shall such inspection occur more than twice in a calendar year, unless otherwise agreed to between Lessee and Lessor." 9. Section 8, "REPRESENTATIONS AND WARRANTIES OF LESSEE" Paragraph (a), line 4, insert the words "and where the failure to be qualified would materially adversely affect the Lessee;" after the words "requires such qualification". Paragraph (b), add the following clause at the end thereof: "subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally, and rules of law concerning equitable remedies." Paragraph (c), line 3, delete "if adversely determined, will" and insert "are reasonably likely to". 2. 15 10. Section 9 Second sentence, line 1, insert "Summary Equipment" before "Schedule" and insert "and provided that the Equipment is not purchased or the term extended as permitted by the applicable Schedule" after "Schedule". Third sentence, line 2, delete "its address set forth herein" and insert "6111 N. River Road, Rosemont, IL 60018." Fourth sentence, insert "to" after "subsequent". 11. Section 11, "INDEMNITY." First sentence, line 4, after the word "Equipment", insert "arising from acts or events during the term of each Summary Equipment Schedule and prior to re-delivery of the Equipment to Lessor in accordance with the terms of this Master Lease." Second sentence, line 3, insert "or willful misconduct". 12. Section 13, "DEFAULT; REMEDIES AND MITIGATION." Subsection 13.1 Introductory sentence, line 2, insert "Summary Equipment" after the word "under'". Paragraph (b), line 1, insert "the applicable" before the word "Schedule". Paragraph (c), line 4, insert the following after "powers": "which petition or appointment is not dismissed or vacated within sixty (60) days." Subsection 13.2, paragraph (d), line 4, insert "or willful misconduct" after "negligence". Subsection 13.3, second sentence, line 1, insert "AND TO THE FULLEST EXTENT PERMITTED BY LAW" after the words "IN THIS SECTION". 13. Section 14, "ADDITIONAL PROVISIONS." Subsection 14.1, is deleted in its entirety and replaced with the following: "Lessee agrees to provide to Lessor on a monthly basis the executive summary and minutes of the Board of Directors meetings which are sent to all investors, including all attachments so distributed. In addition, the following statements will accompany the report on a monthly basis: Profit and Loss Statement, Balance Sheet, Cash Flow Statement and Pro Forma Operating Plan (as developed)." Subsection 14.2, second sentence, line 2, delete the words "the same information..." through the words "Directors, but" and replace with the words "reasonably detailed monthly financial statements"; and line 5, delete "ninety (90)" and insert "one hundred twenty (120)" before the word "(days)". 3. 16 Subsection 14.4, to the end of this subsection add the following: "Notwithstanding the forgoing, Lessor hereby consents to any merger which will result in a surviving entity with a Moody's Bond Rating of BAA or better, or the equivalent if the entity is not rated by Moody's." Subsection 14.7, second sentence, add the following at the end thereof: "except as provided for in this Agreement." Subsection 14.9, line 4, insert "applicable" before "Schedule". Subsection 14.10, lines 2 and 3, substitute "State of Illinois" with the "State of California". Subsection 14.13, first sentence, insert, "Summary Equipment" before "Schedule". Subsection 14.14, second sentence, line 2, insert "reasonably" before "acceptable". Subsection 14.16 is deleted in its entirety. Definition "CASUALTY VALUE", line 1, insert "present value of the" after the words "greater of the" and line 2, insert "discounted at the U.S. Treasury rate of comparable maturity to the remaining term" after the word "term". Definition "COMMENCEMENT CERTIFICATE" delete this definition in its entirety. Add the following definition "DELIVERY DATE - means the date of delivery of inventory Equipment to Lessee's address." Definition "EQUIPMENT" insert "Summary Equipment" before the word "Schedule". Definition "INSTALLATION DATE" is deleted in its entirety. Add the following definition: "LEASE - means a Summary Equipment Schedule which incorporates all the terms and conditions of the related Schedule and Master Lease." Definition "MERGER", line 2, insert "or stock" after "assets"; delete the words "or any stock acquisition of the Lessee by any other person or entity." Definition "OVERDUE RATE" is amended to read "Late Charge" and the word "rate" is deleted and "amount" is inserted. Definition "RENT", line 2, insert "Summary Equipment" before "Schedule." 4. 17 Definition "RENT INTERVAL" insert "Summary Equipment" before the word "Schedule". Definition "SCHEDULE" delete this definition and replace with the following: "means, either an Equipment Schedule or a Licensed Product Schedule which incorporates all of the terms and conditions of this Master Lease." Add the following definition: "SUMMARY EQUIPMENT SCHEDULE - means, a Lessor provided certificate summarizing all of the Equipment for which Lessor has received Lessee approved invoices, purchase documentation and evidence of delivery, as applicable, during a calendar quarter which will incorporate all of the terms and conditions of the related Schedule and this Master Lease and will constitute a separate Lease." BIOSTAR, INC. COMDISCO, INC. By: /s/ Teresa W. Ayers By: /s/ James P. Labe ---------------------------- -------------------------------------- Title: Vice President Finance Title: President Venture Lease Division ------------------------- ----------------------------------- Date: 5/3/95 Date: 5/5/95 -------------------------- ------------------------------------ 5. 18 (MULTIPLE QUARTER DELIVERY) EQUIPMENT SCHEDULE NO. VL-1 DATED AS OF MAY 3, 1995 TO MASTER LEASE AGREEMENT DATED AS OF MAY 3, 1995 ("MASTER LEASE") LESSEE: BioStar, Inc. LESSOR: Comdisco, Inc. ADMIN. CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES: Ms. Teresa Ayers 6111 North River Road V.P. Finance Rosemont, Illinois 60018 (303) 530-6601 Attn: Capital Equipment Lease Administration ADDRESS FOR NOTICES: 6655 Lookout Road Boulder, CO 80301 Attn: CENTRAL BILLING LOCATION: PAYING AGENT: Same as above Comdisco, Inc. P.O. Box 91744 Attn: Ms. Janet Taapken Chicago, Illinois 60693 Lessee Reference No.: ___________________ (24 digits maximum) RENT INTERVAL: 1 month LOCATION OF EQUIPMENT: INITIAL TERM: 36 months Same as above LEASE FACTOR: 3.178% Attn: ADVANCE: $31,780
EQUIPMENT (AS DEFINED BELOW):
ITEM MACHINE TYPE/ SERIAL NO. QTY. MANUFACTURER FEATURE DESCRIPTION NUMBER RENT - --- ---- ------------ ------------- ----------- ------ ---- Standard equipment specifically approved by Lessor, which shall be delivered to and accepted by Lessee during the period May 3, 1995 through May 3, 1996 for which Lessor receives vendor invoices approved for payment, up to an aggregate purchase price of 1,000,000; not including upgrades thereto and further excluding custom use equipment, leasehold improvements, installation costs and delivery costs, rolling stock, special tooling, custom equipment, "stand-alone" software, application software bundled into computer hardware, hand held items, molds and fungible items. In no event shall any furniture exceed ten percent (10%) of Lessor's aggregate cost hereunder.
19 1. NOTICE PERIOD: For purposes of notice by Lessee to Lessor of the termination of the term of a Summary Equipment Schedule, the Notice Period shall be not less than ninety (90) days nor more than twelve (12) months prior to the expiration of the lease term of such Summary Equipment Schedule. 2. EQUIPMENT PURCHASE. Lessee acknowledges that it has either received or approved Lessor's purchase documentation for the Equipment. The aggregate purchase price referred to on the face of this Schedule shall include all Equipment purchased by Lessor, consisting of amounts financed under Sections (i), (ii), (iii) and (iv) below. (i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is specifically approved by Lessor. (ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at Lessee's site and to which Lessee has clear title and ownership may be considered by Lessor for inclusion under this Lease (the "Sale-Leaseback Transaction"). Any request for a Sale-Leaseback Transaction must be submitted to Lessor in writing (along with accompanying evidence of Lessee's Equipment ownership satisfactory to Lessor for all Equipment submitted) no later than June 3, 1995*. Lessor will not perform a Sale-Leaseback Transaction for any request or accompanying Equipment ownership documents which arrive after the date marked above by an asterisk (*). Further, any sale-leaseback Equipment will be placed on lease subject to: (1) Lessor prior approval of the Equipment; and (2) if approved, at Lessor's actual net appraised Equipment value pursuant to the schedule below:
ORIGINAL EQUIPMENT PERCENT OF ORIGINAL MANUFACTURER'S NET MANUFACTURER'S SHIP DATE EQUIPMENT COST PAID BY LESSOR Between 03/03/95 and 06/01/95 100% Between 01/01/95 and 03/02/95 80% Between 10/03/94 and 01/01/95 70%
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase "used" Equipment which is obtained from a third party by Lessee for its use subject to: Lessor's prior approval of the Equipment and at Lessor's appraised value for such used Equipment. (iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor may supply new or used Equipment from its inventory at rates provided by Lessor. 3. COMMENCEMENT DATE. The Commencement Date for each item of new on-order or used on-order Equipment will be the date Lessee approves the vendor invoice. The Commencement Date for sale lease-back Equipment will be the date Lessor tenders the purchase price and the Commencement Date for inventory Equipment will be the Delivery Date. Lessor will summarize all approved invoices, purchase documentation and evidence of delivery, as applicable, received in the same 20 calendar quarter into a Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1 and the Initial Term will begin the first day of the calendar quarter thereafter. Each Summary Equipment Schedule will contain the Equipment location, description, serial number(s) and cost and will incorporate the terms and conditions of the Master Lease and this Schedule and will constitute a separate Lease. 4. OPTION TO EXTEND. So long as no Event of Default has occurred and is continuing hereunder, Lessee will have the right to extend the Initial Term of a Summary Equipment Schedule for a period of one (1) year by giving Lessor at least ninety (90) days written notice prior to the expiration of the Initial Term of such Summary Equipment Schedule. In such event, the rent to the paid during said extended period shall be mutually agreed upon and if the parties cannot mutually agree, then the Summary Equipment Schedule shall continue in full force and effect pursuant to the existing terms and conditions until terminated in accordance with its terms. The Summary Equipment Schedule will continue in effect following said extended period until terminated by either party upon not less than ninety (90) days prior written notice, which notice shall be effective as of the date of receipt. 5. PURCHASE OPTION. So long as no Event of Default has occurred and is continuing hereunder, and upon written notice no earlier than twelve (12) months and no later than ninety (90) days prior to the expiration of the Initial Term or extended term of the applicable Summary Equipment Schedule, Lessee will have the option at the expiration of the Initial term or extended term of such Summary Equipment Schedule to purchase all, but not less than all, of the Equipment listed therein for a purchase price and upon terms and conditions to be mutually agreed upon by the parties following Lessee's written notice, plus any taxes applicable at time of purchase. Said purchase price shall be paid to Lessor at least thirty (30) days before the expiration date of the Initial Term or extended term. Title to the Equipment shall automatically pass to Lessee upon payment in full of the purchase price but, in no event, earlier than the expiration of the fixed Initial Term or extended term, if applicable. If the parties are unable to agree on the purchase price or the terms and conditions with respect to said purchase, then the Summary Equipment Schedule with respect to this Equipment shall remain in full force and effect. Notwithstanding the exercise by Lessee of this option and payment of the purchase price, until all obligations under the applicable Summary Equipment Schedule have been fulfilled, it is agreed and understood that Lessor shall retain a purchase money security interest in the Equipment listed therein and the Summary Equipment Schedule shall constitute a Security Agreement under the Uniform Commercial Code of the state in which the Equipment is located. 21 Master Lease: This Schedule is issued pursuant to the Master Lease identified on page 1 of this Schedule. All of the terms and conditions of the Master Lease are incorporated in and made a part of this Schedule as if they were expressly set forth in this Schedule. The parties hereby reaffirm all of the terms and conditions of the Master Lease (including, without limitation, the representations and warranties set forth in Section 8) except as modified herein by this Schedule. This Schedule may not be amended or rescinded except by a writing signed by both parties. BIOSTAR, INC. COMDISCO, INC. AS LESSEE AS LESSOR By: /s/ Teresa W. Ayers By: /s/ James P. Labe ---------------------------- -------------------------------------- Title: Vice President Finance Title: President Venture Lease Division ------------------------- ----------------------------------- Date: 5/3/95 Date: 5/5/95 -------------------------- ------------------------------------ 22 EXHIBIT 1 SUMMARY EQUIPMENT SCHEDULE This Summary Equipment Schedule dated _______________ is executed pursuant to Equipment Schedule No. VL-1 dated May 2, 1995 to the Master Agreement dated May 2, 1995 between Comdisco, Inc. ("Lessor") and BioStar, Inc. ("Lessee"). All of the terms, conditions, representations and warranties of the Master Lease Agreement and Equipment Schedule No. VL-1 are incorporated herein and made a part hereof and this Summary Equipment Schedule constitutes a Lease for the Equipment described below. 1. EQUIPMENT:
EQUIPMENT QTY. MFGR. TYPE/MODEL SERIAL # LOCATION (See attached invoices)
2. INSTALLATION DATE: (See attached Invoices) 3. INITIAL TERM STARTS ON: 4. TOTAL EQUIPMENT COST: 5. RENT: 6. REPRESENTATIONS OF LESSEE: Each item of Equipment has been delivered to the location indicated above, tested, inspected, found to be in good working order and accepted by the Lessee on its installation date as set forth above. EX-10.83 29 DOMINION VENTURES MASTER LEASE AGREEMENT 1 DOMINION VENTURES MASTER LEASE AGREEMENT LESSOR/AGENT: LESSEE: Dominion Ventures, Inc. BioStar, Inc. 44 Montgomery Street, Suite 4200 6655 Lookout Road San Francisco, CA 94104 Boulder, CO 80301
MASTER LEASE LINE: INITIAL TERM: RENT FACTOR: - ----------------- ------------ ----------- $750,000.00 36 Months Computer Equipment 3.259% 48 Months Test & Lab Equipment & Furniture 2.504%
ADVANCE RENTAL SECURITY DEPOSIT - -------------- ---------------- $19,535.00 $0.00
EFFECTIVE DATE: FUNDING EXPIRATION DATE: - --------------- ------------------------ November 2, 1992 December 15, 1993 The Master Lease Line, specified above, shall remain open until fully funded or until the Funding Expiration Date noted above whichever occurs first. The Term "Equipment" means the items of personal property that are listed on the Equipment Schedule Agreements (the "Schedules") attached or from time to time added to this Lease, together with all replacement parts, additions and accessories incorporated thereto. Schedules, each of which shall have a total cost of not less than ten thousand dollars ($10,000.00), may be added to this Lease not more frequently than once per month and in any event only with the prior approval of Lessor. Equipment is to be limited to the types of equipment described in Exhibit A attached hereto and with the exception of Equipment Schedule 1A, the original use shall not commence with Lessee more than sixty (60) days prior to the date of this Lease. No item of Equipment shall have a unit cost of less than one thousand dollars ($1,000.00) or be subject to an invoice of less than five thousand dollars ($5,000.00). Lessee acknowledges that Lessor must specifically segregate funds for this Master Lease Line. Advance Rental paid under this Lease is nonrefundable for any reason; but, for each item of Equipment shall be credited to the last complete calendar month's rent for such item, subject to the conditions of Paragraph 6. If, as of the Funding Expiration Date, the aggregate Cost to Lessor of all Equipment is more than five percent (5%) less than the Master Lease Line, Lessee agrees to pay Lessor, no later than five (5) business days thereafter, two percent (2%) of the unexpended amount as compensation for expenses. See attached Schedules for detailed Equipment descriptions and effective dates. This Lease and the Schedules attached hereto are subject to the terms and conditions set forth above and on subsequent pages which are made part hereof. 1. TRUE LEASE. Lessor leases to Lessee, and Lessee hires and takes from Lessor, the Equipment. It is the intent of both Lessor and Lessee that this agreement be a true lease and not a lease intended as security or a conditional sales agreement. Lessor and Lessee also agree to treat this Lease as a true lease for income tax purposes. 1. 2 2. EQUIPMENT AND LIABILITY. Lessee shall select the type and quantity of each item of Equipment designated in the appropriate Schedule. Lessee shall defer to Lessor's ability to obtain discount pricing from suppliers of equipment, and any discounts and rebates resulting from the purchase of Equipment shall be remitted to Lessor. Lessee shall order each item from the respective supplier and, in reliance thereon and subject to its prior approval, Lessor shall be deemed to have ordered and acquired such Equipment from such supplier. At Lessor's request, Lessee shall formally assign the purchase order for such Equipment to Lessor. LESSEE ACKNOWLEDGES THAT LESSOR IS NOT THE MANUFACTURER, RETAILER OR DISTRIBUTOR OF THE EQUIPMENT, THAT SAID ENTITIES ARE NOT AGENTS OF LESSOR, THAT LESSEE RENTS THE EQUIPMENT "AS IS", AND THAT LESSOR HAS ACCEPTED NO RESPONSIBILITY FOR THE TRANSPORTATION, INSTALLATION OR REQUIRED LICENSING NECESSARY FOR THE TRANSFER, INSTALLATION OR USE OF THE EQUIPMENT. Lessor shall not be liable for specific performance of this Lease nor for damages if for any reason a supplier declines, delays or fails to fill any order. Lessee agrees to accept the Equipment and authorizes Lessor to add the serial number of the Equipment to this Lease. Lessor shall not be liable to Lessee for any loss, damage or expense of any kind or nature caused directly or indirectly by the Equipment, its use or maintenance; nor for any delay or failure to provide any of the Equipment; nor for any interruption of service or loss of use of the Equipment; nor for any loss of business or damages whatsoever and howsoever caused. 3. WARRANTIES. LESSEE HAS NOT RELIED UPON AND ACKNOWLEDGES THAT LESSOR HAS MADE NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT, INCLUDING WITHOUT LIMITATION ITS CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. NO DEFECT OR UNFITNESS OF THE EQUIPMENT NOR OTHER CLAIM REGARDING CONDITION OR USE OF THE EQUIPMENT SHALL RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR ANY OTHER OBLIGATION UNDER THIS LEASE. Lessor authorizes Lessee to enforce in its own name all warranties, agreements or representations, if any, which may be made by any supplier to Lessee or Lessor. 4. TERM. All obligations under this Lease, except regular rental payments, shall commence immediately upon the Effective Date specified on the first page of this Agreement (the "Effective Date") and shall continue until full performance of every provision of this Lease, and each Schedule and Addendum (the "Lease Term"). All obligations under each Schedule shall commence upon Lessee's execution of Lessor's Certificate of Inspection and Acceptance (the "Acceptance Certificate") for the Equipment specified on such Schedule and shall terminate at the end of the Initial Term (The "Noncancellable Term"). The "Initial Term", as set forth on page 1 of this Lease, shall begin on the first day of the calendar quarter following the date of the Acceptance Certificate. This Lease is irrevocable for its full term and until Lessee has performed all of its obligations hereunder. 5. RENTAL PAYMENTS. Lessee shall pay to Lessor, as rental for Equipment during each month of the Noncancellable Term of any Schedule, an amount equal to the Rent Factor set forth on page one of this Lease multiplied by the total Cost (as defined below in paragraph 7) of the Equipment to Lessor, which amount shall be due and payable in advance on the first day of each calendar month during the Noncancellable Term. If the date of the Acceptance Certificate of any Schedule shall be other than the first day of the calendar quarter, Lessee shall make rental 2. 3 payments ("Interim Rent") equal to one-thirtieth of the monthly rental set forth on the Schedule for each day from and including the date of the Acceptance Certificate for such Schedule, through and including the last day of the calendar quarter prior to the beginning of the Initial Term. Such Interim Rent shall be due and payable on the first day of the calendar month following the month for which such payment is assessed. In addition to any other remedies that Lessor may have under this Lease, if Lessee fails to pay any rent or other amount herein provided within five (5) business days after the same is due, Lessee shall pay to Lessor a late charge of three percent (3%) of such amount plus interest from the due date until the date of payment, calculated at the rate of one and five tenths percent (1.5%) per month, or at the highest rate permitted by applicable law, whichever is less, to compensate Lessor for additional bookkeeping and collection expense. All rents, late charges and other amounts for which Lessee is liable shall be paid to Lessor at its address as set forth above or as otherwise directed by Lessor. Lessor's right to receive rental payments, as well as all other rights of Lessor to payment hereunder, shall not be subject to any defense, set off, counterclaim or recoupment which may arise out of any breach on the part of Lessor, or by reason of any other liability Lessor may owe Lessee. 6. ADVANCE RENTAL. Upon execution of this Lease, Lessee shall pay to Lessor an Advance Rental in an amount equal to the Rent Factor multiplied by the Master Lease Line (plus applicable taxes) less the commitment deposit of $5,000.00 previously paid by Lessee to Lessor. A pro rata portion of the Advance Rental shall be credited to the last complete calendar month's rent for each item of Equipment. Lessee grants Lessor a security interest in the Advance Rental to secure all of Lessee's obligations hereunder. If the Master Lease Line has not been fully expended by the Funding Expiration Date, Lessor shall retain the uncredited balance of the Advance Rental as compensation for expenses. Lessor shall have the right, but not the obligation, to apply the Advance Rental to cure any default of Lessee, in which event Lessee shall promptly restore the Advance Rental account to its proper balance. 7. ADJUSTMENTS FOR ACTUAL COST. As used herein, "Cost" means the cost to Lessor of purchasing the Equipment including any sales taxes and other charges paid by Lessor and net of any discounts and rebates remitted to Lessor. The Advance Rental is based upon the Master Lease Line, which is an estimate. If at any time the actual aggregate Cost of all Equipment exceeds the Master Lease Line, the Advance Rental shall be increased proportionately. Lessee shall pay any additional sums for Advance Rental due under this Lease within five (5) business days after receiving notice from Lessor. If any Schedule of Equipment causes the actual aggregate Cost of all Equipment to exceed the Master Lease Line by more than ten percent (10%), Lessor may terminate said Schedule within fifteen (15) days after receiving invoices for such excess cost and upon request shall promptly be reimbursed by Lessee for such excess cost. If the actual aggregate Cost of all Equipment, together with any additional equipment proposed to be added to the Lease, would exceed the Master Lease Line by more than ten percent (10%), Lessor may refuse to add such equipment to this Lease and shall so notify Lessee. 8. TITLE. All Equipment shall remain personal property, and the title thereto shall remain exclusively in Lessor, notwithstanding the manner in which it may be attached to realty. Lessee agrees, upon the request of Lessor at any time during the Lease Term, to affix or permit Lessor to affix, in a permanent place on the Equipment, labels supplied by Lessor identifying the 3. 4 Equipment as property of Lessor, and shall not alter or remove any such label from any item of Equipment. Lessee shall keep the Equipment free from any and all liens and encumbrances except those created by Lessor. Lessee shall give Lessor immediate notice of any judicial process or encumbrance affecting the Equipment and shall indemnify and save Lessor harmless from any loss or damage caused thereby, including court costs, attorney fees and expenses. 9. FILING. Lessee shall execute or cause to be executed, at Lessee's sole expense, such supplemental instruments, financing statements and landlord's waivers as Lessor deems necessary or advisable and shall cooperate to defend the title of Lessor by filing or otherwise. Lessee authorizes Lessor to record in any state, this Lease and any financing statements, security agreements and landlord's waivers with respect to the Equipment or any collateral provided by Lessee to Lessor. Lessee agrees to give Lessor thirty (30) days written notice of any change in Lessee's name or place of business. Lessee agrees to give written notice to Lessor as soon as Lessee has knowledge of any change of ownership of the real property upon which or within which the Equipment is located. 10. TAXES. Lessee shall pay in a timely fashion and shall indemnify and hold Lessor harmless against all federal, state and local taxes, assessments, license and registration fees, and other governmental charges of any kind, including those levied on motor vehicles or trailers, and any interest or penalties thereon, which may be levied, directly or indirectly, against the Equipment or with respect to its ordering, purchasing, delivery, ownership, possession, use, leasing, documentation, and return or other disposition thereof, regardless of whether such taxes and fees are levied against Lessor or Lessee. Lessee shall have the right to contest any material tax, fee or charge with the applicable authorities provided that Lessee shall indemnify Lessor against any loss or damage which Lessor may incur as a result of such contest. Such taxes and fees to be paid by Lessee shall include, without limitation, property, sales, rent, franchise, gross receipts, lease, and use taxes, and any other tax measured by gross rental payments, but shall not include net income or franchise taxes payable by Lessor on its receipt of rental payments hereunder. Personal Property Taxes shall be reasonably estimated by Lessor and billed to Lessee as of the date of assessment each year. Upon receipt by Lessor of the final personal property tax assessment and invoice, Lessor shall invoice or credit Lessee, as applicable, for any differences of such final assessment and Lessor's original estimate. Lessor shall have the right, but not the obligation, to pay any such taxes or fees regardless of whether levied against Lessor or Lessee. Any and all sales taxes levied against Lessor's purchase of Equipment shall be added to the total Cost of such Equipment as specified on the Schedule under which such equipment is added to this Lease. With the exception of taxes and fees which are added to the total Cost of Equipment hereunder, Lessee shall reimburse Lessor within ten business (10) days after receipt of invoice from Lessor specifying the amount of, and reason for, any payment by Lessor of amounts for which Lessee is liable under this Paragraph 10. Lessee shall timely prepare and file all reports and returns which are required to be made with respect to such taxes and/or fees, and all such reports shall show Lessor as owner of the Equipment. 11. ASSIGNMENTS AND SUBLEASES. Lessee shall not assign this Lease or Lessee's rights hereunder, or sublease any Equipment, without the prior written consent of Lessor. Lessor and Lessee agree that any purchase of all or substantially all of Lessee's Assets, any merger or consolidation into or with Lessee regardless of whether Lessee is the surviving entity or any entity acquiring more than twenty percent (20%) of Lessee shall be deemed to be an assignment 4. 5 provided however, that no such consent shall be required in the event the surviving or acquiring entity shall have a net worth in excess of that of Lessee and such acquiring entity shall execute an assignment or guaranty (as appropriate) of Lease, acceptable to Lessor, acknowledging and assuming the obligations hereunder, prior to giving effect to the transaction. Lessor shall have the right, in its sole discretion, to assign this Lease or any part hereof, provided that any such assignment shall not materially increase Lessee's obligations hereunder. In particular, Lessee acknowledges that it is Lessor's intention to assign this Lease to one or more limited partnerships with which Lessor is affiliated, that upon any such assignment the sole liability for performance of Lessor's obligations hereunder shall fall upon such assignee, and that the limited partners of such assignee shall have no personal liability for the performance or observance of this Lease. Following any assignment by Lessor, the term "Lessor", as used herein, shall include and/or refer to Lessor's assignee, and the Equipment covered by such assignment shall be deemed to be used by Lessee under a lease agreement between Lessee and such assignee, the terms and conditions of which shall be the terms and conditions of this Lease; provided, however, that any such lease agreement shall cover only the Equipment so assigned. Subject to the foregoing, this Lease inures to the benefit of, and is binding upon, the heirs, legatees, representatives, successors and assigns of Lessee and Lessor. 12. POSSESSION. Lessor covenants that, to the best of its knowledge, it is the lawful owner of the Equipment and that, conditioned upon Lessee's performance of each of its obligations under this Lease, Lessee's use of the Equipment shall not be interrupted by Lessor, except as provided in Paragraph 15. 13. USE AND INDEMNITY. Lessee shall use the Equipment in Lessee's business. Lessee agrees not to allow the Equipment to be used by other than its employees, consultants and agents. Lessee acknowledges that the Equipment is leased for commercial purposes and not for personal use. Lessee agrees to indemnify and hold Lessor, and Lessor's agents, servants, successors and assigns, harmless against any and all claims, actions, liabilities and expenses of any nature, including court costs and attorney fees, arising in connection with the manufacture, purchase, delivery, installation, operation, use, ownership, maintenance, storage, relocation, and return of the Equipment, except to the extent any such claims, actions, liabilities and expenses result from the gross negligence or willful misconduct of Lessor. The foregoing indemnity shall continue in full force and effect notwithstanding the termination of this Lease, whether by expiration of time, operation of law or otherwise. 14. LOCATION. Lessee shall keep the Equipment within the continental United States and at its place of business as specified above or on the Schedules. Lessee shall not permit any Equipment to be moved to a new location without the prior written consent of Lessor. 15. RIGHT OF INSPECTION. Lessor and its agents shall have the right, at any time during normal business hours, to inspect and photograph the Equipment, to review all maintenance records related to the Equipment and, during the last ninety (90) days of the rental term of each respective Schedule provided that Lessee has not given notice of its intent to purchase the Equipment pursuant to Paragraph 17 below, to demonstrate the Equipment specified thereon to prospective purchasers; provided, however, Lessor shall give five days notice to Lessee of any such demonstration. 5. 