On March 24, 2000, the Company completed a public offering of 2,565,000 shares of Class A Common Stock. The Company received proceeds of $84,388,000 before expenses of $637,000 and recorded an increase in stockholders’ equity of $83,751,000.

     On August 4, 1999, the Company completed an initial public offering (IPO) of 3,500,000 shares of Class A Common Stock. The Company received proceeds of $39,060,000 before expenses of $1,358,000 and recorded an increase in stockholders’ equity of $37,702,000.

     On December 23, 1998, the Company sold 1,489,498 units at $12.00 per unit, each consisting of one share of Series D Preferred Stock plus a warrant to purchase 1/15th of a share of Class A Common Stock. In connection with the issuance of the Series D shares, warrants were issued to the placement agents to purchase 30,667 shares of Class A Common Stock and warrants were issued to the holders of the Series B and Series C Convertible Preferred Stock to purchase 1/15th of a share of Class A Common Stock for each share of Series B and Series C Convertible Preferred Stock held by them. Warrants issued to the placement agents and the preferred stockholders have an exercise price of $18.00 and $12.00 per share, respectively. Warrants issued to the placement agents and the preferred stockholders expire three years and four years, respectively, from the date of the IPO. Net cash proceeds, after deducting approximately $930,000 in commissions and expenses associated with the offering, were $16,946,000. Subsequent to May 1, 1999, an additional 397,250 units of Series D Convertible Preferred Stock were sold with aggregate net proceeds of $4,700,000.

     Each share of Series D Convertible Preferred Stock was convertible into two-thirds of a share of Class A Common Stock or such greater ratio so that conversion resulted in a 35% annualized rate of return on the Series D original offering price of $12 per share.

     Upon closing of the IPO (see above), all shares of preferred stock converted into shares of Class A Common Stock giving effect to the two-for-three stock split. In accordance with the provisions of EITF 98-5, for those units sold after May 20, 1999, the Company treated any shares of Class A Common Stock issued upon conversion in excess of two-thirds of one share of Class A Common Stock for each share of Series D Convertible Preferred Stock as a dividend for accounting purposes. The Company recorded a dividend of $155,000 in the third quarter of 1999 for the 12,936 additional shares of Class A Common Stock issued. The holders of the Series B Convertible Preferred Stock received an additional 280,000 shares in the aggregate upon conversion and the holders of the Series C Convertible Preferred Stock received an additional 1,200,000 shares in the aggregate upon conversion. The fair market value of such additional shares was, for accounting purposes, treated as a dividend on such convertible preferred stock in the quarter in which the offering and conversion occurred. The Company recorded a dividend of $17,760,000 in the third quarter of 1999.

     The Class B Common Stock is authorized for issuance only to Pharmacia Corporation. The holder of Class B Common Stock is not entitled to vote or receive dividends. The Class B Common Stock is convertible into shares of Class A Common Stock according to a formula that is based upon a future fair market value of the Class A Common Stock and is dependent upon the Company achieving U.S. FDA approval for Hemopure. The number of shares of Class A Common Stock to be issued in exchange for the Class B Common Stock will be determined based upon an independent valuation of the Company, after FDA approval of the Company’s human oxygen therapeutic product, which valuation cannot exceed $3 billion. The valuation is then divided by 13,635,525 shares to arrive at a fair value per share of Class A Common Stock. Pharmacia’s total investment in the Company, $142.3 million, divided by such per share fair value of Class A Common Stock, results in the number of shares of Class A Common Stock Pharmacia will receive, limited to a maximum of 1,272,119 shares.

     In June 2001, Biopure entered into a $75,000,000 equity line stock purchase agreement with Societe Generale (“SG”). Under this agreement, Biopure has the option of selling Biopure Class A Common Stock to SG until June 2003, aggregating up to $75,000,000, subject to certain limitations. The primary limitation is a minimum trading price for our common stock of $13 per share, unless waived. The maximum size of each such sale may be up to $3,000,000 in a five-day draw down period or up to $4,500,000 if the average daily dollar trading volume of the Company’s Class A Common Stock increases above $7,500,000. The Company is under no obligation to draw down funds and had not drawn any funds under this agreement as of October 31, 2001. Also see Note 14 regarding subsequent events.

     At this time, the Company does not intend to pay dividends.

     In August 1990, the Company issued 1,606,000 shares of Class A Common Stock to certain employees, officers, consultants and directors for $1.35 per share, which was $4.05 per share less than the then fair market value, as determined by the Company’s Board of Directors, of $5.40 per share. This $4.05 per share market value differential is associated with a permanent nonlapse restriction on the value of the stock. The stock can be sold at the then-current fair market value less the permanent discount of $4.05 per share, adjusted for an annual interest factor. At May 1, 1999, the discount plus accrued interest per share was fixed at $7.92. 1,000,052 shares were outstanding with these restrictions at October 31, 2001.

     The Company recorded as contributed capital research and development costs incurred by Pharmacia Corporation on behalf of the Company. Upon conversion of the Class B Common Stock, the cumulative amount of contributed capital will be treated as consideration for the Class A Common Stock issued in the conversion.

     The Company has two active stock option plans, the 1998 Stock Option Plan (the 1998 Plan) and the 1999 Omnibus Securities and Incentive Plan (the 1999 Plan) under which key employees, directors and consultants may be granted options to purchase Class A Common Stock at a price determined by the Board of Directors at the date of grant. Under these plans and a previous plan, a majority of the options become exercisable on a pro rata basis over a four-year period and expire ten years from date of grant.