6 16. MAINTENANCE. Lessee shall exercise due and proper care in the use, repair and servicing of the Equipment. Lessee shall, at its own expense, make all repairs and replacements required to maintain the Equipment in good working condition in accordance with manufacturers' specifications and Lessor's requirements, and shall pay all other operating expenses relating to the Equipment. Lessee shall have the right, upon ten (10) days prior written notice to Lessor, to make any alterations, additions or improvements which do not render the Equipment in such a condition that it cannot, prior to the expiration or other termination of this Lease, be restored to its original condition, reasonable wear and tear alone excepted; provided that no such alteration, addition or improvement shall be made by Lessee if as a result thereof any warranties made by the supplier of the Equipment would be canceled or terminated. If Lessee does not exercise its option to purchase the Equipment as specified in Paragraph 17, or if Lessee should become in default of any of its obligations hereunder, Lessee shall restore the Equipment to its original condition, reasonable wear and tear alone excepted, prior to the expiration or other termination of each respective Schedule. All replacement parts and additions incorporated to the Equipment shall become the property of Lessor; provided, however, that Lessor shall transfer to Lessee title to any alterations, additions and improvements which were made by Lessee at its own expense to (i) each item of Equipment which Lessee has restored to its original condition as specified in this Paragraph 16, and (ii) each item of Equipment purchased by Lessee pursuant to the provisions of Paragraph 17. Lessee agrees to maintain and provide upon request of Lessor all internal maintenance reports relating to the Equipment. 17. PURCHASE OPTION. Upon written notice to Lessor not less than 90 days prior to the expiration of this Lease, if Lessee has fulfilled all of its obligations hereunder, Lessee shall have the right to purchase all, but not less than all, of the Equipment, on a Schedule by Schedule basis, for Fair Market Value (as defined below) as such term is adopted and recognized by the American Society of Appraisers (plus applicable taxes). Should Lessor and Lessee fail to agree upon the fair market value purchase price of the Equipment, said price shall be determined by an independent appraiser, and the cost shall be borne equally by both Lessor and Lessee. Notwithstanding the date on which Lessee exercises this option, Lessee shall acquire no rights of title to any Equipment, nor shall any Equipment be transferred to Lessee, until the expiration of the rental term for the Schedule on which such Equipment is specified. Lessee shall remain liable for all rental payments and other obligations until the expiration of the Lease Term. Any Equipment sold by Lessor shall be sold "as is", "where is", and with no warranties, express or implied, including without limitation implied warranties of merchantability and fitness for any particular purpose. "Fair Market Value" is defined as the estimated amount at which the property might be expected to exchange between a willing buyer and a willing seller, neither being under compulsion, each having reasonable knowledge of all relevant facts, and with equity to both. 18. RETURN OF EQUIPMENT. Upon 90 days written notice to Lessor, in the event Lessee has not exercised its Purchase Option as specified in Paragraph 17, after such notification and upon the expiration or termination of this Lease, Lessee shall, at Lessee's sole expense, properly pack and return the Equipment, insured, unencumbered and in the same condition as when received by Lessee, reasonable wear and tear alone excepted, by such carriers as Lessor shall approve and to such place as designated by Lessor. Should Lessee fail to return the Equipment as directed above, all obligations of Lessee under this Lease, including rental payments, shall remain in full force and effect during the holdover period. 6. 7 19. FINANCIAL STATEMENTS. (a) Lessee shall provide to Lessor the financial statements specified in this subparagraph 19(a), prepared in accordance with generally accepted accounting principles, consistently applied (the "Financial Statements"); provided, however, that after the effective date of any initial registration statement covering a public offering of Lessee's securities, the term "Financial Statements" shall be deemed to refer only to those statements required by the Securities and Exchange Commission, to be provided no less frequently than quarterly. (i) As soon as practicable (and in any event within thirty (30) days after the end of each month), a reasonably detailed balance sheet as of the end of such month and the related statements of income or loss, cash flow and capital structure of the Lessee during such month (including the commencement of any material litigation by or against Lessee), certified by Lessee's Chief Executive Officer or Chief Financial Officer fairly to present the data reflected therein. (ii) As soon as practicable (and in any event within one hundred and twenty (120) days after the end of each fiscal year, audited balance sheets as of the end of such year (consolidated if applicable), and related statements of income or loss, retained earnings or deficit, cash flows and capital structure of Lessee for such year, setting forth in comparative form the corresponding figures for the preceding fiscal year, and accompanied by an audit report and opinion of the independent certified public accountants of recognized national standing selected by Lessee. (b) Lessee shall promptly furnish to Lessor any additional information (including but not limited to tax returns, income statements, balance sheets, and names of principal creditors) as Lessor reasonably believes necessary to evaluate Lessee's continuing financial obligations (the "Additional Information"). (c) Lessor agrees to preserve the confidentiality of all information provided to it hereunder by Lessee regarding the Lessee and its business which Lessee designates in writing as confidential and which is otherwise not generally known. 20. TAX INDEMNIFICATION. Lessee acknowledges that this Lease has been entered into on the basis that Lessor or Lessor's designee intends to claim such depreciation, interest deductions and other tax benefits as are provided to an owner of Equipment under the Internal Revenue Code of 1986, as amended (the "Code") (the "Tax Benefits"). If Lessor or Lessor's designee shall not have the right to claim or there shall be disallowed or recaptured with respect to Lessor or Lessor's designee, all or any portion of the Tax Benefits as a result of an act or failure to act by Lessee in contravention with any of the terms and conditions of the Lease, Lessee shall promptly pay to Lessor or Lessor's designee, an amount which, on an after-tax basis, will compensate Lessor or Lessor's designee for the value of the lost Tax Benefits. The Tax Benefits shall be deemed to have been disallowed or recaptured upon the payment by Lessor to the Internal Revenue Service or state taxing authority of the tax increase resulting from such lost Tax Benefits. Provided Lessee has reimbursed Lessor for the payment to the Internal Revenue Service or taxing authority for the increase resulting from such loss of Tax Benefits, Lessee shall have the right to contest any disallow or recapture of Tax Benefits with the 7. 8 appropriate taxing authority. Lessor or Lessor's designee shall be deemed not to have the right to claim the Tax Benefits if, in the opinion of Lessor's independent tax counsel, reasonably acceptable to Lessee, there is no reasonable basis for claiming the Tax Benefits. 21. NO REPRESENTATION. Lessor assumes no liability as to the treatment by Lessee of this Lease, the Equipment or the rental payments for financial statement or tax purposes. 22. RISK OF LOSS. Lessee assumes the entire risk of loss, theft and damage of the Equipment from any cause whatsoever, and no such event shall relieve Lessee of any obligation under this Lease. Lessee shall notify Lessor in writing within ten (10) days after any such event. Lessee agrees that Lessor shall have the following remedies upon each occurrence of the following events: (a) In the case of damage of any kind whatsoever to any item of Equipment (unless such item is damaged beyond repair), Lessee shall, at Lessee's sole expense and with Lessor's reasonable consent, (i) restore such Equipment to its original condition, reasonable wear and tear alone excepted, or (ii) replace it with like equipment of the same or later model in good condition. Upon Lessee's replacement of any Equipment as specified in this subparagraph 22(a)(ii), Lessor shall transfer title to such replaced Equipment to Lessee. (b) If any item of Equipment is determined by Lessor to be damaged beyond repair, or if Lessor has reasonable cause to believe that any item of Equipment is stolen or lost and such item is not returned to its proper location within thirty (30) days after notice thereof to Lessee, Lessee shall, with Lessor's reasonable consent, immediately pay to Lessor: (i) the amount required to replace such item with like equipment of the same or later model in good condition, in which case Lessor shall replace such item, and rental payments shall continue throughout the Lease Term without any interruption, or (ii) the aggregate unpaid rent due for the balance of the rental term for the items of Equipment involved, discounted to present value at the then current Treasury Bill rate, the then estimated fair market value of the items of Equipment involved, calculated as of the expiration of the Lease Term (the "Residual Value"), discounted to present value at the then current Treasury Bill rate; any tax payments or indemnification for which Lessee is liable under Paragraphs 10 and 20; and any other amounts for which Lessee is liable under this Lease; provided, however, the option specified in subparagraph 22(b)(i) shall not be available in the event of Lessee's default. Upon payment under subparagraph 22(b)(ii), this Lease shall terminate with respect to the items paid for, and Lessee shall become entitled to such items "as is" and "where is" without any warranty, express or implied. (c) Any proceeds paid to Lessor from the Personal Property Insurance specified in subparagraph 23 (a) (i) (B) shall be applied to Lessee's obligations under this Paragraph 22. 23. INSURANCE. (a) Lessee shall, at its own expense, maintain the following types of insurance, with companies acceptable to Lessor, until such time as Lessee has returned the Equipment as specified in Paragraph 18: 8. 9 (i) Personal Property Insurance on all property owned by Lessee (including but not limited to all of the Equipment), in an agreed amount based upon the following: (A) Standard Special Form Property Insurance, including boiler and machinery insurance, and flood insurance if any Equipment is located in an identified "flood hazard area," in which flood insurance has been made available pursuant to the National Flood Insurance Act of 1968; (B) The amount of such insurance shall be not less than the greater of the fair market value or the full undepreciated replacement value of the Equipment. The Amount of such insurance allocable to loss or damage or personal property shall not have a deductible in excess of five thousand dollars ($5,000.00) per occurrence. (C) Such insurance shall contain an endorsement in which Lessor is named as Loss Payee with respect to the Equipment, and shall set aside the amount stated in subparagraph 23(a)(i)(B) for the sole benefit of, and payable directly to, Lessor. (ii) Business interruption insurance in an amount at all times equal to the loss of profit plus necessary continuing expenses for the six months following the date of calculation. In the event of any interruption of Lessee's business, the amount payable to Lessor shall be equal to not less than the actual loss of rental payments suffered by Lessor as the result of such interruption, and shall be payable to Lessor within thirty (30) days from the date of loss, and on a month-to-month basis thereafter, until Lessee's business is returned to a fully operational state, plus ninety (90) days. (iii) Commercial General Liability Insurance covering bodily injury (including death) and property damage, naming Lessor, its directors, officers, agents and employees as an Additional Insured on all policies, and providing total limits in amounts as are at the time carried by entities engaged in the same or similar business and which are similarly situated, but in no event less than two million dollars ($2,000,000.00) for combined single limit occurrence. All such policies shall cover any injury or damage occasioned by, or occurring upon, Lessee's premises, products, operations and, at Lessor's option, explosion, collapse and underground hazards. All such policies shall contain contractual liability coverage including all liability assumed under this agreement, and a cross liability clause providing that such insurance shall, except with respect to the limits of liability, apply separately to each insured. (b) All insurance specified in this Paragraph 23 shall be primary over any insurance carried by Lessor, and in no event shall any insurance carried by Lessor be called upon to contribute to any loss relating to or arising out of this Lease. All insurance shall be in effect, and shall be evidenced by policies and/or endorsements delivered to Lessor no later than twenty (20) days after the date upon which Lessee executes this Lease. Notwithstanding anything to the contrary contained in this Lease, Lessor shall have no obligation to purchase any Equipment until all policies are in place. All such policies shall provide for at least thirty (30) days prior written notice to Lessor in the event of any cancellation, non-renewal or material change in coverage, and Lessor shall receive a copy of any and all endorsements or other documentation relating to such policies. 9. 10 (c) Should Lessee, at any time during the Lease Term, be without sufficient insurance, as determined by Lessor in accordance with the provisions of this Paragraph 23, Lessee appoints Lessor as its agent to obtain such coverage, and promises to pay to Lessor the entire cost of such coverage. 24. DEFAULT. Time is of the essence of this Lease and each of its provisions. Lessee shall be in default immediately upon the occurrence of any of the following events: (a) Nonpayment, by the due date specified herein, of any rental or other payment required of Lessee under the terms of this Lease, and such nonpayment shall continue for a period of five (5) business days; (b) Noncompliance with any or all of the provisions of Paragraph 23, and such noncompliance shall continue for a period of five (5) days after notice thereof is given to Lessee; (c) If Lessee has made a misstatement or false statement of, or omitted to state, a material fact in connection with the execution, performance or nonperformance of this Lease or any Schedule, or if any representation or warranty of Lessee in this Lease or the Acceptance Certificate for any item of Equipment is inaccurate or false; (d) If Lessee, except as permitted in Paragraph 11 above, without Lessor's prior written consent shall have attempted to remove, part possession with, sell transfer, encumber, assign or sublet the Equipment or Lessee's interest under this Lease; or if Lessee shall have attempted to convert any interest of Lessor arising under this Lease or any purchase order, or resulting from the purchase of Equipment; (e) If Lessee shall encumber, without Lessor's prior written consent, other than for valid business purposes during the normal course of business with respect to license agreements or similar agreements, sell, transfer or assign, except as permitted in Paragraph 11 above, Lessee's rights, title and interest in all patents, patent applications, invention disclosures, copyrights, copyright applications, trademarks (including service marks), trademark registrations, trade names, computer software and hardware, microcode and source code, trade secrets, know-how and processes owned by Lessee (hereinafter referred to as "Intellectual Property"); (f) If any of Lessee's credit or financial information submitted to Lessor prior or subsequent to execution of this Lease (including but not limited to due diligence materials, Financial Statements and Additional Information) contains any misstatement or false statement of a material fact, or fails to state therein any material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading; (g) The inability of Lessee to pay debts when due, or the insolvency of Lessee or the commission by Lessee of any act of bankruptcy as defined in the Federal Bankruptcy Act as amended; (h) If any single finally adjudicated judgement for payment of money damages in excess of twenty- five thousand dollars ($25,000.00), or aggregate judgments for 10. 11 payment of money damages in excess of fifty thousand dollars ($50,000.00), shall be rendered against Lessee and shall remain undischarged for a period of sixty (60) days, during which period execution shall not effectively stayed; (i) If any substantial part of Lessee's property shall remain subjected to any levy, seizure, involuntary assignment, attachment, application or sale for or by any creditor or governmental agency; (j) If any single indebtedness of Lessee exceeding the sum of twenty-five thousand dollars ($25,000.00), or aggregate indebtedness exceeding the sum of fifty thousand dollars ($50,000.00), under any other lease or contract for the borrowing of money or on account of the deferred purchase price of property shall be accelerated, or subject to acceleration upon the giving of notice, passage of time or both as a result of a default by Lessee; (k) If an order, judgement or decree shall be entered by any court having jurisdiction for (i) relief in respect of Lessee in an involuntary case under any applicable bankruptcy, insolvency or other similar law (as now or hereafter in effect), (ii) appointing of receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) for Lessee or for any substantial part of its property, or sequestering any substantial part of the property of Lessee, or (iii) liquidating of Lessee's affairs, and any such order, judgement or decree shall remain in force undismissed, unstayed or unvacated for a period of sixty (60) days after the date of entry thereof; or if Lessee shall seek relief of any kind under any such law or consent to any of the foregoing; or (l) Nonperformance of any of Lessee's obligations other than those described in this Paragraph 24, and such nonperformance shall continue for a period of 15) days after notice thereof is given to Lessee. 25. REMEDIES. In the event of any default by Lessee and while such default is continuing, or upon termination prior to the expiration of this Lease, Lessor or its agent shall have the right, without demand or prior notice, in Lessor's sole discretion, to exercise any one or more of the following remedies in addition to any other remedies available to Lessor under applicable law: (a) To declare the entire amount of rent hereunder during the remainder of the Lease Term immediately due and payable; (b) To enforce Lessee's performance or recover damages for Lessee's default as specified in Paragraph 26; (c) To take possession of any or all items of Equipment and, in Lessor's sole discretion, with or without any court order or other process of law. This Lease shall terminate if all defaults on the part of Lessee are not cured within five (5) days after such taking of possession; however, such taking of possession and termination of this Lease shall not relieve Lessee of its obligations to pay rent and other amounts due hereunder. Lessee waives any and all damages occasioned by such taking of possession. 11. 12 (d) To pursue any and all remedies available at law by reason of Lessee's default. 26. DAMAGES. Lessor's damages, in the event of default by Lessee, shall include without limitation: (i) the unpaid balance of rent and all other amounts due and to become due hereunder, discounted to present value at then current Treasury Bill rate, (ii) the Residual Value (as defined in Paragraph 22), discounted to present value at the then current Treasury Bill rate,, (iii) indemnification for any Loss of Tax Benefits under Paragraph 20, (iv) costs of repossession and repairs and lease or sale to a third party, plus (v) all other expenses including court cost and attorney fees. Lessor's obligation to mitigate said damages shall be limited as follows: (a) Lessor shall make best efforts to mitigate its damages by re-leasing the Equipment to a third party, and any rentals received in consideration for such third party's use of said Equipment during any period of the Lease Term shall be applied only to that portion of Lessor's damages resulting from loss of rentals that Lessor would have received from Lessee during the same period had Lessee not become in default. Amounts received from such third party shall be applied in mitigation of Lessor's damages only to the extent such amounts are payable in connection with such third party's periodic rental obligations as specified in the preceding sentence; in no event shall any other amount received from such third party, including without limitation as a security deposit or as an advance on periodic rental obligations, be applied in mitigation of Lessor's damages hereunder. (b) Lessor shall have no obligation to sell any of the Equipment; however, any amounts received from a sale to a third party shall be applied to Lessor's damages as specified in this paragraph 26. 27. CHOICE OF LAW. THIS LEASE SHALL BE DEEMED TO HAVE BEEN MADE AND ACCEPTED AND PERFORMED IN THE COUNTY OF SAN FRANCISCO, IN THE STATE OF CALIFORNIA, WHERE THE LESSOR'S PRINCIPAL PLACE OF BUSINESS IS LOCATED. THIS LEASE AND ALL TRANSACTIONS HEREUNDER, AND ALL RIGHTS AND LIABILITIES OF THE PARTIES HERETO, SHALL BE DETERMINED AND GOVERNED AS TO THE VALIDITY, INTERPRETATION, ENFORCEMENT AND EFFECT BY THE LAWS OF THE STATE OF CALIFORNIA. THE LESSEE HEREBY CONSENTS, IN ALL ACTIONS AND PROCEEDINGS ARISING DIRECTLY OR INDIRECTLY FROM THIS LEASE, TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR ANY STATE COURT LOCATED WITHIN SAN FRANCISCO COUNTY IN THE STATE OF CALIFORNIA. 28. MISCELLANEOUS. (a) If more than one Lessee is named in or added to this Lease, the liability of each shall be joint and several. (b) The rent shall not abate by reason of termination of Lessee's right of possession and/or the taking of possession by Lessor, or for any other reason. 12. 13 (c) All notices related hereto shall be mailed to Lessor or Lessee at its respective address as specified on page one of this Lease, or at such other address as either party may designate upon ten days written notice to the other party. (d) Paragraph titles are solely for convenience and are not an aid in the interpretation of this Lease. (e) A representative of Lessor shall have the right to meet with Lessee's Chief Executive Officer and Chief Financial Officer once per quarter throughout the lease term, to discuss the operating performance and financial condition of the Company. 29. RIGHT OF FIRST OFFER. During the lease term, Lessee shall provide Lessor with all requests for additional debt financing prior to the time that such requests are provided to other financing sources. Should Lessor and Lessee fail to agree within ten (10) days on the terms and conditions of such financing, then Lessee may accept a funding source other than Lessor. 30. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee shall fail duly and promptly to perform any of its obligations under this Lease, Lessor may, at its option and at any time, perform the same without waiving any default on the part of Lessee, or any of Lessor's rights. Lessee shall reimburse Lessor, within five (5) days after notice thereof is given to Lessee, for all expenses and liabilities incurred by Lessor in the performance of Lessee's obligations. 31. NONWAIVER. Lessor's failure at any time to require strict performance by Lessee shall not constitute waiver of, or diminish, Lessor's right to demand strict compliance with any provision of this Lease. Waiver by Lessor of any default shall not constitute waiver of any other default. Lessor's rights are cumulative and not alternative. 32. SURVIVAL OF OBLIGATIONS. All agreements, covenants, representations and warranties of Lessee contained in this Lease or in the Schedules or other documents delivered pursuant hereto or in connection herewith shall survive the execution and delivery, and the expiration or other termination of this Lease. 33. SEVERABILITY. If any provision or remedy herein provided is determined invalid under applicable law, such provision shall be inapplicable and deemed omitted; but the remaining provisions, including remaining default remedies, shall be given effect in accordance with their manifest intent. 34. WARRANTS. As an inducement to Lessor to enter into the Lease, Lessee grants to Lessor the right to purchase, at a price per share set forth in the Warrant (as hereinafter defined), 60,750 shares of Lessee's Series B Preferred Stock, pursuant to a definitive Warrant dated as of November ___, 1992 attached hereto as Exhibit B (the "Warrant"). If, for any reason, the total cost to Lessor under the Lease should exceed the Master Lease Line, as specified on page 1 of the Lease, Lessor shall have the right to purchase from Lessee, at the price per share specified in the preceding sentence, an additional number of shares obtained by dividing (i) the product of (A) the amount by which the total Cost to Lessor exceeds the Master Lease Line multiplied by (B) the number of shares specified in the preceding sentence, by (ii) the Master Lease Line. 13. 14 35. UPGRADES, ADDITIONS AND ATTACHMENTS. Any added memory, upgrades, additions and attachments to Equipment previously placed under this Lease shall, upon approval by Lessor, be included on a Schedule, with a Noncancellable Term that is co-terminus with the Equipment to which such added memory, upgrade, addition or attachment is being attached. 36. ENTIRE AGREEMENT. This instrument constitutes the entire agreement between the parties and may not be modified except in writing executed by Lessor and Lessee. No supplier or agent of Lessor is authorized to bind Lessor or to waiver or modify any term of this Lease. The undersigned representative of Lessee affirms that he or she has read and understood this Lease and is duly authorized to execute this Lease on behalf of Lessee and that, if Lessee is a corporation, this Lease is entered into with consent of Lessee's Board of Directors and stockholders if so required. In witness whereof, the parties hereto execute this noncancellable Lease as of the effective date. LESSEE: LESSOR: BIOSTAR, INC. DOMINION VENTURES, INC. By: /s/ Teresa W. Ayers By: ------------------------- -------------------------- 14. EX-10.84 30 NET LEASE AGREEMENT 1 NET LEASE AGREEMENT THIS LEASE entered into this 1th day of September, 1992, by and between NATIONWIDE LIFE INSURANCE COMPANY (hereinafter referred to as Lessor), and BIOSTAR, INC. (hereinafter referred to as Lessee). WITNESSETH: I. PREMISES Lessor hereby leases to Lessee and Lessee hereby leases from Lessor upon the terms and conditions as hereinafter set forth those certain premises (hereinafter referred to as "Premises"), with all appurtenances thereto situated in the County of Boulder and the State of Colorado, and more specifically described as follows: 6655 Lookout Road Boulder, CO 80301 II. TERM OF LEASE The term of this Lease shall extend from twelve o'clock noon on the 1st day of November, 1992, until twelve o'clock noon on the 1st day of May, 1998, unless terminated sooner as hereinafter provided. III. RENTAL Lessee hereby agrees to pay to Lessor for the full term hereof the sum of - See Additional Provisions, Paragraph XXXII, Rental Schedule - payable in equal monthly installments of _______________ ($_____) in advance on the first day of each month during said term without demand at the offices of said Lessor located at c/o Irwin & Hendrick, Ltd., 2299 Pearl Street, Suite 400, Boulder, Colorado 80302 (or at such other place as Lessor may designate in writing from time to time) without any set off or deduction whatsoever. Receipt is hereby acknowledged of the sum of $0 for rental from the commencement date through - N/A -. Said payments shall be in lawful money of the United States, which shall be legal tender in payment of all debts and dues, public and private, at the time of payment. If said payment is not received at Lessor's office by the 10th of each month or on the first business day after a weekend where the 10th is a Saturday or Sunday, a late fee of $500.00 will be charged by Lessor. If the term herein commences on a day other than the first day of a calendar month, then the Lessee shall pay to the Lessor the rental for the number of days in that month during which the Lease is in effect, with a similar adjustment being made at the termination of this Lease. IV. OPTION TO RENEW Lessee shall have the option to extend the term of this Lease for two additional terms, each for a period of sixty additional months following expiration of the initial term or the extended term, as the case may be. Tenant shall give notice of exercise of its option to Landlord 1. 2 at least three (3) months, but not more than six (6) months, before expiration of the initial term or the extended term, as the case may be. If Tenant is in default on the date of giving notice of exercise of option or on the date any extended term is to commence, the extended term shall not commence and this Lease shall expire at the end of the then existing initial term or extended term. Such extended term shall be on the terms and conditions of this Lease, except for the base rent provided herein. Base rent shall be the mutually agreed on market rate at that time, not to exceed $23,080.63 per month plus the Consumer Price Index increase for the prior sixty-six (66) months of this lease. V. SECURITY DEPOSIT The Lessee, concurrently with the execution of this Lease, has deposited with the Lessor and will keep on deposit at all times during the term of the Lease, the sum of $23,000.00, the receipt of which is hereby acknowledged as security for the faithful performance of all the terms, conditions and covenants of this Lease. If, at any time during the term of this Lease, the Lessee shall be in default in the performance of any of the provisions of this Lease, the Lessor shall have the right to use the said deposit, or as much thereof as the Lessor may deem necessary to cure, correct or remedy any such defaults; and the Lessee, upon notification thereof, shall forthwith pay to the Lessor any and all such expenditure or expenditures so that the lessor will at all times have the full amount of said deposit as security. This security deposit and application thereof shall not be considered as liquidated damages in the event of breach but only as an application toward actual damages. Upon the termination of this Lease in any manner, if the Lessee be not then in default, the above deposit or so much thereof as has not been lawfully expended by the Lessor, shall be returned to the Lessee, without interest. In case of sale of Premises by the Lessor, the deposit currently held by Lessor shall be transferred to the new Landlord and Lessor shall have no further liability to Lessee for same. VI. USE OF PREMISES Lessee shall have the right to use and occupy the premises for Office, R&D, Light Manufacturing. Any other use shall be permitted only with the prior written consent of the Lessor. The Lessee covenants throughout the term of this Lease, at Lessee's sole cost and expense, to promptly comply with all laws and ordinances and the orders, rules, regulations and requirements of all federal, state and municipal governments and appropriate departments, commissions, boards and officers thereof including but not limited to the Americans with Disabilities Act and all rules promulgated pursuant thereto. VII. PAYMENT OF TAXES; COMMON AREA EXPENSES; AND INSURANCE The Lessee covenants and agrees to pay, or cause to be paid, before any fine, penalty, interest or cost may be added thereto, all license and franchise taxes of the Lessee, all personal property taxes, water rents, sewer rents and charges levied and other governmental charges (which are hereinafter referred to as "Taxes") which are assessed, imposed or become a lien upon the Premises or the contents, or become payable during the term of this Lease. Any such Taxes falling due during the year of commencement or termination of the term of this Lease shall 2. 3 be apportioned between the Lessor and Lessee as of the date of said commencement or termination. All expenses, including real estate taxes, common area maintenance and building insurance as each relates to the Premises shall be estimated and billed on a monthly basis with an annual adjustment being made to make up any difference between the estimated and actual expenses. An itemized statement of will be provided. VIII. INSURANCE Insurance shall be provided for in the following manner: 1. Lessor shall obtain and bill Lessee for fire and extended coverage insurance covering the Premises against loss or damage by fire and against loss or damage by other risks now or hereafter embraced by "Extended Coverage," vandalism, malicious mischief, special extended perils, (all risk) and sprinkler leakage, together with an endorsement reflecting that rental loss insurance is in force, in an amount equal to the replacement value of the premises provided that such amounts are sufficient to prevent Lessor or Lessee from becoming a co-insure under the terms of the applicable policies. 2. Lessee shall carry and pay for comprehensive public liability insurance including property damage and Workman's Compensation insurance, insuring Lessor and Lessee against liability for injury to persons or property occurring in or about the Premises leased by Lessee or arising out of the ownership, maintenance, use occupancy thereof. The liability under such insurance shall not be less than $500,000.00 for any one person injured or killed and not less than $1,000,000.00 for any one accident and not less than $100,000.00 for personal property damage per accident. All insurance required by virtue of this paragraph shall be written with an insurance company licensed to do business within the State of Colorado and with an insurance company approved by the Lessor (which approval shall not be unreasonably withheld). The Lessee shall provide the Lessor with the original insurance policies or a Certificate of Insurance (with proof of payment of premium therefore) which shall provide that the insuring company shall give notice in writing to the Lessor 30 days prior to cancellation, expiration, or modification of such insurance for any reason whatsoever. Any proceeds shall provide by endorsement that any loss shall be payable to Lessor. The Lessor and Lessee mutually release each other and waive all claims from any all liability or responsibility (to the other or anyone claiming through or under them by way of subrogation or otherwise) for any loss or damage to property caused by fire or any other casualties, even if such fire or other casualty shall have been caused by the fault or negligence of the other party or anyone for whom such party may be responsible to the extent that such loss or damage is covered by insurance or is required to be covered by Insurance under the terms of this lease. 3. 4 IX. UTILITIES Lessee shall promptly pay all deposits and charges for water, heating, gas, electricity and other public utilities used on the Premises. If Lessee shall fail to pay any utilities as required above, Lessor may, at its option, pay such utilities (without affecting any other remedy available to the Lessor) on account of Lessee and the same shall be deemed to be owed as additional rental hereunder and shall be due on the date payment is made by Lessor. X. NET LEASE Subject to Additional Provisions #2 and #3, the Lessee has inspected the Premises and accepts the same in their present condition. This Lease is intended to be a pure net Lease to the Lessor except for real estate taxes, hazard insurance, maintenance and governmental capital improvements required, who shall have no obligation of any kind, unless otherwise, stipulated, to make any expenditures upon the Premises. It is intended that the Lessee shall throughout the term of this Lease, at its own costs and expense, put, keep and maintain the Premises in good, substantial and sufficient condition, repair and order, including but not limited to floors, walls, landscaping, parking and lighting thereon or adjoining or in front of the demised Premises and all connections with the street, water, electric, gas mains and sewers and air conditioning and heating apparatus, boilers and machinery and such other fixtures used in connection with the operation of the Premises, including glass and any replacements made by the Lessee. Lessee covenants that it will not permit, commit or suffer waste, impairment or deterioration of the Premises or the improvements thereon or any part thereof, reasonable wear and tear excepted. Landlord shall be responsible for the maintenance of the structural walls and the roof of the property. XI. ASSIGNMENTS AND SUBLETTING Neither this Lease nor any interest herein may be assigned by the Lessee, voluntarily or involuntarily, by operation of law or otherwise, and neither all nor any part of the Premises shall be subleased by the Lessee without the written consent of the Lessor first obtained; however, Lessor agrees not to withhold its consent unreasonably for Lessee to assign this Lease or sublet the Premises. Any consent to assignment or subletting given by the Lessor shall not constitute a waiver of the necessity for such consent to a subsequent assignment or subletting. Notwithstanding any assignment or sublease, Lessee shall remain fully liable under the terms and conditions of this Lease and shall not be released from performing any of the terms, covenants and conditions. Any sublease or assignee shall specifically be responsible for (in addition to the Lessee) all payments, conditions, covenants and agreements in this Lease. XI. LIABILITY OF LANDLORD Lessor, its employees and agents shall not be liable to Lessee, any invitee or any other person or entity for any damage (including indirect and consequential damage), injury, loss or claim (including claims for the interruption of or loss to business) based on or arising out of any cause whatsoever (except as otherwise provided in this Article), including without limitation the following: repair to any portion of the Premises; interruption in the use of the Premises or any equipment therein; any accident or damage resulting from any use or operation (by Lessor, 4. 5 Lessee or any other person or entity of elevators or heating, cooling, electrical, sewerage, or plumbing or mechanical equipment or apparatus; termination of this Lease by reason of mysterious disappearance or any other casualty; actions of any other tenant of the Building or of any other person or entity; failure or inability to furnish any service specified in this Lease; and leakage in any part of the Premises from water, rain, ice, snow or other cause that may leak into, or flow from, any part of the Premises, or from drains, pipes or plumbing fixtures in the Premises. If any condition exists which may be the basis of a claim of constructive eviction, then Lessee shall give Lessor written notice thereof and a reasonable opportunity to correct such condition, and in the interim Lessee shall not claim that it has been constructively evicted or is entitled to a rent abatement. Any property placed by Lessee in or about the Premises shall be at the sole risk of Lessee, and Lessor shall not in any manner be responsible therefor. Notwithstanding the foregoing provisions of this Section, Landlord shall not be released from liability to Lessee for any physical injury to any natural person caused by Lessor's negligence to the extent such injury is not covered by insurance (a) carried by Lessee or such person, or (b) required by this Lease to be carried by Lessee. Lessee shall reimburse Lessor for, and shall indemnify, defend upon request and hold Lessor, its employees and agents harmless from and against, all costs, damages, claims liabilities, expenses (including attorney's fees), losses and court costs suffered by or claimed against Lessor, directly or indirectly, based on or arising out of, in whole or in part, (a) use and occupancy of the Premises or the business conducted therein, (b) any act or omission of Lessee or any invitee, (c) any breach of Lessee's obligations under this Lease, including failure to surrender the Premises upon the expiration or earlier termination of the term of this Lease. If any Landlord hereunder transfers the Building or such Landlord's interest therein, then such Landlord shall not be liable for any obligation or liability based on or arising out of any event or condition occurring after such transfer. Lessee shall attorn to such transferee and, within five (5) days after such transferee's request, shall execute, acknowledge and deliver any document submitted to Lessee confirming such attornment. Lessee shall not have the right to offset or deduct any amount allegedly owed to Lessee pursuant to any claim against Lessor for any rent or other sum payable to Lessor. Lessee's sole remedy for recovering upon such claim shall be to institute an independent action against Lessor. If Lessee or any invitee is awarded a money judgment against Lessor, then recourse for satisfaction of such judgment shall be limited to execution against Lessor's estate and interest in the Building in which the premises are located. No other asset of Lessor, any employee, director or officer of Lessor or any other person or entity shall be available to satisfy such judgment, nor shall Lessor, any employee, director or officer of Lessor or another person or entity have personal liability for satisfaction of any such claim or judgment. The provisions of this Article XII shall survive termination of this Lease. XIII. OCCUPATIONAL SAFETY AND HEALTH ACT Lessee shall fully comply with the Occupational Safety and Health Act of 1970 (chapter XVII, Title XIX of the United States Code) (OSHA) or applicable state statute adopted pursuant 5. 6 to OSHA. It shall be Lessee's obligation to fully comply with the provisions and standards as contained in said Act, and the Lessee shall hold Lessor harmless from any obligations or responsibilities, if any, created under said OSHA or applicable state statute. XIV. MAINTENANCE AND ALTERATIONS TO PREMISES The Lessee shall have the right to make changes or alterations to the building on the Premises; provided, however, that any such changes or alterations shall be made in all cases subject to the following conditions, which Lessee agrees to observe and perform: 1. No change or alteration shall at any time be made which shall impair the structural soundness or diminish the value of the building on the Premises. 2. No change or alteration shall be made involving an expenditure in excess of $5,000.00 without the written consent of the Lessor. 3. No change or alteration shall be undertaken until Lessee shall have procured and paid for all required municipal and other governmental permits and authorizations of the various municipal departments and governmental subdivisions having jurisdiction. 4. All work done in connection with any change or alteration shall be done in a good workmanlike manner and in compliance with the building and zoning laws, and with other laws, ordinances, order, rules, regulations and requirements of all federal, state and municipal governments and the appropriate departments, boards and officers thereof, including, but not limited to, local and state building codes and the Americans with Disabilities Act. 5. At all times when any change or alteration is in progress, there shall be maintained at Lessee's expense Workmen's Compensation insurance in accordance with law governing all persons employed in connection with the change or alteration builders risk insurance and general liability insurance for the mutual benefit of the Lessor and Lessee, expressly covering the additional hazards due to the change or alteration. It is understood that no one shall have any lien or claim against the Lessor his interest in the Premises on account of any such improvement or alteration for work done or supplies furnished at the insistence of the Lessee. Prior to the construction of any improvements, the repair or restoration of any improvements, or any work to be done upon the Premises which shall exceed $5,000.00, the Lessee shall furnish evidence of ability to pay for the work which is to be performed at the Premises, and shall prepare and deliver to Lessor for Lessor's signature, the notice of the fact that Lessor's interest is not subject to liens as described in Section 38-22-105 (2) C.R.S. 1973. XV. CONDEMNATION 1. COMPLETE TAKING. If, during the term of this Lease, or any extension hereof, the whole or substantially all of the Premises shall be taken as a result of the exercise of the power of eminent domain, this Lease shall terminate as of the date of vesting of title of the Premises or delivery of possession, whichever event shall first occur, pursuant to such proceeding. For the purpose of this Article XIV "substantially all of the Premises" shall be deemed to have taken if a 6. 7 taking under any such proceeding shall involve such an area, whether the area be improved with building or be utilized for parking area or for other use, that Lessee cannot reasonably operate in the remainder of the Premises the business being conducted on the Premises at the time of such proceeding. 2. PARTIAL TAKING. If, during the term of this Lease, or any extension hereof, less than the whole or less than substantially all of the Premises shall be taken in any such proceeding, this Lease shall not terminate. The rent thereafter due and payable by Lessee shall be reduced in such proportion as the nature, value and extent of the part so taken bears to the whole of the Premises. Lessor shall, from the proceeds of the condemnation, restore the Premises for the use of the Lessee. 3. AWARD. All awards, damages and other compensation paid by such authority on account of any condemnation shall belong to Lessor, and Lessee assigns to Lessor all rights to such awards, damages and compensation. Lessee shall not make any claim against the condemning authority for any portion of such award, damages or compensation attributable to damage to leasehold improvements or severance damages. Nothing contained herein, however, shall prevent Lessee from pursuing a separate claim against the authority for the value of furnishings and trade fixtures installed in the Premises at Lessee's expense and for relocation expenses, provided that such claim is stated separately from any award to Lessor and provided further that such claim shall in no way diminish the award, damages, or compensation otherwise payable to Lessor in connection with such condemnation. XVI. DESTRUCTION OF PREMISES In the event the premises are damaged or rendered wholly or partially unusable by fire, flood, windstorm, explosion or any other casualty, then the rights and obligations of the parties shall be as follows: If Lessor does not terminate the lease, Lessor shall promptly repair or replace the damaged premises, and if reasonably possible the repair or replacement shall be completed within 120 days from date of the damage. In the event the repairs or replacements are not completed, within 120 days, the Lessee may terminate the lease. Rent shall not be abated unless more than 30 percent of the interior floor space in the Premises is rendered untenantable and the total repairs are not completed in 30 days, in which event there shall be an abatement of rent in proportion to the portion of the interior floor space rendered untenantable. In no event shall there be an abatement of rent if the damage is caused by any casualty on the Premises as a result of acts or omissions of the Lessee. The parties recognize that the Lessee on most occasions will be storing valuable materials and equipment within the premises. In the event the Premises are so damaged by such casualty that Lessee's property would be endangered by exposure to the elements, and in the further event that Lessee desires to complete emergency repairs and the restoration of any alterations to the Premises occasioned by emergency repairs shall also be borne by the Lessee. Lessor shall have no obligation to make such emergency repairs nor any liability for damage directly or indirectly caused to Lessee's property by such casualty. If the damage to the Premises or the building are so extensive that Lessor determines, in his reasonable judgement, not to rebuild the Premises, 7. 8 then Lessor may terminate this Lease by sending written notice to Lessee within thirty (30) days from the date of casualty. XVII. DEFAULT PROVISIONS The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Lessee: 1. The Lessee failing to pay the rent herein reserved or the Lessee failing to make any other payments required to be made by Lessee when due, where such failure shall continue for a period of five (5) days. 2. The Lessee failing to perform or keep any of the other terms, covenants and conditions herein contained for which it is responsible, and such failure continuing and not being cured for thirty (30) days after written notice by Landlord. 3. The Lessee abandoning the Premises. 4. The Lessee being adjudicated as bankrupt or insolvent or the Lessee filing in any court a petition in bankruptcy or for reorganization or for the adoption of any arrangements under the Bankruptcy Act (as now or in the future amended) or the filing of any involuntary bankruptcy against the Lessee (unless said involuntary bankruptcy is terminated within thirty (30) days from the date of said filing), or the Lessee filing in any court for the appointment of a receiver or trustee for all or a portion of the Lessee's property or there being appointed, unless said receiver or trustee is terminated within thirty (30) days form the date of said appointment. 5. The Lessee making any general assignment or general arrangement of its property for the benefit of its creditors. In the event of an occurrence of default as set forth above, the Lessor shall have the right to: (1) Terminate this Lease and end the term hereof by giving to Lessee written notice of such termination, in which event Lessor shall be entitled to recover from Lessee the amount of rent reserved in the Lease for the then balance of the term. (2) Without resuming possession of the Premises or terminating this Lease to sue monthly for and recover all rents, other required payments due under this Lease and other sums including damages and legal fees at any time and from time to time accruing hereunder. (3) Upon notice, re-enter and take possession of the Premises or any part thereof and repossess the same as of Lessor's former real estate and expel the Lessee and those claiming through or under the Lessee and remove the effects of both or either (forcibly if necessary) without being deemed guilty in any manner of trespass and without prejudice to any remedies for arrears of rent or preceding breach of covenant, in which event Lessor may from time to time without terminating this Lease relet the Premises or any part thereof for such term or terms and at such rental or rentals and upon such other terms and conditions as Lessor may deem advisable, with the right to make alterations and repairs to the Premises, and such re-entry or taking 8. 9 possession of the Premises by Lessor shall not be construed as an election of Lessor's part to terminate this Lease unless a written notice of termination be given to Lessee or unless the termination thereof be decreed by a court of competent jurisdiction. In the event of Lessor's election to proceed under this subparagraph 3, then such repossession shall not relieve Lessee of its obligation and liability under this Lease, all of which shall survive such repossession, and Lessee shall pay to Lessor as current liquidated damages the basic rental and additional rental or other sums hereinabove provided which would be payable hereunder if such repossession had not occurred, less the net proceeds (if any) of any reletting of the Premises after deducting all of Lessor's expenses in connection with such reletting, including but without limitation all repossession costs, brokerage commissions, legal expenses, attorney's fees, expenses of employees, alteration costs to the premises as Lessor deems appropriate and expenses of preparation for such reletting. Lessee shall pay such current damages to Lessor on the days on which the basic rent would have been payable hereunder if possession had not been retaken and Lessor shall be entitled to receive the same from Lessee on each such day. XVIII. INTEREST ON PAST DUE OBLIGATIONS Any amount due to Lessor not paid when due shall bear interest at the rate of two percent (2%) per month from the date due; provided, however, that any such payments of interest shall not excuse or correct any default by the Lessee under this Lease. XIX. HOLD OVER In the event the Lessee remains in possession of the Premises or any part thereof subsequent to the expiration of the term thereof and such holding over shall be with the consent of the Lessor, it shall be conclusively deemed that such possession and occupancy shall be a tenancy from month-to-month only, at a rental which is twice the rental existing at the end of the term hereof and, further, such possession shall be subject to all of the other terms and conditions of this Lease. XX. SUBORDINATION AND ESTOPPEL LETTER This Lease is subject and subordinate to all mortgages and deeds of trust which now or hereafter may affect the Premises, and Lessee will execute and deliver upon demand of Lessor any and all instruments desired by Lessor subordinating this Lease in the manner requested by Lessor to any new or existing mortgage deed of trust. Further, Lessee shall at any time and from time to time, upon not less than ten (10) days prior written notice from Lessor, execute, acknowledge and deliver to Lessor a statement in writing certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and effect) and the dates to which rental and other charges are paid in advance, if any, and acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of the Lessor hereunder, or specifying such defaults, if any, are claimed. XXI. SURRENDER OF PREMISES Upon the expiration or termination of the term of this Lease, Lessee shall peaceably and quietly leave and surrender the Premises in as good condition as they are now, ordinary wear and 9. 10 tear excepted. Lessee shall surrender and deliver up the building and Premises broom-clean and free of Lessee's property. Provided the Lessee is not in default, it shall have the right to remove all of its fixtures, equipment, machinery and other personal property, provided that upon such removal the Premises are delivered in the same condition as existed at the time of commencement of this Lease. Further, in the event the Lessee does not remove any of its own fixtures, equipment, personal property or any additions or alterations made to the Premises during the term of this Lease, the Lessor may, at its option, require the Lessee to remove any such improvements, alterations, fixtures and equipment and restore the Premises to the conditions as existed at the commencement of the Lease, or retain the same. XXII. NOTICES All notices, demands and requests required to be given by either party to the other shall be in writing. All notices, demands and requests shall either be hand delivered or shall be sent by certified or registered mail, return receipt requested, postage prepaid, addressed to the parties at the addresses set forth below or at such other addresses as the parties may designate in writing delivered pursuant to the provisions hereof. Any notice when given as provided herein shall be deemed to have been delivered on the date personally served or three (3) days subsequent to the date that said notice was deposited with the United States Postal Service. LESSOR: Ms. Jeri L. Edwards Mr. Dan A. Hendrick Nationwide Insurance Company Irwin & Hendrick, Ltd. One Nationwide Plaza 2299 Pearl Street, Suite 400 Columbus, OH 43216 Boulder, CO 80302 LESSEE: Mr. B. John Miller BioStar, Inc. 6655 Lookout Road Boulder, CO 80301
XXIII. TIME OF THE ESSENCE Time is of the essence hereof. XXIV. QUIET ENJOYMENT The Lessor represents and warrants that: 1. The Lessor has the right to enter into and make this Lease. 2. The Lessee, upon paying the rent herein reserved and upon performing all of the terms and conditions of this Lease on its part to be performed, shall at all times during the term herein demised peacefully and quietly have, hold and enjoy the Premises. 3. To Lessors knowledge the Premises are now free from all encumbrances except mortgages of record and those items that do not affect the contemplated use of the Premises. However, the Lessee accepts the Premises subject to all zoning ordinances and regulations pertaining to the Premise, without responsibility or warranty by the Lessor. 10. 11 XXV. RIGHT TO INSPECT OR SHOW PREMISES The Lessor, or Lessor's agent and representative, shall have the right to enter into and upon the Premises or any part thereof at all reasonable hours for the purpose of examining the same. The Lessor, or Lessor's agent and representative, shall have the right to show the Premises to persons wishing to purchase or lease the same at reasonable hours. During the 90-day period prior to the expiration of this Lease, the Lessor, or Lessor's agent and representative, shall have the right to place the usual "to let" or "for sale" notices on the Premises, and the Lessee agrees to permit the same to remain thereon without hindrance or molestation. XXVI. MISCELLANEOUS 1. This Lease has been executed and delivered in the State of Colorado and shall be construed in accordance with the laws of the State of Colorado. 2. The parties mutually agree that the headings and captions contained in this Lease are inserted for convenience of reference only and are not to be deemed part of or to be used in construing this Lease. 3. The covenants and agreements herein contained shall be binding upon and inure to the benefit of the Lessor, its personal representatives, heirs, successors and assigns, and the Lessee, its personal representatives, heirs, successors and assigns. 4. Words of any gender used in this Lease shall be held to include any other gender, and words in the singular shall be held to include the plural, when the sense requires. 5. All pronouns and any variation thereof shall be deemed to refer to the neuter, masculine, feminine, singular an plural as the identity of the Lessor or Lessee requires. XXVII. NO WAIVER No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to or approval of any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at time of acceptance of such rent. XXVIII. ATTORNEY'S FEES In case suit shall be brought to enforce any provisions of this Lease, the prevailing party shall (in addition to other relief granted) be awarded all reasonable attorneys' fees and costs resulting from such litigation. 11. 12 XXIX. MEMORANDUM OF LEASE Either Party, upon request from the other party, shall execute in recordable form a short form Memorandum of Lease, which Memorandum of Lease shall only contain the names of the parties and the dates of commencement and termination of the term of this Lease (or any options which may be granted hereunder), and the legal description of the Premises. XXX. CONSUMER PRICE INDEX RENTAL ADJUSTMENT [INTENTIONALLY OMITTED] XXXI. TRIAL WAIVER Lessor, Lessee, guarantors and general partners of Lessee waive trial by jury in any action, claim or counterclaim brought in connection with any mater arising out of or in any way connected with this Lease, the Landlord- Tenant relationship, Lessee's use or occupancy of the premises or any claim of injury or damage. XXXII. ADDITIONAL PROVISIONS 1. BASE RENTAL SCHEDULE November 1, 1992 - April 30, 1993 $0 Per Month May 1, 1993 - April 30, 1994 $23,080.63 Per Month May 1, 1994 - April 30, 1995 $23,773.04 Per Month May 1, 1995 - April 30, 1996 $24,486.24 Per Month May 1, 1996 - April 30, 1997 $25,220.82 Per Month May 1, 1997 - April 30, 1998 $25,977.45 Per Month
*Note: Lessee shall pay net expenses during the six month free rent period. The six month free rent period shall begin at such time BioStar occupies any portion of the building. The above rental schedule shall adjust accordingly if occupancy is before or after November 1, 1992. 2. Lessor shall pay for the first $300,000 of tenant alteration. Lessee shall pay for any required tenant alteration costs above $300,000. The final alteration plans and contractor shall be mutually agreed upon. 3. Required fire sprinklers for the building shall not count as part of the $300,000 allowance and shall be the responsibility of the Lessor to have installed and pay for. /s/ Robert H. McNaghten - ------------------------------------------ --------------------------------- LESSOR: Nationwide Life Insurance Company LESSEE: BioStar, Inc. 12. 13 TABLE OF CONTENTS
PAGE I. Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 II. Term of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 III. Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 IV. Option to Renew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 V. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 VI. Use of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 VII. Payment of Taxes; Common Area Expenses; and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 VIII. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 IX. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 X. Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 XI. Assignments and Subletting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 XII. Liability of Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 XIII. Occupational Safety and Health Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 XIV. Maintenance and Alterations to Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 XV. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 XVI. Destruction of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 XVII. Default Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 XVIII. Interest on Past Due Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 XIX. Hold Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 XX. Subordination and Estoppel Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 XXI. Surrender of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 XXII. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 XXIII. Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 XXIV. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 XXV. Right to Inspect or Show Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 XXVI. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 XXVII. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 XXVIII. Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 XXIX. Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 XXX. Consumer Price Index Rental Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
i. 14 TABLE OF CONTENTS (CONTINUED)
PAGE XXXI. Trial Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 XXXII. Additional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ii. 15 AGREEMENT This agreement relates to the Net Lease Agreement dated September 10, 1992 between Nationwide Insurance Company (Lessor) and BioStar, Inc. (Lessee). Due to the extended construction time needed for Tenant Improvements, the commencement and termination dates of this Lease shall be changed as follows: PARAGRAPH II. TERM OF LEASE Shall be changed to start on February 15, 1993 and terminate on August 31, 1998. PARAGRAPH XXXII. ADDITIONAL PROVISIONS
1. BASE RENTAL SCHEDULE -------------------- February 15, 1993 - August 15, 1993 $ -0- Per Month August 15, 1993 - August 31, 1994 23,080.63 Per Month September 1, 1994 - August 31, 1995 23,773.04 Per Month September 1, 1995 - August 31, 1996 24,486.24 Per Month September 1, 1996 - August 31, 1997 25,220.82 Per Month September 1, 1997 - August 31, 1998 25,977.45 Per Month