     Presented below is a summary of transactions under the stock option plans during 2001, 2000 and 1999:

		Year Ended October 31,
		2001								2000								1999
						Weighted-								Weighted-								Weighted-
						Average								Average								Average
						Exercise								Exercise								Exercise
		Shares				Price				Shares				Price				Shares				Price
Options outstanding at beginning of year			2,179,600			$	14.98				1,945,161			$	13.84				546,634			$	18.54
Granted			87,500				17.46				435,200				18.94				1,558,687				12.00
Exercised			(162,715	)			12.52				(34,816	)			11.90				(17,117	)			5.19
Forfeited			(24,847	)			14.30				(165,945	)			12.65				(143,043	)			12.48
Options outstanding at end of year			2,079,538			$	15.28				2,179,600			$	14.98				1,945,161			$	13.84
Options exercisable			1,352,406								748,000								192,680

     The following table summarizes information about options outstanding at October 31, 2001:

		Options Outstanding												Options Exercisable
						Weighted Average				Weighted-								Weighted-
						Remaining				Average								Average
						Contractual Life				Exercise								Exercise
Exercise Price		Shares				(Yrs.)				Price				Shares				Price
$ 5.40-$11.81			103,333				8.5			$	10.76				53,333			$	10.59
$12.00-$13.50			1,126,252				7.8				12.01				813,041				12.01
$16.69-$22.50			769,953				7.1				18.93				473,532				19.26
$26.10-$35.69			80,000				8.8				32.09				12,500				35.69
			2,079,538				7.6			$	15.28				1,352,406			$	14.72

     During 1998, the Company’s 1988 Stock Option Plan expired. In March 1998, the Board of Directors approved the adoption of the 1998 Plan to provide for the granting of options for up to 98,293 shares of Class A Common Stock, the number of shares remaining in the expired 1988 plan. Options outstanding under the Company’s 1988 plan forfeited in future periods will be available for grant under the new plan.

     In June 1999, the Company established the 1999 Plan, which provides for the granting of incentive stock options, non-qualified stock options, restricted stock awards, deferred stock awards, unrestricted stock awards, performance share awards, distribution equivalent rights, or any combination of the foregoing to key management, employees and directors. The maximum number of shares of Class A Common Stock reserved for issuance under the 1999 Plan is 1,866,666.

     At October 31, 2001, there were 185,408 shares available for future grants under stock option plans.

     One of the Company’s vendors was granted options to acquire 88,000 shares of Class A Common Stock in exchange for certain land and real property lease and license rights. In June 2001, the vendor exercised its option to acquire 80,000 shares of Class A Common Stock. The Company issued 80,000 shares for consideration consisting of land and real property lease and license rights valued at $1,004,500, $262,000 of which was recorded as land and $742,500 was recorded as other assets.

     In connection with the sale of Series C Convertible Preferred Stock in November 1997, the Company issued to the placement agent warrants to purchase 66,667 shares of Common Stock at a price per share equal to $12.00, adjusted for certain events. The warrants expire on August 4, 2002. At October 31, 2001, 2,388 of these warrants were outstanding.

     During fiscal 2001, Biopure granted to two external third parties 400,000 warrants at an exercise price of $19.30 per share and 350,000 warrants with an exercise price of $35.00 per share. Both warrants vested in April 2001 and expire three years from the date of grant. The Company recorded $4,174,500 as a one-time compensation expense in April 2001. The weighted-average fair value per warrant was $5.57. In November 1999, the Company granted 25,000 warrants to consultants at an exercise price of $12.00 per share. The warrants vested immediately and expire five years from the date of grant. The related compensation expense was recorded on the grant date and was not significant. At October 31, 2001, all such warrants were outstanding.

     The Company has adopted the disclosure provisions only of SFAS No. 123. The fair value of options and warrants granted was estimated at the date of grant using the Black-Scholes option pricing model for 2001, 2000 and 1999, with the following assumptions: risk-free interest rates ranging from 4.29% to 6.32%; dividend yield of 0% and an expected life between one and seven years. For 2001, 2000 and 1999 a volatility factor of the expected market price of the Company’s Common Stock of .80 was used. If the compensation cost for options and warrants granted had been determined based on the fair value of the options and warrants at the date of grant, the SFAS No. 123 pro forma net loss applicable to common stockholders for 2001, 2000, and 1999 would have been $53,692,000, $38,901,000 and $55,854,000, respectively.

     The SFAS No. 123 pro forma net loss per share for 2001, 2000 and 1999 would have been $(2.14), $(1.62)and $(3.77), respectively. Compensation expense under SFAS No. 123 for 2001, 2000 and 1999 is not representative of future expense, as it includes only four, three and two years of grants, respectively. In future years, the effect of determining compensation cost using the fair value method will include additional vesting and associated expense.

     The weighted-average fair value per option and warrant of options and warrants granted during 2001, 2000 and 1999 was $7.73, $13.89 and $6.50, respectively.

     At October 31, 2001, there were 4,969,495 shares of Class A Common Stock reserved for issuance under the stock option plans, stock option agreements and warrants and upon conversion of Class B Common Stock.

     Each holder of Class A Common Stock has a preferred stock purchase right for each share owned. The rights entitle the holders to acquire preferred stock following an acquisition of more than 20% by any person or group, if the board of directors does not redeem the rights. If the rights were not redeemed, their exercise would cause substantial dilution to the acquiring person or group.