AGREED AND ACCEPTED THIS 12TH DAY OF FEBRUARY, 1993 LESSOR: NATIONWIDE LIFE LESSEE: BIOSTAR, INC. INSURANCE COMPANY /s/ Robert H. McNaghten /s/ Teresa W. Ayers - ------------------------------ ------------------------------ Robert H. McNaghten Vice President EX-10.85 31 LEASE AGREEMENT 1 EXHIBIT 10.85 AMENDMENT TO LEASES THIS AMENDMENT TO LEASES ("Amendment") is made this 8th day of September, 1997 between Clear Creek II, L.P. ("Lessor") and Cortech, Inc. ("Lessee"). WHEREAS, Lessor and Lessee have entered into a Standard Industrial Lease, dated May 14, 1993 for 6840 North Broadway, Suite A through I, Denver, Colorado 80221, containing approximately 15,650 square feet, a Standard Industrial Lease, dated April 10, 1995 pertaining to 6850 North Broadway, Suite D, containing approximately 3,990 square feet, a Standard Industrial Lease, dated October 1, 1993 pertaining to 6850 North Broadway, Suite E, containing approximately 5,070 square feet, a Standard Industrial Lease, dated April 2, 1992 pertaining to 6850 North Broadway, Suites F and G, containing approximately 7,850 square feet, a Standard Industrial Lease, dated January 12, 1994 pertaining to 6860 North Broadway, Suite A, containing 2,751 square feet, a Standard Industrial Lease, dated November 22, 1993 pertaining to 6860 North Broadway, Suite B, containing approximately 2,639 square feet, a Standard Industrial Lease dated April 1, 1993 pertaining to 6860 North Broadway, Suite C and D, containing approximately 5,700 square feet, a Standard Industrial Lease, dated January 5, 1994 pertaining to 6870 North Broadway, Suites K through M, containing approximately 4,870 square feet, a Standard Industrial Lease, dated March 5, 1993 pertaining to 6880 North Broadway, Suites A through C and H through L, containing approximately 11,975 square feet, and a Standard Industrial Lease, dated April 2, 1992 pertaining to 6880 North Broadway, Suites D through G, containing approximately 5, 570 square feet (the foregoing Standard Industrial Leases, and all addenda, amendments and other modifications thereto, shall be individually referred to as "Lease" and collectively referred to as the "Leases", to which reference should be made for all terms not otherwise herein defined); and WHEREAS, Lessor and Lessee desire to amend the Leases to provide for the current status of the Term of Leases and the option to further extend the Leases, as more fully herein set forth. NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. 6840 North Broadway. (a) Lessor and Lessee acknowledge that the Term of the Lease for 6840 North Broadway shall end on May 31, 1999. The Base Rent is currently $9,578.00 per month (based upon $7.34 per square foot per year) through May 31, 1998, and shall be $9,913.22 per month (based upon $7.60 per square foot per year) from June 1, 1998 to May 31, 1999. 2 (b) Lessee shall have the option to extend the Term of the Lease for 6840 North Broadway for one (1) additional period of two (2) years (June 1, 1999 to May 31, 2001) and one (1) additional period of three (3) years (June 1, 2001 to May 31, 2004) by providing written notice thereof at least one hundred and eighty (180) days prior to the commencement thereof. If Lessee exercises such option, the Term of the Lease shall be extended upon the same terms and conditions, except that the Base Rent shall be at the Market Rate (as hereinafter defined). 2. 6850 North Broadway. (a) Lessor and Lessee acknowledge that the Term of the Leases for 6850 North Broadway shall end on December 31, 1997. The Base Rent is currently $8,557.19 per month (based upon $6.07 per square foot per year) through December 31, 1997. (b) Lessee and Lessor acknowledge that Lessee is currently entitled to extend the Term of Leases for 6850 North Broadway for two (2) additional periods of one (1) year each (January 1, 1998 to December 31, 1998 and January 1, 1999 to December 31, 1999) with an increase in the Base Rent of three and one-half percent (3.5%) from the Base Rent payable during the calendar month immediately preceding the commencement of each such option, as provided in the Leases. In addition, Lessee shall have the option to extend the Term of the Leases for 6850 North Broadway for one (1) additional period of two (2) years (January 1, 2000 to December 31, 2001) and one (1) additional period of three (3) years (January 1, 2002 to December 31, 2004) by providing written notice thereof at least one hundred and eighty (180) days prior to the commencement thereof. If Lessee exercises such option, the Term of the Leases shall be extended upon the same terms and conditions, except that the Base Rent shall be at the Market Rate. 3. 6860 North Broadway. (a) Lessor and Lessee acknowledge that the Term of the Leases for 6860 North Broadway shall end on April 30, 1999. The Base Rent is currently $5,971.15 per month (based upon $6.46 per square foot per year) through April 30, 1998 and shall be $6,180.14 per month (based upon $6.69 per square foot per year) from May 1, 1998 to April 30, 1999. (b) Lessee shall have the option to extend the Term of the Leases for 6860 North Broadway for one (1) additional period of two (2) years (May 1, 1999 to May 1, 2001) and one (1) additional period of three (3) years (May 31, 2001 to April 30, 2004) by providing written notice thereof at least one hundred and eighty (180) days prior to the commencement thereof. If Lessee exercises such option, the Term of the Leases shall be extended upon the same terms and conditions, except that the Base Rent shall be at the Market Rate. -2- 3 4. 6870 North Broadway. (a) Lessor and Lessee acknowledge that the Term of the Lease for 6870 North Broadway shall end on December 31, 1997. The Base Rent is currently $2,578.25 per month (based upon $6.35 per square foot per year) through December 31, 1997. (b) Lessee and Lessor acknowledge that Lessee is currently entitled to extend the Term of Leases for 6870 North Broadway for two (2) additional periods of one (1) year each (January 1, 1998 to December 31, 1998 and January 1, 1999 to December 31, 1999), as provided in the Leases. The Base Rent for 1998 shall be $2,668.49 per month (based on $6.78 per square foot per year) and the Base Rent for 1999 shall be $2,840.83 per month (based on $7.00 per square foot per year). In addition, Lessee shall have the option to extend the Term of the Leases for 6870 North Broadway for one (1) additional period of two (2) years (January 1, 2000 to December 31, 2001) and one (1) additional period of three (3) years (January 1, 2002 to December 31, 2004) by providing written notice thereof at least one hundred and eighty (180) days prior to the commencement thereof. If Lessee exercises such option, the Term of the Lease shall be extended upon the same terms and conditions, except that the Base Rent shall be at the Market Rate. 5. 6880 North Broadway, Suites A-C and H-L. (a) Lessor and Lessee acknowledge that the Term of the Lease for 6880 North Broadway, Suites A-C and H-L, shall end on December 31, 1997. The Base Rent is currently $6,454.62 per month (based upon $6.47 per square foot per year) through December 31, 1997. (b) Lessor and Lessee acknowledge that Lessee is currently entitled to extend the Term of the Lease for 6880 North Broadway, Suites A-C and H-L, for one additional period of one (1) year (January 1, 1998 to December 31, 1998), as provided in the Leases. The Base Rent for 1998 shall be $6,676.06 per month (based upon $6.69 per square foot per year). Lessee shall have the option to extend the Term of the Lease for 6880 North Broadway, Suites A-C and H-L, for one (1) additional period of two (2) years (January 1, 1999 to December 31, 2000) and one (1) additional period of three (3) years (January 1, 2001 to December 31, 2003) by providing written notice thereof at least one hundred and eighty (180) days prior to the commencement thereof. If Lessee exercises the Renewal Option, the Term of the Lease shall be extended upon the same terms and conditions, except that the Base Rent shall be at the Market Rate. 6. 6880 North Broadway, Suites D-G. (a) Lessor and Lessee acknowledge that the Term of the Leases for 6880 North Broadway, Suites D-G, shall end on December 31, 1997. The Base Rent shall be $2,701.97 per month (based upon $5.82 per square foot per year) through December 31, 1997. (b) Lessee and Lessor acknowledge that Lessee is currently entitled to extend the Term of Leases for 6880 North Broadway, Suites D-G, for two (2) additional periods of one (1) year each (January 1, 1998 to December 31, 1998 and January 1, 1999 -3- 4 to December 31, 1999) as provided in the Lease. The Base Rent for 1998 shall be $3,017.08 per month (based on $6.50 per square foot per year) and the Base Rent for 1999 shall be $3,249.17 per month (based on $7.00 per square foot per year). In addition, Lessee shall have the option to extend the Term of the Leases for 6880 North Broadway, Suites D-G, for one (1) additional period of two (2) years (January 1, 2000 to December 31, 2001) and one (1) additional period of three (3) years (January 1, 2002 to December 31, 2004) by providing written notice thereof at least one hundred and eighty (180) days prior to the commencement thereof. If Lessee exercises such option, the Term of the Lease shall be extended upon the same terms and conditions, except that the Base Rent shall be at the Market Rate. 7. Market Rate. The term "Market Rate" means the rate at which Lessor under no compulsion to lease the Demised Premises and a tenant under no compulsion to lease the Premises would determine as the rental for the respective option term, as of the commencement thereof, taking into consideration the uses permitted under the Lease, the quality, size, location and condition of the Demised Premises (without considering any alterations or installations made by Lessee), the rent for comparable space in the metropolitan Denver area, and that no leasehold improvements or brokerage commissions shall be required to be paid by Lessor in connection therewith. If Lessor and Lessee are unable to agree upon the Market Rate, then the Market Rate shall be determined by an appraiser mutually agreed upon by Lessor and Lessee. If Lessor and Lessee are unable to select an appraiser, Lessor and Lessee shall each select one appraiser and the two appraisers shall select a third appraiser to complete the panel of appraisers, and the Market Rate shall be the average of all three appraisals. 8. Options. Section 39.2 of the Leases is hereby deleted. 9. Force and Effect. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. As herein modified, the Leases shall remain in full force and effect in accordance with the terms and conditions thereof. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. LESSEE: CORTECH, INC. By: /s/ Joseph L. Turner ---------------------- Name: Joseph L. Turner ------------------ Title: CFO ----- -4- 5 LESSOR: CLEAR CREEK II, L.P. By: /s/ Richard S. Robinson ------------------------- Name: Richard S. Robinson --------------------- Title: Senior Vice President ----------------------- -5- 6 ADDENDUM A TO LEASE This Addendum A to lease (the "Lease") between CLEAR CREEK II, L.P. as Lessor and CORTECH, INC. as Lessee covering the premises known as 6870 N. Broadway, Suites K, L & M (4,870 square feet), Denver, Colorado 80221. This Addendum is hereby made a part of and incorporated in the Lease dated January 5, 1994. The Lease is hereby amended and modified as provided below: 1. Lessor and Lessee agree to extend the term of this Lease from March 15, 1996 to December 31, 1997. 2. Lessor and Lessee agree to the following rent schedule over the Lease term: 3/15/96 - 3/14/97 - $2,491.06 per month 3/15/97 - 12/31/97- $2,578.25 per month 3. Lessor and Lessee agree all other terms and conditions of the original Lease dated January 5, 1994 shall remain in full force and effect. CLEAR CREEK II, L.P. CORTECH, INC. By /s/ Richard S. Robinson By/s/ Joseph L. Turner ------------------------- --------------------- Richard S. Robinson Joseph L. Turner Senior Vice President Vice President, Finance & Administration Executed on 3/28/96 Executed on 3/25/96 --------- -------- -6- 7 ADDENDUM A TO LEASES This Addendum A to leases (the "Leases") between CLEAR CREEK II, L.P. as Lessor and CORTECH, INC. as Lessee covering the premises known as 6860 N. Broadway, Suites A, B, C & D (11,090 square feet), Denver, Colorado 80221. This Addendum is hereby made a part of and incorporated in the Leases dated April 1, 1993, November 22, 1993 and January 12, 1994. The Leases are hereby amended and modified as provided below: 1. Lessor and Lessee agree to extend the term of these Leases from May 1, 1996 to April 30, 1999. 2. Lessor and Lessee agree to the following rent schedule over the Lease term: 5/1/96 - 4/30/97 - $5,769.23 per month 5/1/97 - 4/30/98 - $5,971.15 per month 5/1/98 - 4/30/99 - $6,180.14 per month Each year reflects a 3.5% upward rental adjustment. 3. Lessor and Lessee agree all other terms and conditions of the original Leases shall remain in full force and effect. CLEAR CREEK II, L.P. CORTECH, INC. By /s/ Richard S. Robinson By/s/ Joseph L. Turner ------------------------- --------------------- Richard S. Robinson Joseph L. Turner Senior Vice President Vice President, Finance & Administration Executed on 3/28/96 Executed on 3/25/96 --------- -------- -7- 8 ADDENDUM B TO LEASES This Addendum B to leases (the "Leases") between CLEAR CREEK II, L.P. as Lessor and CORTECH, INC. as Lessee covering the premises known as 6850 N. Broadway, Suites D, E, F & G (16,910 square feet), Denver, Colorado 80221. This Addendum is hereby made a part of and incorporated in the Leases dated April 2, 1992, October 1, 1993 and April 10, 1995. The Leases are hereby amended and modified as provided below: 1. Lessor and Lessee agree to extend the term of these Leases from January 1, 1997 to December 31, 1997. 2. Lessor and Lessee agree to the following rent schedule over the Lease term: 1/1/97 - 12/31/97 - $8,557.19 per month 3. Lessor and Lessee agree all other terms and conditions of the original Leases shall remain in full force and effect. CLEAR CREEK II, L.P. CORTECH, INC. By /s/ Richard S. Robinson By/s/ Joseph L. Turner ------------------------- --------------------- Richard S. Robinson Joseph L. Turner Senior Vice President Vice President, Finance & Administration Executed on 3/28/96 Executed on 3/25/96 --------- -------- -8- 9 ADDENDUM A TO LEASE This Addendum A to lease (the "Lease") between CLEAR CREEK II, L.P. (formerly Lyon Stewart Associates) as Lessor and CORTECH, INC. as Lessee covering the premises known as 6840 N. Broadway, Suites A through I (15,650 square feet), Denver, Colorado 80221. This Addendum is hereby made a part of and incorporated in the Lease dated May 14, 1993. The Lease is hereby amended and modified as provided below: 1. Lessor and Lessee agree to extend the term of this Lease from June 1, 1996 to May 31, 1999. 2. Lessor and Lessee agree to the following rent schedule over the Lease term: 6/1/96 - 5/31/97 - $9,254.10 per month 6/1/97 - 5/31/98 - $9,578.00 per month 6/1/98 - 5/31/99 - $9,913.22 per month Each year reflects a 3.5% upward rental adjustment. 3. Lessor and Lessee agree all other terms and conditions of the original Lease dated May 14, 1993 shall remain in full force and effect. CLEAR CREEK II, L.P. CORTECH, INC. By /s/ Richard S. Robinson By/s/ Joseph L. Turner ------------------------- --------------------- Richard S. Robinson Joseph L. Turner Senior Vice President Vice President, Finance & Administration Executed on 3/28/96 Executed on 3/25/96 --------- -------- -9- 10 ADDENDUM A TO LEASE This Addendum A to lease (the "Lease") between CLEAR CREEK II, L.P. as Lessor and CORTECH, INC. as Lessee covering the premises known as 6880 N. Broadway, Suites A, B, C, H, I, J, K & L (11,975 square feet), Denver, Colorado 80221. This Addendum is hereby made a part of and incorporated in the Lease dated March 5, 1993. The Lease is hereby amended and modified as provided below: 1. Lessor and Lessee agree to extend the term of this Lease from March 15, 1996 to December 31, 1997. 2. Lessor and Lessee agree to the following rent schedule over the Lease term: 3/15/96 - 3/14/97 - $6,236.35 per month 3/15/97 - 12/31/97 - $6,454.62 per month 3. Lessor and Lessee agree all other terms and conditions of the original Lease dated March 5, 1993 shall remain in full force and effect. CLEAR CREEK II, L.P. CORTECH, INC. By /s/ Richard S. Robinson By/s/ Joseph L. Turner ------------------------- --------------------- Richard S. Robinson Joseph L. Turner Senior Vice President Vice President, Finance & Administration Executed on 3/28/96 Executed on 3/25/96 --------- -------- -10- 11 ADDENDUM B TO LEASE This Addendum B to lease (the "Lease") between CLEAR CREEK II, L.P. as Lessor and CORTECH, INC. as Lessee covering the premises known as 6880 N. Broadway, Suites D, E, F & G (5,570 square feet), Denver, Colorado 80221. This Addendum is hereby made a part of and incorporated in the Lease dated April 2, 1992. The Lease is hereby amended and modified as provided below: 1. Lessor and Lessee agree to extend the term of this Lease from January 1, 1997 to December 31, 1997. 2. Lessor and Lessee agree to a gross monthly rental of $2,701.97. 3. Lessor and Lessee agree all other terms and conditions of the original Lease dated April 2, 1992 shall remain in full force and effect. CLEAR CREEK II, L.P. CORTECH, INC. By /s/ Richard S. Robinson By/s/ Joseph L. Turner ------------------------- --------------------- Richard S. Robinson Joseph L. Turner Senior Vice President Vice President, Finance & Administration Executed on 3/28/96 Executed on 3/25/96 --------- -------- -11- 12 ADDENDUM A TO LEASE This Addendum A to lease (the "Lease") between CLEAR CREEK II, L.P. (formerly Lyon Stewart Associates) as Lessor and CORTECH, INC. as Lessee covering the premises known as 6880 N. Broadway, Suites D, E, F & G (5,570 sq. ft.) Denver, Colorado 80221. This Addendum is hereby made a part of and incorporated in the Lease dated April 2, 1992. The Lease is hereby amended and modified as provided below: 1. Lessor and Lessee agree to extend the term of this Lease from October 1, 1995 to December 31, 1996. 2. Lessor and Lessee agree to a gross monthly rental of $2,610.60. 3. Lessor and Lessee agree all other terms and conditions of the Lease dated April 2, 1992 shall remain in full force and effect. CLEAR CREEK II, L.P. CORTECH, INC. By /s/ Richard S. Robinson By/s/ Joseph L. Turner ------------------------- --------------------- Richard S. Robinson Joseph L. Turner Senior Vice President Vice President, Finance & Administration Executed on 2/9/96 Executed on 2/21/96 -------- -------- -12- EX-10.86 32 EMPLOYMENT AGREEMENT - AYERS 1 BIOSTAR, INC. EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is made and entered into as of the 10th_day of February, 1997, by and between BioStar, Inc., a Delaware corporation (the "Company"), and Teresa W. Ayers ("Executive"). WHEREAS, Executive is currently serving as President/Chief Executive Officer of the Company and in such position Executive is considered to be a key employee of the Company; WHEREAS, the Company and Executive acknowledge that Executive's knowledge, abilities and services are unique and important to the success of the Company; and WHEREAS, the Company and Executive desire to set forth in writing the terms of their agreement with respect to Executive's continued employment by the Company. NOW, THEREFORE, the parties hereto agree as follows: 1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth herein, the Company agrees to employ Executive and Executive hereby accepts such employment. Executive shall serve in an executive capacity and shall perform such duties as are customarily associated with her then current title, consistent with the Bylaws of the Company and as required by the President or Board of Directors of the Company. During the term of her employment with the Company, Executive will devote her best efforts and substantially all of her business time and attention to the business of the Company. This Agreement is for at-will-employment. 2. SALARY AND BENEFITS (a) BASE SALARY AND PERFORMANCE BONUS. Executive will receive for services to be rendered hereunder an annualized base salary of One Hundred Eighty Thousand Dollars ($180,000), payable on a bi-weekly basis, subject to adjustment in accordance with the policies of the Company. Executive may receive such discretionary performance bonuses as the Compensation Committee of the Board of Directors of the Company, in its sole discretion and from time to time, deems appropriate. Executive shall be eligible for a cash performance bonus of no less than twenty percent (20%) of Executive's base salary based upon Executive's achievement of performance targets and based upon the overall performance of the Company, all as determined by the Compensation Committee of the Board of Directors. All such payments are subject to ordinary withholdings for tax and social security purposes. (b) VACATION. Executive will accrue paid vacation time pursuant to the Company's general vacation policy, which will not be less than the vacation policy in effect on the date of this Agreement. (c) BENEFITS. Executive will be entitled to participate in the Company's standard Executive benefit programs, including medical and disability programs, and in such additional 1. 2 benefit programs, as may in the future be made available by the Company to the extent that she is eligible under the general provisions thereof. Benefit programs made available to Executive in the future will be no less favorable benefit programs made available to Executive in effect on the date of this Agreement. (d) MANAGEMENT INCENTIVE PLAN. Executive is currently allocated 25 Units out of the total 100 Units available to management of the Company in the Management Incentive Plan in effect as of the date hereof (the "Plan"). Executive shall be compensated for such Units in accordance with the terms of the Plan. 3. TERMINATION. (a) MUTUAL AGREEMENT. This Agreement may be terminated at any time by the mutual written agreement of the Company and Executive. (b) TERMINATION OTHER THAN FOR CAUSE OR CONSTRUCTIVE TERMINATION. If Executive is terminated by the Company for any reason other than for Cause (as defined in Section 5 below) or is Constructively Terminated by the Company (as defined in Section 5 below), and in exchange for Executive signing a waiver of claims against the Company as of the termination date in a form acceptable to the Company, Executive will receive the following for twelve (12) full calendar months following such termination: (i) The Company shall pay to Executive twenty-six (26) times her last base bi-weekly salary prior to termination, net of any necessary taxes or deductions, payable in a lump sum or with the Company's normal payroll timetable, at the Company's option; (ii) The Company shall pay Executive all accrued compensation, including payment for accrued but unused vacation days, unreimbursed expenses to the date of termination as provided herein, as well as any expenses incurred by the Executive with the Company's prior written approval, such as expenses incurred in returning Company records); (iii) Pursuant to the provisions of COBRA, the Company shall provide Executive and her family with all group health benefits which the Company provided immediately prior to such termination; provided, however, that such benefits will be terminated if Executive subsequently joins or becomes employed by another organization which provides Executive and her family with group health benefits comparable to those provided by the Company under this paragraph. The Company shall be responsible for paying all COBRA premiums for no more than twelve (12) months; (iv) Twelve (12) months of vesting for all stock options held by Executive shall automatically be accelerated to the date of termination and all vested options may be exercised by Executive according to their terms; and (v) If Executive is terminated, other than for Cause, or is Constructively Terminated within one hundred twenty (120) days of the day that the Company enters into a 2. 3 binding agreement for the Sale of the Company, which sale is consummated pursuant to the terms of such binding agreement, then Executive shall be entitled to receive the full amount of consideration for her Units in the Plan. The payment under the Plan will be payable at the same time that any other employees of the Company receive the consideration for their units under the Plan. (c) FOR CAUSE OR MUTUAL AGREEMENT. The Company may terminate this Agreement at any time for Cause effective immediately upon written notice to Executive (except termination for Cause which requires advance notice as set forth in the definition of Cause set forth in Section 5 below). If the Company terminates this Agreement for Cause, or if this Agreement is terminated by Executive and the Company by mutual agreement, Executive shall not be entitled to any further payments except (i) unreimbursed expenses to the date of termination and (ii) any accrued compensation, including accrued benefits, excluding any compensation under the Plan. Executive shall forfeit her units under the Plan and accelerated stock vesting pursuant to Section 3(b)(iv) if this Agreement is terminated pursuant to this Section. (d) DISABILITY OR DEATH. The Company may terminate this Agreement upon the death or disability of Executive. For purposes of this Agreement, Executive shall be considered disabled if she is unable to perform her duties under this Agreement as a result of injury, illness or other disability for a period of one hundred eighty (180) consecutive days, or one hundred eighty (180) days in a three hundred sixty-five (365) day period, and shall not have returned to the performance of duties within thirty (30) days after receiving written notice of termination. If the Company terminates this Agreement upon the death or disability of Executive: (i) The Company shall pay Executive or her estate a lump sum equal to all accrued compensation, including accrued benefits, and unreimbursed expenses to the date of termination as provided herein; (ii) If the Company terminates this Agreement upon the death or disability of Executive within one hundred twenty (120) days of the day that the Company enters into a binding agreement for the Sale of the Company, which sale is consummated pursuant to the terms of such binding agreement, then Executive, or Executive's estate, shall be entitled to receive the full amount of consideration for her units in the Plan. The payment under the Plan will be payable at the same time that any other employees of the Company receive the consideration for their units under the Plan. (e) DATE OF TERMINATION; PAYMENT. In each of the foregoing cases, except those provisions where termination is automatic upon notice to Executive, termination is the date of actual termination, not the date notice of termination is given. All payments for unpaid monthly compensation shall be made based upon the normal payroll processing schedule and all payments for reimbursement shall be made within forty-five (45) days after the end of the month following the month in which termination occurred. 4. MISCELLANEOUS 3. 4 (a) ASSIGNMENT. This Agreement may not be assigned by any party hereto; provided, however, that the Company may assign this Agreement in connection with a Sale of the Company so long as the assignee assumes all of the Company's obligations thereunder. (b) NOTICES. Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex) or the third day after mailing by first class mail to the recipient at the address indicated below: To the Company: BioStar, Inc. 6655 Lookout Road Boulder, Colorado 80301 Attention: President Phone: (303) 530-3888 Fax: (303) 530-6641 To Executive: Teresa W. Ayers 5008 Carter Court Boulder, Colorado 80301 or to such other address or to the attention of such other person as the recipient party will have specified by prior written notice to the sending party. (c) WAIVER. A waiver by the Company or Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. (d) GOVERNING LAW. This Agreement shall be deemed a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of Colorado. (e) SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. (f) ENTIRE AGREEMENT. This Agreement and the Plan contain the entire agreement of the parties with respect to the subject matter hereof. This Agreement may be changed only by an agreement in writing signed by the parties. (g) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 4. 5 5. DEFINITIONS. As used herein, the following terms shall have the following meanings: (a) "CAUSE" as used herein shall mean: (i) dishonesty which is not the result of an inadvertent or innocent mistake of Executive with respect to the Company or any of its subsidiaries; (ii) willful misfeasance or nonfeasance of duty by Executive that materially injures the reputation, business or business relationships of the Company or any of its subsidiaries or any of their respective officers, directors or Executives; (iii) any conduct which would be sufficient to criminally charge Executive with the commission of a crime involving moral turpitude or a crime other than a vehicle offense which could reflect in some material fashion unfavorably upon the business or business relationships of the Company or any of its subsidiaries or any of their respective officers, directors or Executives; (iv) willful or prolonged absence from work by Executive (other than by reason of disability due to physical or mental illness) or failure, neglect or refusal by Executive to perform her duties and responsibilities without the same being corrected upon thirty (30) days prior written notice; or (v) if Executive materially violates any term of this Agreement or the Company's employment policies and procedures (including but not limited to the Company's policies with respect to sexual harassment and discrimination) and such action or failure is not remedied or reasonable steps to effect such remedy are not commenced within thirty (30) days of written notice. (b) "CONSTRUCTIVE TERMINATION" as used herein shall mean: (i) if the Company materially violates any term of this Agreement, or (ii) if, after a Sale of the Company (as defined below): (A) the Company moves the Executive's primary work site more than 35 miles from the Company's location in Boulder, Colorado; or (B) if the Company unilaterally makes significant detrimental changes in which the Executive's job responsibilities or title is not comparable with Executive's current job responsibilities or title, and such action or failure is not remedied after twenty (20) days written notice, and in the case of either (A) and (B), Executive elects to terminate this Agreement immediately upon written notice to the Company. (c) "SALE OF THE COMPANY" as used herein shall have the same meaning as set forth in the Plan. 5. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BIOSTAR, INC. EXECUTIVE By: /s/ Alexander E. Barkas /s/ Teresa W. Ayers ------------------------------- --------------------------- Alexander E. Barkas Teresa W. Ayers Chairman of the Board 6. EX-10.87 33 EMPLOYMENT AGREEMENT -- STEBBINGS 1 BIOSTAR, INC. EMPLOYMENT AGREEMENT This Employment Agreement (the AGREEMENT") is made and entered into as of the 10th day of February, 1997, by and between BioStar, Inc., a Delaware corporation (the "COMPANY"), and Kim Stebbings ("EXECUTIVE"). WHEREAS, Executive is currently serving as Vice President, National Sales of the Company and in such position Executive is considered to be a key employee of the COMPANY; WHEREAS, the Company and Executive acknowledge that Executive's knowledge, abilities and services are unique and important to the success of the Company; and WHEREAS, the Company and Executive desire to set forth in writing the terms of their agreement with respect to Executive's continued employment by the Company. NOW, THEREFORE,the parties hereto agree as follows: 1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth herein, the Company agrees to employ Executive and Executive hereby accepts such employment. Executive shall serve in an executive capacity and shall perform such duties as are customarily associated with her then current title, consistent with the Bylaws of the Company and as required by the President or Board of Directors of the Company. During the term of her employment with the Company, Executive will devote her best efforts and substantially all of her business time and attention to the business of the Company. This Agreement is for at-will-employment. 2. SALARY AND BENEFITS (a) BASE SALARY AND PERFORMANCE BONUS. Executive will receive for services to be rendered hereunder an annualized base salary of One Hundred Twenty Thousand Dollars ($120,000), payable on a bi-weekly basis, subject to adjustment in accordance with the policies of the Company. Executive may receive such discretionary performance bonuses as the Compensation Committee of the Board of Directors of the Company, in its sole discretion and from time to time, deems appropriate. Executive shall be eligible for a cash performance bonus of no less than thirty percent (30%) of Executive's base salary based upon Executive's achievement of performance targets and based upon the overall performance of the Company, all as determined by the Compensation Committee of the Board of Directors. All such payments are subject to ordinary withholdings for tax and social security purposes. (b) VACATION. Executive will accrue paid vacation time pursuant to the Company's general vacation policy, which will not be less than the vacation policy in effect on the date of this Agreement. (c) BENEFITS. Executive will be entitled to participate in the Company's standard Executive benefit programs, including medical and disability programs, and in such additional 1. 2 benefit programs, as may in the future be made available by the Company to the extent that she is eligible under the general provisions thereof. Benefit programs made available to Executive in the future will be no less favorable benefit programs made available to Executive in effect on the date of this Agreement. (d) MANAGEMENT INCENTIVE PLAN. Executive is currently allocated 13 Units out of the total 100 Units available to management of the Company in the Management Incentive Plan in effect as of the date hereof (the "PLAN"). Executive shall be compensated for such Units in accordance with the terms of the Plan. 3. TERMINATION. (a) MUTUAL AGREEMENT. This Agreement may be terminated at any time by the mutual written agreement of the Company and Executive. (b) TERMINATION OTHER THAN FOR CAUSE OR CONSTRUCTIVE TERMINATION. If Executive is terminated by the Company for any reason other than for Cause (as defined in Section 5 below) or is Constructively Terminated by the Company (as defined in Section 5 below), and in exchange for Executive signing a waiver of claims against the Company as of the termination date in a form acceptable to the Company, Executive will receive the following for twelve (12) full calendar months following such termination: (i) The Company shall pay to Executive thirteen (13) times her last base bi-weekly salary prior to termination, net of any necessary taxes or deductions, payable in a lump sum or with the Company's normal payroll timetable, at the Company's option; (ii) The Company shall pay Executive all accrued compensation, including payment for accrued but unused vacation days, unreimbursed expenses to the date of termination as provided herein, as well as any expenses incurred by the Executive with the Company's prior written approval, such as expenses incurred in returning Company records); (iii) Pursuant to the provisions of COBRA, the Company shall provide Executive and her family with all group health benefits which the Company provided immediately prior to such termination; provided, however, that such benefits will be terminated if Executive subsequently joins or becomes employed by another organization which provides Executive and her family with group health benefits comparable to those provided by the Company under this paragraph. The Company shall be responsible for paying all COBRA premiums for no more than six (6) months; (iv) Six (6) months of vesting for all stock options held by Executive shall automatically be accelerated to the date of termination and all vested options may be exercised by Executive according to their terms; and (v) If Executive is terminated, other than for Cause, or is Constructively Terminated within one hundred twenty (120) days of the day that the Company enters into a 2. 3 binding agreement for the Sale of the Company, which sale is consummated pursuant to the terms of such binding agreement, then Executive shall be entitled to receive the full amount of consideration for her Units in the Plan. The payment under the Plan will be payable at the same time that any other employees of the Company receive the consideration for their units under the Plan. (c) FOR CAUSE OR MUTUAL AGREEMENT. The Company may terminate this Agreement at any time for Cause effective immediately upon written notice to Executive (except termination for Cause which requires advance notice as set forth in the definition of Cause set forth in Section 5 below). If the Company terminates this Agreement for Cause, or if this Agreement is terminated by Executive and the Company by mutual agreement, Executive shall not be entitled to any further payments except (i) unreimbursed expenses to the date of termination and (ii) any accrued compensation, including accrued benefits, excluding any compensation under the Plan. Executive shall forfeit her units under the Plan and accelerated stock vesting pursuant to Section 3(b)(iv) if this Agreement is terminated pursuant to this Section. (d) DISABILITY OR DEATH. The Company may terminate this Agreement upon the death or disability of Executive. For purposes of this Agreement, Executive shall be considered disabled if she is unable to perform her duties under this Agreement as a result of injury, illness or other disability for a period of one hundred eighty (180) consecutive days, or one hundred eighty (180) days in a three hundred sixty-five (365) day period, and shall not have returned to the performance of duties within thirty (30) days after receiving written notice of termination. If the Company terminates this Agreement upon the death or disability of Executive: (i) The Company shall pay Executive or her estate a lump sum equal to all accrued compensation, including accrued benefits, and unreimbursed expenses to the date of termination as provided herein; (ii) If the Company terminates this Agreement upon the death or disability of Executive within one hundred twenty (120) days of the day that the Company enters into a binding agreement for the Sale of the Company, which sale is consummated pursuant to the terms of such binding agreement, then Executive, or Executive's estate, shall be entitled to receive the full amount of consideration for her units in the Plan. The payment under the Plan will be payable at the same time that any other employees of the Company receive the consideration for their units under the Plan. (e) DATE OF TERMINATION; PAYMENT. In each of the foregoing cases, except those provisions where termination is automatic upon notice to Executive, termination is the date of actual termination, not the date notice of termination is given. All payments for unpaid monthly compensation shall be made based upon the normal payroll processing schedule and all payments for reimbursement shall be made within forty-five (45) days after the end of the month following the month in which termination occurred. 4. MISCELLANEOUS 3. 4 (a) ASSIGNMENT. This Agreement may not be assigned by any party hereto; provided, however, that the Company may assign this Agreement in connection with a Sale of the Company so long as the assignee assumes all of the Company's obligations thereunder. (b) NOTICES. Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex) or the third day after mailing by first class mail to the recipient at the address indicated below: To the Company: BioStar, Inc. 6655 Lookout Road Boulder, Colorado 80301 Attention: President Phone: (303) 530-3888 Fax: (303) 530-6641 To Executive: Kim Stebbings 7466 Singing Hills Court Boulder, Colorado 80301 or to such other address or to the attention of such other person as the recipient party will have specified by prior written notice to the sending party. (c) WAIVER. A waiver by the Company or Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. (d) GOVERNING LAW. This Agreement shall be deemed a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of Colorado. (e) SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. (f) ENTIRE AGREEMENT. This Agreement and the Plan contain the entire agreement of the parties with respect to the subject matter hereof. This Agreement may be changed only by an agreement in writing signed by the parties. (g) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 4. 5 5. DEFINITIONS. As used herein, the following terms shall have the following meanings: (a) "CAUSE" as used herein shall mean: (i) dishonesty which is not the result of an inadvertent or innocent mistake of Executive with respect to the Company or any of its subsidiaries; (ii) willful misfeasance or nonfeasance of duty by Executive that materially injures the reputation, business or business relationships of the Company or any of its subsidiaries or any of their respective officers, directors or Executives; (iii) any conduct which would be sufficient to criminally charge Executive with the commission of a crime involving moral turpitude or a crime other than a vehicle offense which could reflect in some material fashion unfavorably upon the business or business relationships of the Company or any of its subsidiaries or any of their respective officers, directors or Executives; (iv) willful or prolonged absence from work by Executive (other than by reason of disability due to physical or mental illness) or failure, neglect or refusal by Executive to perform her duties and responsibilities without the same being corrected upon thirty (30) days prior written notice; or (v) if Executive materially violates any term of this Agreement or the Company's employment policies and procedures (including but not limited to the Company's policies with respect to sexual harassment and discrimination) and such action or failure is not remedied or reasonable steps to effect such remedy are not commenced within thirty (30) days of written notice. (b) "CONSTRUCTIVE TERMINATION" as used herein shall mean: (i) if the Company materially violates any term of this Agreement, or (ii) if, after a Sale of the Company (as defined below): (A) the Company moves the Executive's primary work site more than 35 miles from the Company's location in Boulder, Colorado; or (B) if the Company unilaterally makes significant detrimental changes in which the Executive's job responsibilities or title is not comparable with Executive's current job responsibilities or title, and such action or failure is not remedied after twenty (20) days written notice, and in the case of either (A) and (B), Executive elects to terminate this Agreement immediately upon written notice to the Company. (c) "SALE OF THE COMPANY" as used herein shall have the same meaning as set forth in the Plan. 5. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BIOSTAR, INC. EXECUTIVE By: /s/ Teresa W. Ayers /s/ Kim L. Stebbings ----------------------------------- --------------------------- Teresa W. Ayers Kim Stebbings President/Chief Executive Officer 6. EX-10.88 34 EMPLOYMENT AGREEMENT - DOHENY 1 BIOSTAR, INC. EMPLOYMENT AGREEMENT This Employment Agreement (the "AGREEMENT") is made and entered into as of the 10th day of February, 1997, by and between BioStar, Inc., a Delaware corporation (the "COMPANY"), and Noel T. Doheny ("EXECUTIVE"). WHEREAS, Executive is currently serving as Executive Vice President, Commercial Development of the Company and in such position Executive is considered to be a key employee of the Company; WHEREAS, the Company and Executive acknowledge that Executive's knowledge, abilities and services are unique and important to the success of the Company; and WHEREAS, the Company and Executive desire to set forth in writing the terms of their agreement with respect to Executive's continued employment by the Company. NOW, THEREFORE, the parties hereto agree as follows: 1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth herein, the Company agrees to employ Executive and Executive hereby accepts such employment. Executive shall serve in an executive capacity and shall perform such duties as are customarily associated with his then current title, consistent with the Bylaws of the Company and as required by the President or Board of Directors of the Company. During the term of his employment with the Company, Executive will devote his best efforts and substantially all of his business time and attention to the business of the Company. This Agreement is for at-will-employment. 2. SALARY AND BENEFITS (a) BASE SALARY AND PERFORMANCE BONUS. Executive will receive for services to be rendered hereunder an annualized base salary of One Hundred Thirty Thousand Dollars ($130,000), payable on a bi-weekly basis, subject to adjustment in accordance with the policies of the Company. Executive may receive such discretionary performance bonuses as the Compensation Committee of the Board of Directors of the Company, in its sole discretion and from time to time, deems appropriate. Executive shall be eligible for a cash performance bonus of no less than twenty percent (20%) of Executive's base salary based upon Executive's achievement of performance targets and based upon the overall performance of the Company, all as determined by the Compensation Committee of the Board of Directors. All such payments are subject to ordinary withholdings for tax and social security purposes. (b) VACATION. Executive will accrue paid vacation time pursuant to the Company's general vacation policy, which will not be less than the vacation policy in effect on the date of this Agreement. 1. 2 (c) BENEFITS. Executive will be entitled to participate in the Company's standard Executive benefit programs, including medical and disability programs, and in such additional benefit programs, as may in the future be made available by the Company to the extent that he is eligible under the general provisions thereof. Benefit programs made available to Executive in the future will be no less favorable benefit programs made available to Executive in effect on the date of this Agreement. (d) MANAGEMENT INCENTIVE PLAN. Executive is currently allocated 11 Units out of the total 100 Units available to management of the Company in the Management Incentive Plan in effect as of the date hereof (the "Plan"). Executive shall be compensated for such Units in accordance with the terms of the Plan. 3. TERMINATION. (a) MUTUAL AGREEMENT. This Agreement may be terminated at any time by the mutual written agreement of the Company and Executive. (b) TERMINATION OTHER THAN FOR CAUSE OR CONSTRUCTIVE TERMINATION. If Executive is terminated by the Company for any reason other than for Cause (as defined in Section 5 below) or is Constructively Terminated by the Company (as defined in Section 5 below), and in exchange for Executive signing a waiver of claims against the Company as of the termination date in a form acceptable to the Company, Executive will receive the following for twelve (12) full calendar months following such termination: (i) The Company shall pay to Executive thirteen (13) times his last base bi-weekly salary prior to termination, net of any necessary taxes or deductions, payable in a lump sum or with the Company's normal payroll timetable, at the Company's option; (ii) The Company shall pay Executive all accrued compensation, including payment for accrued but unused vacation days, unreimbursed expenses to the date of termination as provided herein, as well as any expenses incurred by the Executive with the Company's prior written approval, such as expenses incurred in returning Company records); (iii) Pursuant to the provisions of COBRA, the Company shall provide Executive and his or her family with all group health benefits which the Company provided immediately prior to such termination; provided, however, that such benefits will be terminated if Executive subsequently joins or becomes employed by another organization which provides Executive and his family with group health benefits comparable to those provided by the Company under this paragraph. The Company shall be responsible for paying all COBRA premiums for no more than six (6) months; (iv) Six (6) months of vesting for all stock options held by Executive shall automatically be accelerated to the date of termination and all vested options may be exercised by Executive according to their terms; and 2. 3 (v) If Executive is terminated, other than for Cause, or is Constructively Terminated within one hundred twenty (120) days of the day that the Company enters into a binding agreement for the Sale of the Company, which sale is consummated pursuant to the terms of such binding agreement, then Executive shall be entitled to receive the full amount of consideration for his Units in the Plan. The payment under the Plan will be payable at the same time that any other employees of the Company receive the consideration for their units under the Plan. (c) For Cause or Mutual Agreement. The Company may terminate this Agreement at any time for Cause effective immediately upon written notice to Executive (except termination for Cause which requires advance notice as set forth in the definition of Cause set forth in Section 5 below). If the Company terminates this Agreement for Cause, or if this Agreement is terminated by Executive and the Company by mutual agreement, Executive shall not be entitled to any further payments except (i) unreimbursed expenses to the date of termination and (ii) any accrued compensation, including accrued benefits, excluding any compensation under the Plan. Executive shall forfeit his units under the Plan and accelerated stock vesting pursuant to Section 3(b)(iv) if this Agreement is terminated pursuant to this Section. (d) Disability or Death. The Company may terminate this Agreement upon the death or disability of Executive. For purposes of this Agreement, Executive shall be considered disabled if he is unable to perform his duties under this Agreement as a result of injury, illness or other disability for a period of one hundred eighty (180) consecutive days, or one hundred eighty (180) days in a three hundred sixty-five (365) day period, and shall not have returned to the performance of duties within thirty (30) days after receiving written notice of termination. If the Company terminates this Agreement upon the death or disability of Executive: (i) The Company shall pay Executive or his estate a lump sum equal to all accrued compensation, including accrued benefits, and unreimbursed expenses to the date of termination as provided herein; (ii) If the Company terminates this Agreement upon the death or disability of Executive within one hundred twenty (120) days of the day that the Company enters into a binding agreement for the Sale of the Company, which sale is consummated pursuant to the terms of such binding agreement, then Executive, or Executive's estate, shall be entitled to receive the full amount of consideration for his units in the Plan. The payment under the Plan will be payable at the same time that any other employees of the Company receive the consideration for their units under the Plan. (e) DATE OF TERMINATION; PAYMENT. In each of the foregoing cases, except those provisions where termination is automatic upon notice to Executive, termination is the date of actual termination, not the date notice of termination is given. All payments for unpaid monthly compensation shall be made based upon the normal payroll processing schedule and all payments for reimbursement shall be made within forty-five (45) days after the end of the month following the month in which termination occurred. 3. 4 4. MISCELLANEOUS. (a) ASSIGNMENT. This Agreement may not be assigned by any party hereto; provided, however, that the Company may assign this Agreement in connection with a Sale of the Company so long as the assignee assumes all of the Company's obligations thereunder. (b) NOTICES. Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex) or the third day after mailing by first class mail to the recipient at the address indicated below: To the Company: BioStar, Inc. 6655 Lookout Road Boulder, Colorado 80301 Attention: President Phone: (303) 530-3888 Fax: (303) 530-6641 To Executive: Noel T. Doheny 4626 Nicklaus Court Niwot, Colorado 80503 or to such other address or to the attention of such other person as the recipient party will have specified by prior written notice to the sending party. (c) WAIVER. A waiver by the Company or Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. (d) GOVERNING LAW. This Agreement shall be deemed a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of Colorado. (e) SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. (f) ENTIRE AGREEMENT. This Agreement and the Plan contain the entire agreement of the parties with respect to the subject matter hereof. This Agreement may be changed only by an agreement in writing signed by the parties. 4. 5 (g) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 5. DEFINITIONS. As used herein, the following terms shall have the following meanings: (a) "CAUSE" as used herein shall mean: (i) dishonesty which is not the result of an inadvertent or innocent mistake of Executive with respect to the Company or any of its subsidiaries; (ii) willful misfeasance or nonfeasance of duty by Executive that materially injures the reputation, business or business relationships of the Company or any of its subsidiaries or any of their respective officers, directors or Executives; (iii) any conduct which would be sufficient to criminally charge Executive with the commission of a crime involving moral turpitude or a crime other than a vehicle offense which could reflect in some material fashion unfavorably upon the business or business relationships of the Company or any of its subsidiaries or any of their respective officers, directors or Executives; (iv) willful or prolonged absence from work by Executive (other than by reason of disability due to physical or mental illness) or failure, neglect or refusal by Executive to perform his duties and responsibilities without the same being corrected upon thirty (30) days prior written notice; or (v) if Executive materially violates any term of this Agreement or the Company's employment policies and procedures (including but not limited to the Company's policies with respect to sexual harassment and discrimination) and such action or failure is not remedied or reasonable steps to effect such remedy are not commenced within thirty (30) days of written notice. (b) "CONSTRUCTIVE TERMINATION" as used herein shall mean: (i) if the Company materially violates any term of this Agreement, or (ii) if, after a Sale of the Company (as defined below): (A) the Company moves the Executive's primary work site more than 35 miles from the Company's location in Boulder, Colorado; or (B) if the Company unilaterally makes significant detrimental changes in which the Executive's job responsibilities or title is not comparable with Executive's current job responsibilities or title, and such action or failure is not remedied after twenty (20) days written notice, and in the case of either (A) and (B), Executive elects to terminate this Agreement immediately upon written notice to the Company. (c) "SALE OF THE COMPANY" as used herein shall have the same meaning as set forth in the Plan. 5. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BIOSTAR, INC. EXECUTIVE By: /s/ Teresa W. Ayers /s/ Noel T. Doheny --------------------------------- ----------------------------------- Teresa W. Ayers Noel T. Doheny President/Chief Executive Officer 6. 7 [BioStar Letterhead] June 16, 1997 Mr. Noel Doheny 4626 Nicklaus Court Niwot, CO 80503 Dear Noel: In follow up to our conversation today, I am confirming to you that it is the intention of the undersigned to award you a minimum of an additional five (5) Units of the Acquisition Pool, both as defined in the Management Incentive Plan. This is in addition to the eleven (11) units which you have currently been awarded. This additional award is in recognition of the success you have had regarding business development opportunities, specifically, closing the next phase of the Biota Agreement, signing Sangtec as a product development partner, and your advancement of the Asahi negotiations to a position which is favorable to BioStar, Inc. The Plan Administrators, as defined in the Management Incentive Plan, initially include Alex Barkas, Teresa Ayers and Lyndal Hesterberg. The responsibilities of the Plan Administrators are defined in Section 3 of the Management Incentive Plan. /s/ Teresa W. Ayers /s/ Lyndal K. Hesterberg Teresa W. Ayers Lyndal K. Hesterberg President/CEO VP-Scientific Affairs Plan Administrator Plan Administrator EX-10.89 35 EMPLOYMENT AGREEMENT -- PRITCHARD 1 BIOSTAR, INC. EMPLOYMENT AGREEMENT This Employment Agreement (the "AGREEMENT") is made and entered into as of the 1st day of September, 1997, by and between BioStar, Inc., a Delaware corporation (the "COMPANY"), and Edward C. Pritchard ("EXECUTIVE"). WHEREAS, Executive is currently serving as Vice President, Finance and Manufacturing and in such position Executive is considered to be a key employee of the Company; WHEREAS, the Company and Executive acknowledge that Executive's knowledge, abilities and services are unique and important to the success of the Company; and WHEREAS, the Company and Executive desire to set forth in writing the terms of their agreement with respect to Executive's continued employment by the Company. NOW, THEREFORE, the parties hereto agree as follows: 1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth herein, the Company agrees to employ Executive and Executive hereby accepts such employment. Executive shall serve in an executive capacity and shall perform such duties as are customarily associated with his then current title, consistent with the Bylaws of the Company and as required by the President or Board of Directors of the Company. During the term of his employment with the Company, Executive will devote his best efforts and substantially all of his business time and attention to the business of the Company. This Agreement is for at-will-employment. 2. SALARY AND BENEFITS (a) BASE SALARY AND PERFORMANCE BONUS. Executive will receive for services to be rendered hereunder an annualized base salary of One Hundred Ten Thousand Dollars ($110,000), payable on a bi-weekly basis, subject to adjustment in accordance with the policies of the Company. Executive may receive such discretionary performance bonuses as the Compensation Committee of the Board of Directors of the Company, in its sole discretion and from time to time, deems appropriate. Executive shall be eligible for a cash performance bonus of no less than twenty percent (20%) of Executive's base salary based upon Executive's achievement of performance targets and based upon the overall performance of the Company, all as determined by the Compensation Committee of the Board of Directors. All such payments are subject to ordinary withholdings for tax and social security purposes. (b) VACATION. Executive will accrue paid vacation time pursuant to the Company's general vacation policy, which will not be less than the vacation policy in effect on the date of this Agreement. (c) BENEFITS. Executive will be entitled to participate in the Company's standard Executive benefit programs, including medical and disability programs, and in such additional 1. 2 benefit programs, as may in the future be made available by the Company to the extent that he is eligible under the general provisions thereof. Benefit programs made available to Executive in the future will be no less favorable benefit programs made available to Executive in effect on the date of this Agreement. (d) MANAGEMENT INCENTIVE PLAN. Executive is currently allocated 4 Units out of the total 100 Units available to management of the Company in the Management Incentive Plan in effect as of the date hereof (the "Plan"). Executive shall be compensated for such Units in accordance with the terms of the Plan. In any event, the payment made to Executive from the Plan shall not exceed $100,000. 3. TERMINATION. (a) MUTUAL AGREEMENT. This Agreement may be terminated at any time by the mutual written agreement of the Company and Executive. (b) TERMINATION OTHER THAN FOR CAUSE OR CONSTRUCTIVE TERMINATION. If Executive is terminated by the Company for any reason other than for Cause (as defined in Section 5 below) or is Constructively Terminated by the Company (as defined in Section 5 below), and in exchange for Executive signing a waiver of claims against the Company as of the termination date in a form acceptable to the Company, Executive will receive the following for three (3) full calendar months following such termination: (i) The Company shall pay to Executive six and one-half (6.5) times his last base bi-weekly salary prior to termination, net of any necessary taxes or deductions, payable in a lump sum or with the Company's normal payroll timetable, at the Company's option; (ii) The Company shall pay Executive all accrued compensation, including payment for accrued but unused vacation days, unreimbursed expenses to the date of termination as provided herein, as well as any expenses incurred by the Executive with the Company's prior written approval, such as expenses incurred in returning Company records); (iii) Pursuant to the provisions of COBRA, the Company shall provide Executive and his or her family with all group health benefits which the Company provided immediately prior to such termination; provided, however, that such benefits will be terminated if Executive subsequently joins or becomes employed by another organization which provides Executive and his family with group health benefits comparable to those provided by the Company under this paragraph. The Company shall be responsible for paying all COBRA premiums for no more than twelve (12) months; (iv) Three (3) months of vesting for all stock options held by Executive shall automatically be accelerated to the date of termination and all vested options may be exercised by Executive according to their terms; and 2. 3 (v) If Executive is terminated, other than for Cause, or is Constructively Terminated within one hundred twenty (120) days of the day that the Company enters into a binding agreement for the Sale of the Company, which sale is consummated pursuant to the terms of such binding agreement, then Executive shall be entitled to receive the full amount of consideration for his Units in the Plan. The payment under the Plan will be payable at the same time that any other employees of the Company receive the consideration for their units under the Plan. (c) FOR CAUSE OR MUTUAL AGREEMENT. The Company may terminate this Agreement at any time for Cause effective immediately upon written notice to Executive (except termination for Cause which requires advance notice as set forth in the definition of Cause set forth in Section 5 below). If the Company terminates this Agreement for Cause, or if this Agreement is terminated by Executive and the Company by mutual agreement, Executive shall not be entitled to any further payments except (i) unreimbursed expenses to the date of termination and (ii) any accrued compensation, including accrued benefits, excluding any compensation under the Plan. Executive shall forfeit his units under the Plan and accelerated stock vesting pursuant to Section 3(b)(iv) if this Agreement is terminated pursuant to this Section. (d) DISABILITY OR DEATH. The Company may terminate this Agreement upon the death or disability of Executive. For purposes of this Agreement, Executive shall be considered disabled if he is unable to perform his duties under this Agreement as a result of injury, illness or other disability for a period of one hundred eighty (180) consecutive days, or one hundred eighty (180) days in a three hundred sixty-five (365) day period, and shall not have returned to the performance of duties within thirty (30) days after receiving written notice of termination. If the Company terminates this Agreement upon the death or disability of Executive: (i) The Company shall pay Executive or his estate a lump sum equal to all accrued compensation, including accrued benefits, and unreimbursed expenses to the date of termination as provided herein; (ii) If the Company terminates this Agreement upon the death or disability of Executive within one hundred twenty (120) days of the day that the Company enters into a binding agreement for the Sale of the Company, which sale is consummated pursuant to the terms of such binding agreement, then Executive, or Executive's estate, shall be entitled to receive the full amount of consideration for his units in the Plan. The payment under the Plan will be payable at the same time that any other employees of the Company receive the consideration for their units under the Plan. (e) DATE OF TERMINATION; PAYMENT. In each of the foregoing cases, except those provisions where termination is automatic upon notice to Executive, termination is the date of actual termination, not the date notice of termination is given. All payments for unpaid monthly compensation shall be made based upon the normal payroll processing schedule and all payments for reimbursement shall be made within forty-five (45) days after the end of the month following the month in which termination occurred. 3. 4 4. MISCELLANEOUS. (a) ASSIGNMENT. This Agreement may not be assigned by any party hereto; provided, however, that the Company may assign this Agreement in connection with a Sale of the Company so long as the assignee assumes all of the Company's obligations thereunder. (b) NOTICES. Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex) or the third day after mailing by first class mail to the recipient at the address indicated below: To the Company: BioStar, Inc. 6655 Lookout Road Boulder, Colorado 80301 Attention: President Phone: (303) 530-3888 Fax: (303) 530-6641 To Executive: Edward C. Pritchard 2265 Knollwood Drive Boulder, Colorado 80302-4700 or to such other address or to the attention of such other person as the recipient party will have specified by prior written notice to the sending party. (c) WAIVER. A waiver by the Company or Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. (d) GOVERNING LAW. This Agreement shall be deemed a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of Colorado. (e) SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. (f) ENTIRE AGREEMENT. This Agreement and the Plan contain the entire agreement of the parties with respect to the subject matter hereof. This Agreement may be changed only by an agreement in writing signed by the parties. 4. 5 (g) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 5. DEFINITIONS. As used herein, the following terms shall have the following meanings: (a) "CAUSE" as used herein shall mean: (i) dishonesty which is not the result of an inadvertent or innocent mistake of Executive with respect to the Company or any of its subsidiaries; (ii) willful misfeasance or nonfeasance of duty by Executive that materially injures the reputation, business or business relationships of the Company or any of its subsidiaries or any of their respective officers, directors or Executives; (iii) any conduct which would be sufficient to criminally charge Executive with the commission of a crime involving moral turpitude or a crime other than a vehicle offense which could reflect in some material fashion unfavorably upon the business or business relationships of the Company or any of its subsidiaries or any of their respective officers, directors or Executives; (iv) willful or prolonged absence from work by Executive (other than by reason of disability due to physical or mental illness) or failure, neglect or refusal by Executive to perform his duties and responsibilities without the same being corrected upon thirty (30) days prior written notice; or (v) if Executive materially violates any term of this Agreement or the Company's employment policies and procedures (including but not limited to the Company's policies with respect to sexual harassment and discrimination) and such action or failure is not remedied or reasonable steps to effect such remedy are not commenced within thirty (30) days of written notice. (b) "CONSTRUCTIVE TERMINATION" as used herein shall mean: (i) if the Company materially violates any term of this Agreement, or (ii) if, after a Sale of the Company (as defined below): (A) the Company moves the Company's headquarters more than 35 miles from the Company's location in Boulder, Colorado; or (B) if the Company unilaterally makes significant detrimental changes in Executive's job responsibilities or title, and such action or failure is not remedied after twenty (20) days written notice, and in the case of either (A) and (B), Executive elects to terminate this Agreement immediately upon written notice to the Company. (c) "SALE OF THE COMPANY" as used herein shall have the same meaning as set forth in the Plan. 5. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BIOSTAR, INC. EXECUTIVE By: /s/ Teresa W. Ayers /s/ Edward C. Prichard ---------------------------------- ------------------------------------ Teresa W. Ayers Edward C. Prichard President/Chief Executive Officer 6. EX-10.90 36 EMPLOYMENT AGREEMENT -- HESTERBERG 1 BIOSTAR, INC. EMPLOYMENT AGREEMENT This Employment Agreement (the "AGREEMENT") is made and entered into as of the 10th day of February, 1997, by and between BioStar, Inc., a Delaware corporation (the "COMPANY"), and Lyndal K. Hesterberg ("EXECUTIVE"). WHEREAS, Executive is currently serving as Vice President, Scientific Affairs of the Company and in such position Executive is considered to be a key employee of the Company; WHEREAS, the Company and Executive acknowledge that Executive's knowledge, abilities and services are unique and important to the success of the Company; and WHEREAS, the Company and Executive desire to set forth in writing the terms of their agreement with respect to Executive's continued employment by the Company. NOW, THEREFORE, the parties hereto agree as follows: 1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth herein, the Company agrees to employ Executive and Executive hereby accepts such employment. Executive shall serve in an executive capacity and shall perform such duties as are customarily associated with his then current title, consistent with the Bylaws of the Company and as required by the President or Board of Directors of the Company. During the term of his employment with the Company, Executive will devote his best efforts and substantially all of his business time and attention to the business of the Company. This Agreement is for at-will-employment. 2. SALARY AND BENEFITS (a) BASE SALARY AND PERFORMANCE BONUS. Executive will receive for services to be rendered hereunder an annualized base salary of One Hundred Fifty Thousand Dollars ($150,000), payable on a bi-weekly basis, subject to adjustment in accordance with the policies of the Company. Executive may receive such discretionary performance bonuses as the Compensation Committee of the Board of Directors of the Company, in its sole discretion and from time to time, deems appropriate. Executive shall be eligible for a cash performance bonus of no less than thirty percent (30%) of Executive's base salary based upon Executive's achievement of performance targets and based upon the overall performance of the Company, all as determined by the Compensation Committee of the Board of Directors. All such payments are subject to ordinary withholdings for tax and social security purposes. (b) VACATION. Executive will accrue paid vacation time pursuant to the Company's general vacation policy, which will not be less than the vacation policy in effect on the date of this Agreement. (c) BENEFITS. Executive will be entitled to participate in the Company's standard Executive benefit programs, including medical and disability programs, and in such additional 1. 2 benefit programs, as may in the future be made available by the Company to the extent that he is eligible under the general provisions thereof. Benefit programs made available to Executive in the future will be no less favorable benefit programs made available to Executive in effect on the date of this Agreement. (d) MANAGEMENT INCENTIVE PLAN. Executive is currently allocated 23 Units out of the total 100 Units available to management of the Company in the Management Incentive Plan in effect as of the date hereof (the "Plan"). Executive shall be compensated for such Units in accordance with the terms of the Plan. 3. TERMINATION. (a) MUTUAL AGREEMENT. This Agreement may be terminated at any time by the mutual written agreement of the Company and Executive. (b) TERMINATION OTHER THAN FOR CAUSE OR CONSTRUCTIVE TERMINATION. If Executive is terminated by the Company for any reason other than for Cause (as defined in Section 5 below) or is Constructively Terminated by the Company (as defined in Section 5 below), and in exchange for Executive signing a waiver of claims against the Company as of the termination date in a form acceptable to the Company, Executive will receive the following for twelve (12) full calendar months following such termination: (i) The Company shall pay to Executive twenty-six (26) times his last base bi-weekly salary prior to termination, net of any necessary taxes or deductions, payable in a lump sum or with the Company's normal payroll timetable, at the Company's option; (ii) The Company shall pay Executive all accrued compensation, including payment for accrued but unused vacation days, unreimbursed expenses to the date of termination as provided herein, as well as any expenses incurred by the Executive with the Company's prior written approval, such as expenses incurred in returning Company records); (iii) Pursuant to the provisions of COBRA, the Company shall provide Executive and his or her family with all group health benefits which the Company provided immediately prior to such termination; provided, however, that such benefits will be terminated if Executive subsequently joins or becomes employed by another organization which provides Executive and his family with group health benefits comparable to those provided by the Company under this paragraph. The Company shall be responsible for paying all COBRA premiums for no more than twelve (12) months; (iv) Twelve (12) months of vesting for all stock options held by Executive shall automatically be accelerated to the date of termination and all vested options may be exercised by Executive according to their terms; and (v) If Executive is terminated, other than for Cause, or is Constructively Terminated within one hundred twenty (120) days of the day that the Company enters into a 2. 3 binding agreement for the Sale of the Company, which sale is consummated pursuant to the terms of such binding agreement, then Executive shall be entitled to receive the full amount of consideration for his Units in the Plan. The payment under the Plan will be payable at the same time that any other employees of the Company receive the consideration for their units under the Plan. (c) FOR CAUSE OR MUTUAL AGREEMENT. The Company may terminate this Agreement at any time for Cause effective immediately upon written notice to Executive (except termination for Cause which requires advance notice as set forth in the definition of Cause set forth in Section 5 below). If the Company terminates this Agreement for Cause, or if this Agreement is terminated by Executive and the Company by mutual agreement, Executive shall not be entitled to any further payments except (i) unreimbursed expenses to the date of termination and (ii) any accrued compensation, including accrued benefits, excluding any compensation under the Plan. Executive shall forfeit his units under the Plan and accelerated stock vesting pursuant to Section 3(b)(iv) if this Agreement is terminated pursuant to this Section. (d) DISABILITY OR DEATH. The Company may terminate this Agreement upon the death or disability of Executive. For purposes of this Agreement, Executive shall be considered disabled if he is unable to perform his duties under this Agreement as a result of injury, illness or other disability for a period of one hundred eighty (180) consecutive days, or one hundred eighty (180) days in a three hundred sixty-five (365) day period, and shall not have returned to the performance of duties within thirty (30) days after receiving written notice of termination. If the Company terminates this Agreement upon the death or disability of Executive: (i) The Company shall pay Executive or his estate a lump sum equal to all accrued compensation, including accrued benefits, and unreimbursed expenses to the date of termination as provided herein; (ii) If the Company terminates this Agreement upon the death or disability of Executive within one hundred twenty (120) days of the day that the Company enters into a binding agreement for the Sale of the Company, which sale is consummated pursuant to the terms of such binding agreement, then Executive, or Executive's estate, shall be entitled to receive the full amount of consideration for his units in the Plan. The payment under the Plan will be payable at the same time that any other employees of the Company receive the consideration for their units under the Plan. (e) DATE OF TERMINATION; PAYMENT. In each of the foregoing cases, except those provisions where termination is automatic upon notice to Executive, termination is the date of actual termination, not the date notice of termination is given. All payments for unpaid monthly compensation shall be made based upon the normal payroll processing schedule and all payments for reimbursement shall be made within forty-five (45) days after the end of the month following the month in which termination occurred. 4. MISCELLANEOUS. 3. 4 (a) ASSIGNMENT. This Agreement may not be assigned by any party hereto; provided, however, that the Company may assign this Agreement in connection with a Sale of the Company so long as the assignee assumes all of the Company's obligations thereunder. (b) NOTICES. Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex) or the third day after mailing by first class mail to the recipient at the address indicated below: To the Company: BioStar, Inc. 6655 Lookout Road Boulder, Colorado 80301 Attention: President Phone: (303) 530-3888 Fax: (303) 530-6641 To Executive: Lyndal K. Hesterberg 2930 Island Drive Boulder, Colorado 80301 or to such other address or to the attention of such other person as the recipient party will have specified by prior written notice to the sending party. (c) WAIVER. A waiver by the Company or Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. (d) GOVERNING LAW. This Agreement shall be deemed a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of Colorado. (e) SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. (f) ENTIRE AGREEMENT. This Agreement and the Plan contain the entire agreement of the parties with respect to the subject matter hereof. This Agreement may be changed only by an agreement in writing signed by the parties. (g) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 4. 5 5. DEFINITIONS. As used herein, the following terms shall have the following meanings: (a) "CAUSE" as used herein shall mean: (i) dishonesty which is not the result of an inadvertent or innocent mistake of Executive with respect to the Company or any of its subsidiaries; (ii) willful misfeasance or nonfeasance of duty by Executive that materially injures the reputation, business or business relationships of the Company or any of its subsidiaries or any of their respective officers, directors or Executives; (iii) any conduct which would be sufficient to criminally charge Executive with the commission of a crime involving moral turpitude or a crime other than a vehicle offense which could reflect in some material fashion unfavorably upon the business or business relationships of the Company or any of its subsidiaries or any of their respective officers, directors or Executives; (iv) willful or prolonged absence from work by Executive (other than by reason of disability due to physical or mental illness) or failure, neglect or refusal by Executive to perform his duties and responsibilities without the same being corrected upon thirty (30) days prior written notice; or (v) if Executive materially violates any term of this Agreement or the Company's employment policies and procedures (including but not limited to the Company's policies with respect to sexual harassment and discrimination) and such action or failure is not remedied or reasonable steps to effect such remedy are not commenced within thirty (30) days of written notice. (b) "CONSTRUCTIVE TERMINATION" as used herein shall mean: (i) if the Company materially violates any term of this Agreement, or (ii) if, after a Sale of the Company (as defined below): (A) the Company moves the Executive's primary work site more than 35 miles from the Company's location in Boulder, Colorado; or (B) if the Company unilaterally makes significant detrimental changes in which the Executive's job responsibilities or title is not comparable with Executive's current job responsibilities or title, and such action or failure is not remedied after twenty (20) days written notice, and in the case of either (A) and (B), Executive elects to terminate this Agreement immediately upon written notice to the Company. (c) "SALE OF THE COMPANY" as used herein shall have the same meaning as set forth in the Plan. 5. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BIOSTAR, INC. EXECUTIVE By: /s/ Teresa W. Ayers /s/ Lyndal K. Hesterberg ---------------------------------- ----------------------------------- Teresa W. Ayers Lyndal K. Hesterberg President/Chief Executive Officer 6. EX-10.91 37 CONSULTING SERVICE AGREEMENT 1 BIOSTAR, INC. CONSULTING SERVICE AGREEMENT THIS CONSULTING SERVICE AGREEMENT ("Agreement") is made and entered into as of October 1, 1997 ("Effective Date") between BioStar, Inc. (the "Company") and Alexander E. Barkas, Ph.D. (the "Consultant"). 1. BACKGROUND. The Company desires to engage the Consultant to provide to the Company the services specified in the attached Appendix A (the "Services"), and the Consultant desires to accept such engagement on the terms and conditions stated in this Agreement. Therefore, in consideration of the mutual covenants and agreements contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 2. ENGAGEMENT. The Company hereby engages the Consultant to provide the Services and the Consultant hereby accepts such engagement on the terms and conditions set forth in this Agreement. During this engagement, the Consultant shall devote adequate time and resources to complete the Services. Consultant will be located primarily in Palo Alto, California and the Company recognizes that he will be required to travel in order to complete his assignments and at times he may work at various locations. 3. TERM. This Agreement shall commence on the Effective Date and remain in effect until the earlier of (a) December 31, 1998, or (b) the termination of this Agreement in accordance with the termination provisions in Section 6 below. 4. COMPENSATION. a. FEES. For the Services, the Consultant shall be paid a consulting fee of $1,500.00 per each full business day of services rendered by Consultant pursuant to this Agreement, with payment being rendered as part of the transaction costs associated with any "Sale of the Company" (as defined below). In the event of a Sale of the Company, Consultant will be paid $50,000.00 from the net proceeds from such transaction as part of and pursuant to the terms of the Company's Management Incentive Plan, assuming he completes the full term of this Agreement or helps sell the Company to the acquiring entity. The Company will not make any deductions from any amounts payable to Consultant for taxes or other required withholdings. Taxes or other required withholdings shall be the sole responsibility of Consultant. b. EXPENSES. Consultant will be reimbursed for all out-of-pocket expenses such as travel, lodging, and the like, which are incurred at the request of and approved by the Company. All other expenses are the responsibility of the Consultant. A "Sale of the Company" means one or a series of related transactions resulting in (i) the consummation of a sale, transfer or other disposition of all or substantially all of the assets of the 1. 2 Company (determined on a consolidated basis) after the date of this Agreement to any person other than the Company or any of its direct or indirect subsidiaries, (ii) any transfer of voting power with respect to the Company's capital stock after the date of this Agreement (whether effected by agreement among stockholders, irrevocable proxy, voting trust, issuance or transfer of capital stock, merger, consolidation or other reorganization or means, including a reorganization under bankruptcy or insolvency laws) if, as a result of such transfer, the stockholders of the Company as of the date of this Agreement no longer hold voting power sufficient to elect a majority of the Board (or such surviving or resulting corporation) (including, but not limited to, any existing stockholder acquiring over fifty (50%) of the voting power of the Company), or (iii) the adoption by the Company of a plan of liquidation or dissolution (other than pursuant to a bankruptcy or insolvency) after the date of this Agreement. 5. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION a. OBLIGATION. The Consultant will hold the Company's Confidential Information, as defined below, in the strictest confidence and will not disclose or use the Confidential Information except as permitted by this Agreement in connection with the Services, unless expressly authorized to act otherwise in writing by an officer of the Company. The Consultant's obligations under this Section shall survive any termination of this Agreement. b. "CONFIDENTIAL INFORMATION." "Confidential Information" means trade secrets, confidential information, data or any other proprietary information of the Company. By way of illustration, but not limitation, "Confidential Information" includes (a) information relating to the Company's technology, including inventions, ideas, processes, formulas, data, know-how, designs and techniques; and (b) information regarding plans for research, development, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, suppliers and customers and the skills and compensation of the Company's employees. However, "Confidential Information" does not include information that is: (i) already known to the Consultant at the time of disclosure; (ii) publicly available or becomes publicly available without a breach by the Consultant; (iii) independently developed by the Consultant; or (iv) rightfully first received by the Consultant from a third party other than the Company. c. THIRD-PARTY CONFIDENTIAL INFORMATION. The Consultant understands that the Company has received and in the future will receive from third parties information that is confidential or proprietary ("Third-Party Information") subject to a duty on the part of the Company to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of this Agreement and thereafter, Consultant will hold Third-Party 2. 3 Information in the strictest confidence and will not disclose or use Third-Party Information except as permitted by the agreement between the Company and such third party, unless expressly authorized to act otherwise by an officer of the Company in writing (other than an officer who is also a principal of the Consultant). 6. RECOGNITION OF THE COMPANY'S RIGHTS; ASSIGNMENT OF PROPRIETARY RIGHTS. a. PROPRIETARY INFORMATION. All Proprietary Information shall be the sole property of the Company and its assigns, and the Company and its assigns shall be the sole owner of all patents, copyrights and other rights in connection with such Proprietary Information. b. Consultant hereby assigns to the Company Consultant's entire right, title and interest in and to any and all Inventions (and all Proprietary Rights with respect thereto) whether or not patentable or registrable under patent, copyright or similar statutes, made or conceived of or reduced to practice or learned by Consultant, either alone or jointly with others, during the term of this Agreement in the course of or as a result of performing advisory services hereunder. Consultant agrees that all such inventions are the sole property of the Company. Consultant understands that, to the extent this Agreement shall be construed in accordance with the laws of any state which precludes a requirement in an agreement to assign certain classes of inventions made by an individual acting as a Consultant, this paragraph 6(b) shall be interpreted not to apply to any invention which a court rules and/or the Company agrees falls within such classes. 7. TERMINATION a. FOR CONVENIENCE. Either party may terminate this Agreement at any time for any or for no reason by giving thirty (30) days written notice of termination to the other party. b. FOR CAUSE. The Company may immediately terminate the Consultant's engagement for Cause upon written notice of termination to the Consultant, with the particular Cause being specified in such notice. "Cause" means (a) the Consultant's failure or omission which has an adverse effect on the Company; (b) the Consultant's act or acts amounting to gross negligence to the detriment of the Company; (c) the Consultant's fraud or embezzlement of funds or property; or (d) the Consultant's failure to observe or perform any covenant, condition or provision of this Agreement; provided, however, where such failure is capable of remedy, such failure is not remedied within fifteen (15) business days after notice of such failure is given to the Consultant by the Company. 8. INDEPENDENT CONTRACTOR. The Consultant is hereby engaged as an independent contractor and not as an employee of the Company. In addition, the Consultant is providing the Services under this Agreement solely at his own direction and under his own supervision. Nothing herein shall be construed as creating an employer/employee relationship between the Company and the Consultant (including the Consultant's employees) or placing the parties in a partnership or joint venture relationship. Consultant will not be eligible for any employee benefits, cash bonuses or other commissions. 3. 4 9. GENERAL. a. Notices. Any notice required or permitted to be given to one party by the other party pursuant to this Agreement shall be in writing and shall be sent by machine-confirmed facsimile or personally delivered or sent by United States mail, certified or registered, return receipt requested, first class postage and charges prepaid, addressed to the parties as set forth below, or at such other address as shall be designated in writing as specified above by either party. Notices sent by facsimile or delivered in person shall be effective on the date of delivery. Notices sent by United States mail shall be effective on the third business day following its posting. THE CONSULTANT: Alexander E. Barkas, Ph.D. 102 University Avenue, Suite C Palo Alto, California 94301 THE COMPANY: BioStar, Inc. 6655 Lookout Road Boulder, CO 80301 (303) 530-3888 Attn: President/Chief Executive Officer b. ASSIGNMENT OF RIGHTS AND DELEGATION OF DUTIES. All rights and duties of the Company under this Agreement shall extend to its successors and assigns. The Consultant may not delegate or subcontract any of the Services to be provided under this Agreement, except with the Company's written permission. c. SEVERABLE PROVISIONS. The provisions of this Agreement are severable and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions, and any partially enforceable provision to the extent enforceable, shall nevertheless be binding and enforceable. d. WAIVER. The waiver by one party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach of the same or any other provision by the other party. e. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties with respect to its subject matter, and may not be changed orally, but only by an agreement in writing signed by the party against whom the enforcement of any waiver, change, modification, extension or discharge is sought. f. GOVERNING LAW. This Agreement is governed in accordance with the laws (other than choice-of-laws principles) of the State of Colorado. 4. 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the Effective Date. CONSULTANT /s/ Alexander E. Barkas -------------------------------------------- Alexander E. Barkas BIOSTAR, INC. /s/ Teresa W. Ayers --------------------------------------------- Teresa W. Ayers President and Chief Executive Officer 5. 6 APPENDIX A 1. CONSULTING SERVICES: A) Assist the Company in identifying and evaluating alternatives for creating shareholder value. B) Advise on strategic alternatives and opportunities. C) Consult directly with Teresa W. Ayers on operations issues as requested. D) Represent BioStar, Inc., when requested, in negotiations with other companies (buying/selling/product development). INITIALS: Consultant: /s/ AEB BioStar, Inc.: /s/ TWA --------- --------- 6. EX-10.92 38 AMND. & RESTATED CONSULT. SERVICES AGRMT.-BOLOGNA 1 AMENDED AND RESTATED CONSULTING SERVICES AGREEMENT THIS AMENDED AND RESTATED CONSULTING SERVICES AGREEMENT is made as of this 31st day of August, 1997, between BIOSTAR, INC., a Delaware corporation with principal offices at 6655 Lookout Road, Boulder, Colorado 80301 ("BIOSTAR"), and THOMAS A. BOLOGNA ("CONSULTANT"), with principal offices at 1221 First Ave., Apt. 1811, Seattle, WA 98101. Whereas BIOSTAR and CONSULTANT entered into a Consulting Services Agreement dated as of May 1, 1997 (the "Prior Agreement"); and Whereas BIOSTAR and CONSULTANT desire to amend the Prior Agreement as further set forth herein. Now, therefore, in consideration of the covenants set forth below CONSULTANT and BIOSTAR agree as follows: 1. BIOSTAR hereby engages the CONSULTANT to perform and furnish certain services as described in the attached EXHIBIT A hereto. 2. As full consideration for the services performed, the CONSULTANT: (a) Will be paid $1,500.00 per day for each full day of services rendered pursuant to this Agreement with payment being rendered monthly. (b) In addition, the CONSULTANT will be reimbursed for all out-of-pocket expenses such as travel, lodging, and the like, which are incurred at the request of and approved by BIOSTAR. (c) In the event of the Sale of the Company, CONSULTANT will be paid 0.25% of the net proceeds from the transaction, with a minimum amount of $50,000.00, assuming he completes the full term of this Agreement or helped sell BIOSTAR to the acquiring entity. A "Sale of the Company" means one or a series of related transactions resulting in (i) the 1. 2 consummation of a sale, transfer or other disposition of all or substantially all of the assets of the Company (determined on a consolidated basis) after the date of this Agreement to any person other than the Company or any of its direct or indirect subsidiaries, (ii) any transfer of voting power with respect to the Company's capital stock after the date of this Agreement (whether effected by agreement among stockholders, irrevocable proxy, voting trust, issuance or transfer of capital stock, merger, consolidation or other reorganization or means, including a reorganization under bankruptcy or insolvency laws) if, as a result of such transfer, the stockholders of the Company as of the date of this Agreement no longer hold voting power sufficient to elect a majority of the Board (or such surviving or resulting corporation) (including, but not limited to, any existing stockholder acquiring over fifty (50%) of the voting power of the Company), or (iii) the adoption by the Company of a plan of liquidation or dissolution (other than pursuant to a bankruptcy or insolvency) after the date of this Agreement. (d) The Company granted Mr. Bologna an option to purchase 53,336 shares of Common Stock priced at $0.23 per share, of which 26,668 vested under the terms of the Prior Agreement. CONSULTANT and BIOSTAR agree to terminate the option with regard to the remaining unvested shares. All payments under this Agreement shall be made to Mr. Bologna, with mailing address of 1221 First Ave., Apt. 1811, Seattle, WA 98101. 3. The parties warrant and represent that they have the right to enter into this Agreement. The CONSULTANT further warrants and represents that the terms of this Agreement are not inconsistent with other contractual obligations, expressed or implied, which he may have. 4. In view of BIOSTAR'S proprietary rights and interests concerning its facilities and technology, the CONSULTANT agrees that during the term of any subsequent extension of this Agreement and for a period of five (5) years thereafter, the CONSULTANT shall hold in confidence any information concerning BIOSTAR or the field of diagnostic products which is disclosed to the CONSULTANT by BIOSTAR or that results from services under this Agreement. Such information includes, but is not limited to, confidential or proprietary information, 2. 3 materials, know-how and other data, both technical and nontechnical. The CONSULTANT shall not disclose such information to any third party or use such information for any purpose, except as provided herein, without the prior written approval by BIOSTAR. The CONSULTANT shall have no obligations with respect to any portion of such information which: (A) is, or later becomes, generally available to the public by use, publication or the like, through no fault of the CONSULTANT; or (B) is obtained from a third party who had the legal right to disclose the same to the CONSULTANT; or (C) the CONSULTANT already possesses, as evidenced by his written records, predating receipt thereof from BIOSTAR. The CONSULTANT further agrees that during the term of this Agreement, he will not disclose to BIOSTAR any information which in confidential or proprietary to himself or any third party. 5. The CONSULTANT agrees that any information, including but not limited to discoveries, inventions, innovations, suggestions, know-how, ideas and reports made by the CONSULTANT in connection with the services performed by CONSULTANT under this Agreement shall become the sole property of BIOSTAR and shall be disclosed to BIOSTAR. The CONSULTANT will treat such new developments as information which is subject to the confidentiality provisions of paragraph four (4) herein. BIOSTAR shall have the unrestricted right to use all new developments under this Agreement. 6. It is understood that no patent right or license is hereby granted to either party by this Agreement and that the disclosure of proprietary information shall not result in any obligation to grant either party any rights in and to the subject matter of the other party. 3. 4 7. This Agreement shall be effective through December 31, 1998, and may be extended upon mutually written agreement of the parties. However, either party may terminate this Agreement upon thirty (30) days written notice. Any rights or obligations set forth herein, which are accrued prior to the termination of this Agreement, shall survive termination of this Agreement. Payments under paragraph 2A will be paid on a pro rata basis if this Agreement is terminated prior to December 31, 1998. 8. The relationship created by this Agreement shall be that of independent contractor without the authority to bind or act as agent for BIOSTAR or its employees for any purpose. 9. Neither party hereto will use the name of the other party in publicity or advertising involving this Agreement without the prior written approval of the other party hereto. 10. This Agreement shall be governed by the laws of the State of Colorado, U.S.A., and the parties hereby submit to the jurisdiction of the Colorado courts, both state and federal. 11. No modification to this Agreement shall be effective unless made in writing and signed by a duly authorized representative of each party. 12. This Agreement constitutes the entire Agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings between the parties (whether written or oral) relating to said subject matter. IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates set forth below. BIOSTAR, INC. CONSULTANT By: /s/ Teresa W. Ayers By: /s/ Thomas A. Bologna ----------------------------------------- ------------------------------ Name: Teresa W. Ayers Name: Thomas A. Bologna --------------------------------------- ---------------------------- Title: President/Chief Executive Officer Date: 12/18/97 -------------------------------------- ---------------------------- Date: 11/26/97 --------------------------------------- 4. 5 EXHIBIT A (a) Assist the Company in identifying and evaluating alternatives for creating shareholder value. (b) Advise on strategic alternatives and opportunities. (c) Consult directly with Teresa W. Ayers on operations issues as requested. (d) Represent BioStar, Inc., when requested, in negotiations with other companies (buying/selling/product development). 5. EX-10.93 39 1995 EQUITY INCENTIVE PLAN 1 BIOSTAR, INC. 1995 EQUITY INCENTIVE PLAN ADOPTED APRIL 20, 1995 AMENDED DECEMBER 6, 1996 1. PURPOSES. (a) The purpose of the Plan is to provide a means by which selected Employees and Directors of and Consultants to the Company, and its Affiliates, may be given an opportunity to benefit from increases in value of the stock of the Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, and (iii) stock bonuses, all as defined below. (b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees or Directors of or Consultants to the Company or its Affiliates, to secure and retain the services of new Employees, Directors and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (c) The Company intends that the Stock Awards issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), be either (i) options granted pursuant to Section 6 hereof, including Incentive Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses granted pursuant to Section 7 hereof. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. 2. DEFINITIONS. (a) "AFFILIATE" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code. (b) "BOARD" means the Board of Directors of the Company. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan. 1. 2 (e) "COMPANY" means BioStar, Inc., a Delaware corporation. (f) "CONSULTANT" means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the employment or relationship as a Director or Consultant is not interrupted or terminated. The Board, in its sole discretion, may determine whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, Affiliates or their successors. (h) "COVERED EMPLOYEE" means the Chief Executive Officer and the four (4) other highest compensated officers of the Company. (i) "DIRECTOR" means a member of the Board. (j) "DISINTERESTED PERSON" means a Director who either (i) was not during the one year prior to service as an administrator of the Plan granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any of its Affiliates entitling the participants therein to acquire equity securities of the Company or any of its Affiliates except as permitted by Rule 16b-3(c)(2)(i); or (ii) is otherwise considered to be a "disinterested person" in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or interpretations of the Securities and Exchange Commission. (k) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Affiliate. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (m) "FAIR MARKET VALUE" means, as of any date, the value of the common stock of the Company determined as follows and in each case in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations: (1) If the common stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") 2. 3 System, the Fair Market Value of a share of common stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in common stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (2) If the common stock is quoted on the NASDAQ System (but not on the National Market System thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a share of common stock shall be the mean between the bid and asked prices for the common stock on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (3) In the absence of an established market for the common stock, the Fair Market Value shall be determined in good faith by the Board. (n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (p) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (q) "OPTION" means a stock option granted pursuant to the Plan. (r) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (s) "OPTIONEE" means an Employee, Director or Consultant who holds an outstanding Option. (t) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (as defined in the Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an affiliated corporation receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an affiliated corporation at any time, and is not currently receiving compensation for 3. 4 personal services in any capacity other than as a Director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (u) "PLAN" means this BioStar, Inc. 1995 Equity Incentive Plan. (v) "RULE 16B-3" MEANS Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (w) "STOCK AWARD" means any right granted under the Plan, including any Option and any stock bonus. (x) "STOCK AWARD AGREEMENT" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. 3. ADMINISTRATION. (a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory Stock Option, a stock bonus, or a combination of the foregoing; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to a Stock Award; and the number of shares with respect to which a Stock Award shall be granted to each such person. (2) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan or a Stock Award as provided in Section 13. (c) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members (the "Committee"), all of the members of which Committee shall be Disinterested Persons and may also be, in the discretion of the Board, Outside Directors. If administration is delegated to a Committee, the Committee 4. 5 shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board (and references in this Plan to the Board shall thereafter be to the Committee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Additionally, prior to the date of the first registration of an equity security of the Company under Section 12 of the Exchange Act, and notwithstanding anything to the contrary contained herein, the Board may delegate administration of the Plan to any person or persons and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. Notwithstanding anything in this Section 3 to the contrary, the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Options to eligible persons who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Option, or (ii) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code. (d) Any requirement that an administrator of the Plan be a Disinterested Person shall not apply (i) prior to the date of the first registration of an equity security of the Company under Section 12 of the Exchange Act, or (ii) if the Board or the Committee expressly declares that such requirement shall not apply. Any Disinterested Person shall otherwise comply with the requirements of Rule 16b-3. 4. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section 12 relating to adjustments upon changes in stock, the stock that may be sold or awarded pursuant to Stock Awards shall not exceed in the aggregate six million two hundred fifty thousand (6,250,000) shares of the Company's common stock. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not purchased under such Stock Award shall revert to and again become available for issuance under the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. (a) Incentive Stock Options may be granted only to Employees. Nonstatutory Stock Options may be granted only to Employees, Directors or Consultants. Stock bonuses may be granted only to Employees or Consultants. 5. 6 (b) A Director shall in no event be eligible for the benefits of the Plan unless at the time discretion is exercised in the selection of the Director as a person to whom Options may be granted, or in the determination of the number of shares which may be covered by Options granted to the Director: (i) the Board has delegated its discretionary authority over the Plan to a Committee which consists solely of Disinterested Persons; or (ii) the Plan otherwise complies with the requirements of Rule 16b-3. The Board shall otherwise comply with the requirements of Rule 16b-3. This subsection 5(b) shall not apply (i) prior to the date of the first registration of an equity security of the Company under Section 12 of the Exchange Act, or (ii) if the Board or Committee expressly declares that it shall not apply. (c) No person shall be eligible for the grant of an Option if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) TERM. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (b) PRICE. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. The exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. (c) CONSIDERATION. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, either at the time of the grant or exercise of the Option, (a) by delivery to the Company of other common stock of the Company, (b) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the Option is 6. 7 granted or to whom the Option is transferred pursuant to subsection 6(d), or (c) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Incentive Stock Option is granted only by such person. A Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order satisfying the requirements of Rule 16b-3 and the rules thereunder (a "QDRO"), and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person or any transferee pursuant to a QDRO. The person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (e) VESTING. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary but in each case will provide for vesting of at least twenty percent (20%) per year of the total number of shares subject to the Option. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. (f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (or such longer or shorter period, which in no event shall be less than thirty (30) days, specified in the Option Agreement), or (ii) the 7. 8 expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period, which in no event shall be less than six (6) months, specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (h) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or within a period specified in the Option after the termination of, the Optionee's Continuous Status as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option at the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period, which in no event shall be less than six (6) months, specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (i) EARLY EXERCISE. The Option may, but need not, include a provision whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased shall be subject to a repurchase right in favor of the Company, with the repurchase price to be equal to the original purchase price of the stock, or to any other restriction the Board determines to be appropriate; provided, however, that (i) the right to repurchase at the original purchase 8. 9 price shall lapse at a minimum rate of twenty percent (20%) per year over five (5) years from the date the Option was granted, and (ii) such right shall be exercisable only within (a) the ninety (90) day period following the termination of employment or the relationship as a Director or Consultant, or (b) such longer period as may be agreed to by the Company and the Optionee (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code (regarding "qualified small business stock")), and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares. Should the right of repurchase be assigned by the Company, the assignee shall pay the Company cash equal to the difference between the original purchase price and the stock's Fair Market Value if the original purchase price is less than the stock's Fair Market Value. 7. TERMS OF STOCK BONUSES. Each stock bonus agreement shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The terms and conditions of stock bonus agreements may change from time to time, and the terms and conditions of separate agreements need not be identical, but each stock bonus agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions as appropriate: (a) CONSIDERATION. Eligible participants in the Plan shall be awarded stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit. No payment, whether in cash, by check, or otherwise, shall be required as consideration for a stock bonus. (b) TRANSFERABILITY. No rights to acquire a stock bonus shall be transferable except by will or the laws of descent and distribution. 8. CANCELLATION AND RE-GRANT OF OPTIONS. The Board or the Committee shall have the authority to effect, at any time and from time to time (i) the repricing of any outstanding Options under the Plan and/or (ii) with the consent of the affected holders of Options, the cancellation of any outstanding Options and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of stock, but having an exercise price per share not less than eighty-five percent (85%) of the Fair Market Value (one hundred percent (100%) of the Fair Market Value in the case of an Incentive Stock Option or, in the case of a ten percent (10%) stockholder (as defined in subsection 5(c)), not less than one hundred and ten percent (110%) of the Fair Market Value) per share of stock on the new grant date. 9. 10 9. COVENANTS OF THE COMPANY. (a) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or any stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Stock Awards unless and until such authority is obtained. 10. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company. 11. MISCELLANEOUS. (a) Neither an Employee, Director, Consultant nor any person to whom a Stock Award is transferred under subsection 6(d) or 7(b) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (b) Throughout the term of any Stock Award, the Company shall deliver to the holder of such Stock Award, not later than one hundred twenty (120) days after the close of each of the Company's fiscal years during the term of such Stock Award, a balance sheet and an income statement. This section shall not apply when issuance is limited to key employees whose duties in connection with the Company assure them access to equivalent information. (c) Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Employee, Director, Consultant or other holder of Stock Awards any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment or relationship as a Director or Consultant of any Employee, Director, Consultant or other holder of Stock Awards with or without cause. 10. 11 (d) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options granted after 1986 are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (e) The Company may require any person to whom a Stock Award is granted, or any person to whom a Stock Award is transferred under subsection 6(d) or 7(b), as a condition of exercising or acquiring stock under any Stock Award, (1) to give written assurances satisfactory to the Company as to such person's preexisting personal or business relationship with the Company or the Company's officers, directors, or controlling persons, and/or such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of acquiring stock under the Stock Award; (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Stock Award for such person's own account and not with any present intention of selling or otherwise distributing the stock; and (3) to give written assurances as to any additional matters that counsel for the Company determines to be appropriate in order to establish compliance with applicable securities laws. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (f) To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under such Stock Award by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the common stock otherwise issuable to the participant as a result of the acquisition of stock under the Stock Award; or (3) delivering to the Company owned and unencumbered shares of the common stock of the Company. 11. 12 12. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any Stock Award (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan pursuant to subsection 4(a), and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of shares and price per share of stock subject to such outstanding Stock Awards. (b) In the event of: (1) a merger or consolidation in which the Company is not the surviving corporation or (2) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise then to the extent permitted by applicable law: (i) any surviving corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar Stock Awards for those outstanding under the Plan, or (ii) such Stock Awards shall continue in full force and effect. In the event any surviving corporation refuses to assume or continue such Stock Awards, or to substitute similar options for those outstanding under the Plan, then such Stock Awards shall be terminated if not exercised prior to such event. In the event of a dissolution or liquidation of the Company, any Stock Awards outstanding under the Plan shall terminate if not exercised prior to such event. 13. AMENDMENT OF THE PLAN AND STOCK AWARDS. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (1) Increase the number of shares reserved for Stock Awards under the Plan; (2) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code); or (3) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code or to comply with the requirements of Rule 16b-3. 12. 13 (b) The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees, Directors or Consultants with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (d) Rights and obligations under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. (e) The Board may amend the terms and conditions of any Stock Award; provided, however, that such amendments shall not be inconsistent with the terms of the Plan, and provided further, the rights and obligations under a Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted, and (ii) such person consents in writing. 14. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on April 19, 2005, which shall be within ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Stock Award granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the Stock Award was granted. 15. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no Stock Awards granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months 13. 14 before or after the date the Plan is adopted by the Board, and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California. 14. EX-10.94 40 EXECUTIVE COMPENSATION AND BENEFITS CONTINUATION 1 CONFIDENTIAL EXECUTIVE COMPENSATION AND BENEFITS CONTINUATION AGREEMENT THIS EXECUTIVE COMPENSATION AND BENEFITS CONTINUATION AGREEMENT (the "AGREEMENT") is entered into this 14th day of October, 1997 (the "Effective Date") between KENNETH R. LYNN ("EXECUTIVE") and CORTECH, INC., a Delaware corporation (the "COMPANY"). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specified events as a means of reducing the inevitable distraction of Executive created by a pending or threatened Change of Control and of encouraging Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control. Certain capitalized terms used in this Agreement are defined in Article VII. The Company and Executive hereby agree as follows: ARTICLE I EMPLOYMENT BY THE COMPANY 1.1 Executive is currently employed as the President and Chief Executive Officer of the Company. 1.2 This Agreement shall remain in full force and effect so long as Executive is employed by the Company; provided, however, that the rights and obligations of the parties hereto contained in Articles III through VIII shall survive any such termination. 1.3 The Company and Executive each agree and acknowledge that Executive is employed by the Company as an "at-will" employee and that either Executive or the Company has the right at any time to terminate Executive's employment with the Company, with or without cause or advance notice, for any reason or for no reason. The Company and Executive wish to set forth the compensation and benefits which Executive shall be entitled to receive in the event that Executive's employment with the Company terminates under the circumstances described in Article II of this Agreement. 1.4 The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive's past services to the Company, Executive's continued employment with the Company and Executive's execution of the waiver and release referred to in Section 4.2. 1. 2 ARTICLE II TERMINATION EVENTS 2.1 TERMINATION PRIOR TO CHANGE OF CONTROL. (a) Prior to the occurrence of a Change of Control, (i) if Executive's employment is involuntarily terminated at any time by the Company without Cause or (ii) if Executive terminates his employment on account of Good Reason, the termination of employment will be a Termination Event, and the Company shall pay Executive the compensation and benefits described in Article III; provided, however, that if such termination is also described in Section 2(a)(i) of the Severance Plan, compensation and benefits shall be paid to Executive pursuant to this Agreement and not pursuant to the Severance Plan, and this Agreement shall be considered to have amended the Severance Plan for this purpose. (b) Prior to the occurrence of a Change of Control, if Executive's employment (i) is involuntarily terminated by the Company with Cause, (ii) is terminated on account of death or disability or (iii) is terminated by Executive for any other reason other than Good Reason, including, without limitation, retirement, then the termination of employment will not be a Termination Event, Executive will not be entitled to receive any payments or benefits under the provisions of this Agreement, except as otherwise specifically set forth herein, and the Company will cease paying compensation or providing benefits to Executive as of Executive's termination date, except as otherwise provided by a written agreement between Executive and the Company. 2.2 TERMINATION ON OR AFTER CHANGE OF CONTROL. Within thirty (30) months after the occurrence of a Change of Control, (i) if Executive's employment is involuntarily terminated at any time by the Company without Cause or (ii) if Executive terminates his employment on account of Good Reason, the termination of employment will be a Termination Event, and the Company shall pay Executive the compensation and benefits described in Article III; provided, however, that if such termination is also described in Section 2(a)(i) of the Severance Plan, compensation and benefits shall be paid to Executive pursuant to this Agreement and not pursuant to the Severance Plan, and this Agreement shall be considered to have amended the Severance Plan for this purpose. ARTICLE III COMPENSATION AND BENEFITS PAYABLE 3.1 RIGHT TO BENEFITS. If a Termination Event occurs, Executive shall be entitled to receive the benefits described in this Agreement subject to the restrictions and limitations set forth in Article IV. If a Termination Event does not occur, Executive shall not be entitled to receive any benefits described in this Agreement, except as otherwise specifically set forth herein. 3.2 SALARY CONTINUATION. Upon the occurrence of a Termination Event, Executive shall be entitled to receive a salary continuation benefit equal to twenty four (24) months of Executive's Base Salary, less any applicable withholding of federal, state or local tax. Such 2. 3 lump sum payment shall be made no later than the date the employee agreement and release described in Section 4.2 becomes effective. If Executive dies after a Termination Event but prior to the making of such lump sum payment, such payment shall be made to Executive's Salary Continuation Beneficiary. 3.3 HEALTH INSURANCE COVERAGE. Following the occurrence of a Termination Event, to the extent provided by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the Company's group health insurance policies, Executive and his covered dependents will be eligible to continue their health insurance benefits at their own expense, and later, to convert to an individual policy if they wish. If Executive elects such COBRA continuation, the Company shall pay Executive's and his covered dependents' COBRA continuation premiums for eighteen (18) months following the date of the Termination Event, provided that the Company's obligation to make such payments shall cease immediately if Executive becomes eligible for other health insurance benefits at the expense of a new employer. Executive agrees to notify a duly authorized officer of the Company, in writing, immediately upon acceptance of any employment following the Termination Event which provides health insurance benefits. This Section 3.3 provides only for the Company's payment of COBRA continuation premiums for the period specified above. This Section 3.3 is not intended to affect, nor does it affect, the rights of Executive, or Executive's covered dependents, under any applicable law with respect to health insurance continuation coverage. If the Company does not maintain a group health insurance policy at the time of the Termination Event, then the Company shall provide Executive and his covered dependents with individual policies of health insurance for eighteen (18) months following the date of the Termination Event or, if such policies cannot be purchased, shall pay to Executive a cash lump sum equal to the cost for eighteen (18) months of group health insurance for Executive and his covered dependents at the rate last in effect under the Company's group health insurance policy. 3.4 STOCK OPTIONS. Executive's stock options which are outstanding as of the date of the Termination Event (the "Stock Options") shall become fully vested to the extent not already vested, and Executive shall be permitted to exercise such Stock Options until the earlier of (i) the date such Stock Options would otherwise expire in the absence of a Termination Event and (ii) eighteen (18) months following the Termination Event. 3.5 BONUS. If a Termination Event occurs, Executive shall receive a bonus for the fiscal year in which the Termination Event occurs if Executive received a bonus payment for the year immediately preceding the year in which the Termination Event occurs. The amount of the bonus shall be equal the amount of the bonus payment, if any, paid to Executive for the year immediately preceding the year in which the Termination Event occurs, multiplied by a fraction, the numerator of which shall be the number of months Executive works for the Company during the year in which the Termination Event occurs, including the month in which the Termination Event occurs, and the denominator of which shall be twelve (12). 3. 4 3.6 MITIGATION. Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by retirement benefits after the date of the Termination Event, or otherwise. ARTICLE IV LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT 4.1 REDUCTION IN PAYMENTS AND BENEFITS; WITHHOLDING TAXES. The benefits provided under this Agreement are in lieu of any other benefit provided under any group severance plan of the Company in effect at the time of a Termination Event. The Company shall withhold appropriate federal, state or local income and employment taxes from any payments hereunder. 4.2 EMPLOYEE AGREEMENT AND RELEASE PRIOR TO RECEIPT OF BENEFITS. Upon the occurrence of a Termination Event, and prior to the receipt of any benefits under this Agreement on account of the occurrence of a Termination Event, Executive shall, as of the date of a Termination Event, execute an employee agreement and release in the form attached hereto as Exhibit A. It is understood that Executive has twenty-one (21) days to consider whether to execute such employee agreement and release, and Executive may revoke such employee agreement and release within seven (7) business days after execution of such employee agreement and release. If Executive does not execute such employee agreement and release within the twenty-one (21) day period, or if Executive revokes such employee agreement and release within the seven (7) business day period, no benefits shall be payable under this Agreement and this Agreement shall be null and void. 4.3 CERTAIN ADDITIONAL PAYMENTS. Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 4.3) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive from the Company an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. 4.4 AMENDMENT OR TERMINATION OF THIS AGREEMENT. This Agreement may be changed or terminated only upon the mutual written consent of the Company and Executive. The written consent of the Company to a change or termination of this Agreement must be 4. 5 signed by a duly authorized officer of the Company, after such change or termination has been approved by the Compensation Committee of the Company's Board of Directors. ARTICLE V OTHER RIGHTS AND BENEFITS NOT AFFECTED 5.1 NONEXCLUSIVITY. Nothing in the Agreement shall prevent or limit Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company and for which Executive may otherwise qualify, nor shall anything herein limit or otherwise affect such rights as Executive may have under any stock option or other agreements with the Company; provided, however, that in accordance with Section 4.1, any benefits provided hereunder shall be in lieu of any other severance payments to which Executive may otherwise be entitled, including, without limitation, under any employment contract or severance plan, including the Severance Plan. Except as otherwise expressly provided herein, amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company at or subsequent to the date of a Termination Event shall be payable in accordance with such plan, policy, practice or program. 5.2 EMPLOYMENT STATUS. This Agreement does not constitute a contract of employment or impose on Executive any obligation to remain as an employee, or impose on the Company any obligation (i) to retain Executive as an employee, (ii) to change the status of Executive as an at-will employee, or (iii) to change the Company's policies regarding termination of employment. ARTICLE VI NON-ALIENATION OF BENEFITS No benefit hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. ARTICLE VII DEFINITIONS For purposes of the Agreement, the following terms shall have the meanings set forth below: 7.1 "AGREEMENT" means this Executive Compensation and Benefits Continuation Agreement. 7.2 "BASE SALARY" means Executive's salary (excluding bonus, any other incentive or other payments and stock option exercises) paid by the Company in consideration for 5. 6 Executive's service during the twelve (12) months ended on the date of occurrence of a Termination Event, which is includable in the gross income of Executive for federal income tax purposes or which would have been includable in gross income except for an election either under Section 125 or 402(e)(3) of the Code or under the terms of a nonqualified deferred compensation arrangement sponsored by the Company. 7.3 "CAUSE" means misconduct, including: (i) conviction of any felony or any crime involving moral turpitude or dishonesty; (ii) participation in a fraud or act of dishonesty against the Company; (iii) willful and material breach of the Company's policies; (iv) intentional damage to the Company's property; (v) breach of the Proprietary Information Agreement, or any other agreements with the Company; or (vi) conduct by Executive which in the good faith and reasonable determination of the Board of Directors of the Company demonstrates gross unfitness to serve. Physical or mental disability shall not constitute "Cause." 7.4 "CHANGE OF CONTROL" means (i) a merger or consolidation in which the Company is not the surviving corporation; (ii) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; (iii) any other capital reorganization in which more than thirty percent (30%) of the shares of the Company entitled to vote are exchanged; (iv) a transaction or group of related transactions involving the sale of all or substantially all of the Company's assets; (v) the acquisition by any person, entity or group (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any subsidiary of the Company) of the beneficial ownership, directly or indirectly, of securities of the Company representing more than thirty percent (30%) of the combined voting power in the election of directors; (vi) the liquidation or winding up of the Company; or (vii) a change in the composition of the Company's Board of Directors such that, during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board, together with individuals who are Approved New Directors (as defined below), cease for any reason to have authority to cast at least a majority of the votes which all directors on the Board are entitled to vote. An Approved New Director shall be a Board member whose election, or the nomination for election by the Company's stockholders, was approved by a vote of a majority of the votes entitled to be cast by the directors then still in office who were directors at the beginning of the period. 7.5 "COMPANY" means Cortech, Inc. and any successor thereto. 7.6 "GOOD REASON" means a good faith determination by Executive that a material change in the business of the Company or a material change in Executive's duties has occurred, in either case measured by reference to such business or duties as of the Effective Date, in the case of a Termination Event prior to a Change of Control, or as of the date of the Change of Control, in the case of a Termination Event on or after a Change of Control. Anything in this Agreement to the contrary notwithstanding, a termination by Executive for any reason during the forty five (45) day period immediately following the date that is three (3) months following a Change of Control shall be deemed to be a termination on account of Good Reason for all purposes of this Agreement. 6. 7 7.7 "SALARY CONTINUATION BENEFICIARY" means such person or persons designated by Executive to receive the salary continuation benefit in accordance with Section 3.2 following Executive's death. The designation of the Salary Continuation Beneficiary shall be made in a writing signed by Executive and in a form acceptable to the Company. Executive may revoke and redesignate the Salary Continuation Beneficiary at any time and from time to time up to the date of Executive's death. In the absence of a written Salary Continuation Beneficiary designation by Executive, any salary continuation benefit payable to a Salary Continuation Beneficiary shall be paid to Executive's estate. 7.8 "SEVERANCE PLAN" means the Cortech, Inc. Executive Officers' Severance Benefit Plan, as such plan is in effect on the date of this Agreement and without regard to amendments to such plan after the date of this Agreement. 7.9 "TERMINATION EVENT" means a termination of employment described in Section 2.1(a) or 2.2. No other event shall be a Termination Event for purposes of this Agreement. ARTICLE VIII SOURCE OF PAYMENTS 8.1 ESTABLISHMENT OF BENEFITS TRUST. On or before the date that is ten (10) days following a Change of Control, the Company shall establish an irrevocable grantor trust (the "Benefits Trust") and shall contribute to the Benefits Trust a sum of money equal to (i) the lump sum salary continuation benefit to which Executive may become entitled pursuant to Section 3.2, plus (ii) eighteen (18) months of estimated COBRA continuation premiums pursuant to Section 3.3, plus (iii) the estimated bonus pursuant to Section 3.5, plus (iv) the estimated additional payment pursuant to Section 4.3. Such trust shall be in the form of a so-called "rabbi" trust as described in Internal Revenue Service Revenue Procedure 92-64. All payments to Executive or COBRA premiums paid for his or his dependents' benefit shall, to the extent of available Benefits Trust assets, be paid from the Benefits Trust, but the Company shall remain liable for the performance of all of its obligations under this Agreement to the extent that assets of the Benefits Trust are insufficient to discharge such obligations. 8.2 UNFUNDED STATUS. Notwithstanding the establishment and funding of the Benefits Trust, payments and benefits under this Agreement shall be considered "unfunded," as that term is used in Sections 201(2), 301(a)(3), 401(a)(11) and 4021(a)(6) of the Employee Retirement Income Security Act of 1974. Accordingly, the assets of the Benefits Trust shall be subject to the claims of the Company's creditors in the event of its bankruptcy or insolvency. ARTICLE IX GENERAL PROVISIONS 9.1 NOTICES. Any notices provided hereunder must be in writing and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery 7. 8 (including personal delivery by telex or facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed in the Company's payroll records. Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at his address as listed in the Company's payroll records. 9.2 SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein. 9.3 WAIVER. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement. 9.4 COMPLETE AGREEMENT. This Agreement, including Exhibits A and B, constitutes the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein. 9.5 COUNTERPARTS. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. 9.6 HEADINGS. The headings of the Articles and Sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof. 9.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably. 9.8 ATTORNEYS' FEES. If Executive brings any action pursuant to Section 9.9 to enforce his rights hereunder, he shall be entitled to recover his reasonable attorneys' fees and costs incurred in connection with such action, provided such action was not frivolous. 9.9 ARBITRATION. In order to ensure rapid and economical resolution of any dispute which may arise under this Agreement, Executive and the Company agree that any and all disputes or controversies, arising from or regarding the interpretation, performance, enforcement or termination of this Agreement shall be resolved by final and binding arbitration under the 8. 9 procedures set forth in the Arbitration Procedure attached hereto as Exhibit B and the then existing Judicial Arbitration and Mediation Services, Inc. ("JAMS") Rules of Practice and Procedure or the rules of practice and procedure of any successor entity to JAMS (except insofar as they are inconsistent with the procedures set forth in the enclosed Arbitration Procedure). BY ENTERING INTO THIS AGREEMENT, THE COMPANY AND EXECUTIVE ACKNOWLEDGE THAT THEY ARE WAIVING THEIR RIGHT TO JURY TRIAL OF ANY DISPUTE ARISING FROM OR REGARDING THE INTERPRETATION, PERFORMANCE, ENFORCEMENT OR TERMINATION OF THIS AGREEMENT. 9.10 CHOICE OF LAW. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of Colorado. 9.11 NON-PUBLICATION. The parties mutually agree not to disclose publicly the terms of this Agreement except to the extent that disclosure is mandated by applicable law; provided, however, that Executive may disclose the terms of this Agreement to members of his family and to his professional advisors. 9.12 CONSTRUCTION OF PLAN. In the event of a conflict between the text of this Agreement and any summary, description or other information regarding this Agreement, the text of the Agreement shall control. IN WITNESS WHEREOF,the parties have executed this Agreement on the day and year written above. CORTECH, INC. KENNETH R. LYNN /s/ Donald Kennedy /s/ Kenneth R. Lynn - -------------------------------- ------------------------------- By: Donald Kenndey, Ph.D., on behalf of the Board of Directors Exhibit A: Employee Agreement and Release Exhibit B: Arbitration Procedure 9. 10 EXHIBIT A EMPLOYEE AGREEMENT AND RELEASE I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE EXECUTIVE COMPENSATION AND BENEFITS CONTINUATION AGREEMENT. Except as otherwise set forth in this Agreement, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to the termination of my employment with the Company, including, but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of 1990; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify you pursuant to statute or any indemnification agreement. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (A) my waiver and release do not apply to any rights or claims that may arise after the Effective Date of this Agreement; (B) I have the right to consult with an attorney prior to executing this Agreement; (C) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (D) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (E) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date ("Effective Date"). By: ---------------------------------- Date: -------------------------------- 11 EXHIBIT B ARBITRATION PROCEDURE 1. The parties agree that any dispute that arises in connection with this Agreement or the termination of this Agreement shall be resolved by binding arbitration in the manner described below. 2. A party intending to seek resolution of any dispute under the Agreement by arbitration shall provide a written demand for arbitration to the other party, which demand shall contain a brief statement of the issues to be resolved. 3. The arbitration shall be conducted in Denver, Colorado by a mutually acceptable retired judge from the panel of Judicial Arbitration and Mediation Services, Inc. or any entity performing the same type of services that succeeds to its business ("JAMS"). At the request of either party, arbitration proceedings will be conducted in the utmost secrecy and, in such case, all documents, testimony and records shall be received, heard and maintained by the arbitrator in secrecy under seal, available for inspection only by the parties to the arbitration, their respective attorneys, and their respective expert consultants or witnesses who shall agree, in advance and in writing, to receive all such information confidentially and to maintain such information in secrecy, and make no use of such information except for the purposes of the arbitration, unless compelled by legal process. 4. The arbitrator is required to disclose any circumstances that might preclude the arbitrator from rendering an objective and impartial determination. In the event the parties cannot mutually agree upon the selection of a JAMS arbitrator, the President of JAMS shall designate the arbitrator. 5. The party demanding arbitration shall promptly request that JAMS conduct a scheduling conference within fifteen (15) days of the date of that party's written demand for arbitration or on the first available date thereafter on the arbitrator's calendar. The arbitration hearing shall be held within thirty (30) days after the scheduling conference or on the first available date thereafter on the arbitrator's calendar. Nothing in this paragraph shall prevent a party from at any time seeking temporary equitable relief, from JAMS or any court of competent jurisdiction, to prevent irreparable harm pending the resolution of the arbitration. 6. Discovery shall be conducted as follows: (a) prior to the arbitration any party may make a written demand for lists of the witnesses to be called and the documents to be introduced at the hearing; (b) the lists must be served within fifteen days of the date of receipt of the demand, or one day prior to the arbitration, whichever is earlier; and (c) each party may take no more than two depositions (pursuant to the procedures set forth in the Colorado Code of Civil Procedure) with a maximum of five hours of examination time per deposition, and no other form of pre- arbitration discovery shall be permitted. 1. 12 7. It is the intent of the parties that the Federal Arbitration Act ("FAA") shall apply to the enforcement of this provision. 8. The arbitrator shall apply Colorado law, including rules of evidence, and shall be able to decree any and all relief of an equitable nature, including, but not limited to such relief as a temporary restraining order, a preliminary injunction, a permanent injunction, or replevin of Company property. The arbitrator shall also be able to award actual, general or consequential damages, but shall not award any other form of damage (e.g., punitive damages). 9. The Company shall pay the arbitrator's fees and expenses, in addition to other expenses of the arbitration approved by the arbitrator, as long as Executive was not frivolous in commencing an arbitration proceeding; otherwise, the arbitrator shall have authority to award the payment of such fees and expenses to the prevailing party, as appropriate, in the discretion of the arbitrator. As provided in the Executive Compensation and Benefits Continuation Agreement, the Company shall pay Executive's and its own attorneys' fees, witness fees and other expenses incurred as long as Executive was not frivolous in commencing an arbitration proceeding. 10. The arbitrator shall render a written award setting forth the reasons for his or her decision. The decree or judgment of an award rendered by the arbitrator may be entered and enforced in any court having jurisdiction over the parties. The award of the arbitrator shall be final and binding upon the parties without appeal or review except as permitted by the FAA. 2. 13 February 12, 1998 Mr. Kenneth R. Lynn Cortech, Inc. 6850 North Broadway, Suite G Denver, CO 80221 Re: Amendment to Executive Compensation and Benefits Continuation Agreement Dear Ken: This letter refers to the Executive Compensation and Benefits Continuation Agreement dated October 14, 1997 by and between you and Cortech, Inc. (the "Agreement"). As part of the arrangements relating to that certain Agreement and Plan of Reorganization and Merger dated December 22, 1997 (the "Merger Agreement") among Cortech, Inc. ("Cortech"), BioStar, Inc. ("BioStar") and Cortech Merger Sub, Inc., a wholly owned subsidiary of Cortech ("Merger Sub"), pursuant to which Merger Sub will merge with and into BioStar (the "Merger"), you and Cortech have agreed to amend the Agreement as set forth in this letter. In consideration for three (3) months of the twenty-four (24) months of salary continuation benefit you are entitled to receive pursuant the Agreement, you agree (i) to provide Cortech with consulting services for up to 20 hours per week (on a non-cumulative basis) for the three (3) months following the Effective Time (as such term is defined in the Merger Agreement) of the Merger and your termination as Chief Executive Officer of Cortech and (ii) to defer three months of the salary continuation benefit set forth in Section 3.2 of the Agreement which would otherwise be payable following the Effective Time of the Merger. This three months of salary continuation benefit shall instead be paid to you on a month-to-month basis over the course of the three month consulting period. If you are unable to provide the consulting services described above due to death or disability, you or your beneficiary shall still be entitled to all benefits set forth under the Agreement, and this amendment will be deemed null and void. If you agree to amend the Agreement as set forth above, please indicate your acceptance by signing below. Very truly yours, CORTECH, INC. By: /s/ DIARMUID BORAN ---------------------- Name: Diarmuid Boran Title: Secretary AGREED TO AND ACCEPTED: /s/ KENNETH R. LYNN - ------------------------ Date: February 12, 1998 Kenneth R. Lynn ------------------ EX-10.95 41 AGREEMENT -- BORAN 1 EXHIBIT 10.95 AGREEMENT This Agreement is made as of February 12, 1998 (the "Effective Date") by and between CORTECH, INC., a Delaware corporation (the "Company"), and DIARMUID BORAN, an individual ("Employee"), with reference to the following facts: A. Employee is currently employed as Vice President, Corporate Development and Planning of the Company; B. The Company has entered into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement") dated December 22, 1997 among the Company, BioStar, Inc., a Delaware corporation ("BioStar"), and Cortech Merger Sub, Inc. ("Merger Sub"). Pursuant to the Merger Agreement and subject to various conditions therein, Merger Sub will merge with and into BioStar (the "Merger") on the closing date (the "Closing"); and C. The Company desires to provide Employee with the compensation and benefits described herein upon the occurrence of specified events in order to ensure that Employee will continue to provide services to the Company. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties agree as follows: Article I EMPLOYMENT BY THE COMPANY FOLLOWING THE MERGER Upon consummation of the Merger, the Company agrees to employ Employee and Employee agrees to accept such employment upon the terms and conditions hereinafter set forth. 1.1 Term. The Company shall employ Employee as a full-time consultant for a period of six (6) months following the Closing. 1.2 Compensation. Employee shall receive as compensation for his employment as a consultant by the Company following consummation of the Merger his current base pay (excluding bonuses, draws or commissions) ("Salary"), less required deductions for Social Security, withholding taxes and other authorized deductions (collectively, "Deductions"), payable at times when employees of the Company normally receive their compensation, as well as the benefits that he currently receives. Article II SEVERANCE BENEFITS Upon consummation of the Merger, Employee shall be entitled to benefits under the Cortech, Inc. Executive Officers' Severance Benefit Plan effective September 18, 1995. The 2 Company, however, hereby agrees to pay Employee all such benefits (except for health care benefits) at the Closing. Article III TERMINATION 3.1 Termination with Cause. In the event that (i) Employee's employment following the Closing is involuntarily terminated by the Company with Cause (as defined in Section 3.2), (ii) Employee's employment following the Closing is terminated on account of death or disability or (iii) Employee voluntarily terminates employment with the Company other than for Good Reason (as defined in Section 3.3), the Company shall only be obligated to pay Employee all payments required by law including the salary Employee earned up through the date his employment with the Company was terminated (the "Separation Date"). 3.2 Cause. The term "Cause" means misconduct including (i) conviction of any felony or any crime involving moral turpitude or dishonesty, (ii) participation in a fraud or act of dishonesty against the Company, (iii) willful and material breach of the Company's policies, (iv) breach of the Proprietary Information Agreement or any other agreement executed with the Company, (v) intentional damage to the Company's property or (vi) conduct which in the good faith and reasonable determination of the Company's chief executive officer demonstrates gross unfitness to serve. Physical and/or mental disability shall not constitute "Cause." 3.3 Good Reason. The term "Good Reason" means (i) a reduction of Employee's rate of compensation, (ii) a reduction in the package of welfare benefit plans provided to Employee (except that employee contributions may be raised to the extent of any cost increases by third parties) or (iii) a request that Employee relocate to a worksite that is more than 40 miles from his prior worksite. Article IV EMPLOYMENT BY THE COMPANY IF THE MERGER IS NOT CONSUMMATED 4.1 Severance Benefit. In the event the Merger is not consummated and Employee is involuntarily terminated without Cause, the Company agrees to pay Employee, in consideration for Employee providing the services set forth in Section 4.2 and executing and delivering to the Company a general waiver and release on the form provided by the Company which releases the Company from any and all claims Employee may have against the Company, a sum equal to eighteen (18) months of his current Salary, less Deductions. The Company shall pay this sum to Employee in four installments. The first installment, equal to twelve (12) months of Employee's current Salary, less Deductions, shall be due and payable on the Separation Date. The second, third and fourth installments, each equal to two (2) months of Employee's current Salary, less Deductions, shall be due and payable, respectively, on the date two (2) months, four (4) months and six (6) months after the Separation Date. In addition, the Company shall pay Employee all accrued and unused vacation and, if Employee elects continuation coverage and does not obtain coverage under another company's plan, the Company shall pay Employee's and, if covered prior to the Separation Date, Employee's dependents' health and dental plan premiums for coverage required under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA Payments") for 18 months following the Separation Date. -2- 3 4.2 Employment as Consultant. In event the Merger is not consummated, Employee shall work for the Company as a consultant for twenty (20) hours a week for the six (6) months following Employee's Separation Date (for a total of 520 hours). Article V GENERAL PROVISIONS 5.1 Survival. The obligations and rights imposed upon the parties hereto by the provisions of this Agreement which relate to acts or events subsequent to the termination of this Agreement shall survive the termination of this Agreement and shall remain fully effective thereafter. 5.2 Severability. Should any one or more of the provisions of this Agreement be determined to be illegal or unenforceable in any relevant jurisdiction, then such illegal or unenforceable provision shall be modified by the proper court, if possible, but only to the extent necessary to make such provision enforceable, and such modified provision and all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement shall be given effect separately from the provision or portion thereof determined to be illegal or unenforceable and shall not be affected thereby; provided, that any such modification shall apply only with respect to the operation of this Agreement in the particular jurisdiction in which such determination of illegality or unenforceability is made. 5.3 Waiver. The failure of either party to enforce any provision of this Agreement shall not be construed as a waiver of any such provision, nor prevent such party thereafter from enforcing such provision or any other provision of this Agreement. The rights granted both parties herein are cumulative and the election of one shall not constitute a waiver of such party's right to assert all other legal remedies available under the circumstances. 5.4 Parties in Interest. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties hereto and the successors, assigns and affiliates of Employer, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third person to any party to this Agreement, nor shall any provision give any third person any right of subrogation or action over or against any party to this Agreement. 5.5 Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by the Company and Employee, and their respective successors, assigns, heirs, executors and administrators, except that Employee may not assign any of her duties hereunder and may not assign any of her rights hereunder without the written consent of the Company, which consent shall not be unreasonably withheld. 5.6 Entire Agreement. This Agreement contains the entire agreement of the parties and no representation, inducement, promise or agreement, oral or otherwise, between the parties not embodied herein or the Exhibits attached hereto shall be of any force or effect. No - 3 - 4 modification, termination or attempted waiver shall be valid unless in writing and signed by the party against whom such modification, termination or waiver is sought to be enforced. 5.7 Arbitration. In order to ensure the rapid and economical resolution of any dispute which may arise under or in connection with this Agreement, Employee and the Company agree that any and all disputes or controversies arising from or regarding the interpretation, performance, enforcement or termination of this Agreement shall be resolved by final and binding arbitration under the procedures set forth in the Arbitration Procedure attached hereto as Exhibit "A" and the then existing Judicial Arbitration and Mediation Services, Inc. ("JAMS") Rule of Practice and Procedure or the rules of practice and procedure of any successor entity to JAMS (except insofar as they are inconsistent with the procedures set forth in Exhibit "B"). BY ENTERING INTO THIS AGREEMENT, THE COMPANY AND EMPLOYEE ACKNOWLEDGE THAT THEY ARE WAIVING THEIR RIGHT TO JURY TRIAL OF ANY DISPUTE ARISING FROM OR REGARDING THE INTERPRETATION, PERFORMANCE, ENFORCEMENT OR TERMINATION OF THIS AGREEMENT. 5.8 Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the laws of the State of Colorado. 5.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. THE COMPANY: CORTECH, INC., a Delaware corporation By:/s/KENNETH R. LYNN ------------------------- Kenneth R. Lynn, CEO EMPLOYEE: /s/DIARMUID BORAN - ---------------------------- Diarmuid Boran - 4 - 5 EXHIBIT "A" ARBITRATION PROCEDURE 1. The parties agree that any dispute that arises in connection with this Agreement or the termination of this Agreement shall be resolved by binding arbitration in the manner described below. 2. A party intending to seek resolution of any dispute under the Agreement by arbitration shall provide a written demand for arbitration to the other party, which demand shall contain a brief statement of the issues to be resolved. 3. The arbitration shall be conducted in Denver, Colorado by a mutually acceptable retired judge from the panel of Judicial Arbitration and Mediation Services, Inc. or any entity performing the same type of services that succeeds to its business ("JAMS"). At the request of either party, arbitration proceedings will be conducted in the utmost secrecy and, in such case, all documents, testimony and records shall be received, heard and maintained by the arbitrator in secrecy under seal, available for inspection only by the parties to the arbitration, their respective attorneys, and their respective expert consultants or witnesses who shall agree, in advance and in writing, to receive all such information confidentially and to maintain such information in secrecy, and make no use of such information except for the purposes of the arbitration, unless compelled by legal process. 4. The arbitrator is required to disclose any circumstances that might preclude the arbitrator from rendering an objective and impartial determination. In the event the parties cannot mutually agree upon the selection of a JAMS arbitrator, the President of JAMS shall designate the arbitrator. 5. The party demanding arbitration shall promptly request that JAMS conduct a scheduling conference within fifteen (15) days of the date of that party's written demand for arbitration or on the first available date thereafter on the arbitrator's calendar. The arbitration hearing shall be held within thirty (30) days after the scheduling conference or on the first available date thereafter on the arbitrator's calendar. Nothing in this paragraph shall prevent a party from at any time seeking temporary equitable relief, from JAMS or any court of competent jurisdiction, to prevent irreparable harm pending the resolution of the arbitration. 6. Discovery shall be conducted as follows: (a) prior to the arbitration any party may make a written demand for lists of the witnesses to be called and the documents to be introduced at the hearing; (b) the lists must be served within fifteen days of the date of receipt of the demand, or one day prior to the arbitration, whichever is earlier; and (c) each party may take no more than two depositions (pursuant to the procedures set forth in the Colorado Code of Civil Procedure) with a maximum of five hours of examination time per deposition, and no other form of pre-arbitration discovery shall be permitted. 7. It is the intent of the parties that the Federal Arbitration Act ("FAA") shall apply to the enforcement of this provision. - 1 - 6 8. The arbitrator shall apply Colorado law, including rules of evidence, and shall be able to decree any and all relief of an equitable nature, including, but not limited to such relief as a temporary restraining order, a preliminary injunction, a permanent injunction, or replevin of Company property. The arbitrator shall also be able to award actual, general or consequential damages, but shall not award any other form of damage (e.g., punitive damages). 9. The Company shall pay the arbitrator's fees and expenses, in addition to other expenses of the arbitration approved by the arbitrator, as long as Executive was not frivolous in commencing an arbitration proceeding; otherwise, the arbitrator shall have authority to award the payment of such fees and expenses to the prevailing party, as appropriate, in the discretion of the arbitrator. As provided in the Executive Compensation and Benefits Continuation Agreement, the Company shall pay Executive's and its own attorneys' fees, witness fees and other expenses incurred as long as Executive was not frivolous in commencing an arbitration proceeding. 10. The arbitrator shall render a written award setting forth the reasons for his or her decision. The decree or judgment of an award rendered by the arbitrator may be entered and enforced in any court having jurisdiction over the parties. The award of the arbitrator shall be final and binding upon the parties without appeal or review except as permitted by the FAA. - 2 - EX-23.1 42 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report (and all references to our Firm) included in or made part of this registration statement. ARTHUR ANDERSEN LLP Denver, Colorado February 12, 1998 EX-23.2 43 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated February 12, 1998, with respect to the financial statements of BioStar, Inc. included in the Joint Proxy Statement of Cortech, Inc. and BioStar, Inc. that is made part of the Registration Statement and related Prospectus of Cortech, Inc. for the registration of 28,500,000 shares of its common stock. ERNST & YOUNG LLP Denver, Colorado February 12, 1998 EX-27.1 44 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM S-4 REGISTRATION STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND RELATED FOONOTES INCLUDED THEREIN. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 11,562 3,841 0 0 0 15,711 10,326 9,592 16,445 1,062 0 0 0 37 15,346 16,445 3,451 3,451 0 0 11,168 0 0 (6,778) 0 (6,778) 0 0 0 (6,778) (0.37) (0.37)
EX-99.1 45 PROXY CART OF CORTECH, INC. 1 EXHIBIT 99.1 PROXY CORTECH, INC. PROXY 6850 N. BROADWAY, SUITE G, DENVER, COLORADO 80221 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CORTECH, INC. FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON ___________, 1998 The undersigned stockholder of Cortech, Inc. ("Cortech"), a Delaware corporation, hereby acknowledges receipt of the Notice of Special Meeting of Stockholders and Joint Proxy Statement/Prospectus of Cortech and BioStar, Inc., each dated ____________ ___, 1998, and hereby appoints Kenneth R. Lynn proxy and attorney-in-fact, with full power of substitution, on behalf and in the name of the undersigned, to represent the undersigned at the Special Meeting of Stockholders of Cortech, to be held on _______________, 1998, at __:__ _.m. at ________________________________, and at any adjournments thereof, and to vote all shares of Common Stock that the undersigned would be entitled to vote if then and there personally present, on the matters set forth on the reverse side hereof. UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH. THE BOARD OF DIRECTORS AND MANAGEMENT OF CORTECH RECOMMEND A VOTE FOR PROPOSALS 1 AND 2. PROPOSAL 1: To (i) adopt and approve the Agreement and Plan of Merger and Reorganization, dated as of December 22, 1997, among Cortech, BioStar, Inc. (?BioStar?), a Delaware corporation, and Cortech Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Cortech (?Merger Sub?), and (ii) approve the merger of Merger Sub with and into BioStar pursuant to which BioStar will become a wholly-owned subsidiary of Cortech and the issuance of shares of Cortech Common Stock to the BioStar stockholders. FOR [ ] AGAINST [ ] ABSTAIN [ ] PROPOSAL 2: To adopt and approve an Amendment to the Certificate of Incorporation of Cortech which provides for (a) a change in the corporate name of Cortech to "BioStar Holdings, Inc." and (b) a one-for-____ reverse stock split of shares of Cortech Common Stock. FOR [ ] AGAINST [ ] ABSTAIN [ ] (Continued and to be signed on the other side) 1. 2 (Continued from other side.) Dated , 1998 ----------------------- Signature(s) ------------------------- Please sign exactly as your name appears hereon. If the stock is registered in the names of two or more persons, each should sign. Executors, administrators, trustees, guardians and attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate name and have a duly authorized officer sign, stating title. If signer is a partnership, please sign in partnership name by authorized person. PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES. EX-99.2 46 PROXY CARD OF BIOSTAR, INC. 1 EXHIBIT 99.2 PROXY BIOSTAR, INC. PROXY 6655 LOOKOUT ROAD, BOULDER, CO 80301-3371 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BIOSTAR, INC. FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON ___________, 1998 The undersigned stockholder of BioStar, Inc. ("BioStar"), a Delaware corporation, hereby acknowledges receipt of the Notice of Special Meeting of Stockholders and Joint Proxy Statement/Prospectus of Cortech, Inc., a Delaware corporation ("Cortech") and BioStar, each dated ____________ ___, 1998, and hereby appoints Teresa W. Ayers and Edward C. Pritchard, and each of them, proxies and attorneys-in-fact, with full power to each of substitution, on behalf and in the name of the undersigned, to represent the undersigned at the Special Meeting of Stockholders of BioStar, to be held on _______________, 1998, at __:__ _.m. at ________________________________, and at any adjournments thereof, and to vote all shares of preferred stock and/or common stock that the undersigned would be entitled to vote if then and there personally present, on the matters set forth on the reverse side hereof. UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH. THE BOARD OF DIRECTORS AND MANAGEMENT OF BIOSTAR RECOMMEND A VOTE FOR PROPOSALS 1 AND 2. PROPOSAL 1: To (i) adopt and approve the Agreement and Plan of Merger and Reorganization (the "Reorganization Agreement"), dated as of December 22, 1997, among BioStar, Cortech and Cortech Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Cortech ("Merger Sub"), and (ii) approve the merger of Merger Sub with and into BioStar pursuant to which BioStar will become a wholly-owned subsidiary of Cortech. FOR |_| AGAINST |_| ABSTAIN |_| PROPOSAL 2: To adopt and approve an amendment to the BioStar Restated Certificate of Incorporation which provides that the holders of BioStar preferred stock will only receive the consideration for their shares set forth in the Reorganization Agreement. FOR |_| AGAINST |_| ABSTAIN |_| (Continued and to be signed on the other side) 1. 2 (Continued from other side.) Dated , 1998 ------------------------- Signature(s) ------------------------- Please sign exactly as your name appears hereon. If the stock is registered in the names of two or more persons, each should sign. Executors, administrators, trustees, guardians and attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate name and have a duly authorized officer sign, stating title. If signer is a partnership, please sign in partnership name by authorized person. PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES. 2. -----END PRIVACY-ENHANCED MESSAGE-----